Audit, internal accounting, requirements general accepted government auditing standards (GAGAS)

8.4.3 Audit

An audit is a systematic review or appraisal made to determine whether internal accounting and other control systems provide reasonable assurance of the following:

  • Financial operations are properly conducted.
  • Financial reports are timely, fair, and accurately.
  • The entity has complied with applicable laws, regulations, and other grant terms.
  • Resources are managed and used economically and efficiently.
  • Desired results and objectives are being achieved effectively.

NIH recipients (other than Federal institutions) are subject to audit requirements as specified in the NIHGPS or elsewhere in regulation. In general, a State government, local government, or non-profit organization (including institutions of higher education) that expends $750,000 or more per year under Federal grants, cooperative agreements, and/or procurement contracts are required to have an annual audit by a public accountant or a Federal, State, or local governmental audit organization. The audit must meet the standards specified in generally accepted government auditing standards (GAGAS). The audit requirements for foreign recipients and for-profit recipients are addressed in the chapters of this NIHGPS that provide specific requirements for those types of recipients.

As specified in the NoANotice of Award: The official, legally binding document, signed (or the electronic equivalent of signature) by a Grants Management Officer that: (1) notifies the recipient of the award of a grant; (2) contains or references all the terms and conditions of the grant and Federal funding limits and obligations; and, (3) provides the documentary basis for recording the obligation of Federal funds in the NIH accounting system., all awards issued by NIH meet the definition of "Research and Development". As such, NIH grant awards are subject to the R&D cluster of program requirements in the compliance supplement. NIH recognizes that some awards may have another classification for purposes of indirect costsNecessary costs incurred by a recipient for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of F&A (indirect) costs. F&A (indirect) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived.. The auditor is not required to report the disconnect (i.e., the award is classified as R&D for Federal Audit Requirement purposes but non-research for indirect costNecessary costs incurred by a recipient for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of F&A (indirect) costs. F&A (indirect) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived. rate purposes), unless the auditee is charging indirect costsNecessary costs incurred by a recipient for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of F&A (indirect) costs. F&A (indirect) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived. at a rate other than the rate(s) specified in the award document(s).

Exhibit 10. Summary of Audit Requirements

Recipient Type Source of Audit Requirement Where to Submit Audit Reports
State & Local Governments HHS Assistance Agreements regulations

Federal Audit Clearinghouse

(See contact information in Part III)

Colleges & Universities (IHEs) HHS Assistance Agreements regulations

Federal Audit Clearinghouse

(See contact information in Part III)

Non-Profits HHS Assistance Agreements regulations

Federal Audit Clearinghouse

(See contact information in Part III)

Hospitals HHS Assistance Agreements regulations

Federal Audit Clearinghouse

(See contact information in Part III)

For-Profits HHS Assistance Agreements regulations

Audit Resolution Division

(See contact information in Part III)

Foreign NIH Grants Policy Statement (same as For-Profits) Audit Resolution Division (same as For-Profits, see contact information in Part III)

 

When a recipient procures audit services, the procurement must comply with the procurement standards, as applicable, including obtaining competition and making positive efforts to use small businesses, minority-owned firms, and women's business enterprises. Recipients should ensure that comprehensive solicitations made available to interested firms include all audit requirements and specify the criteria to be used for selection of the firm. Recipients' written agreements with auditors must specify the rights and responsibilities of each party.

Audit Requirements explains in detail the scope, frequency, and other aspects of the audit. Some highlights of this regulation are as follows:

  • Covered organizations expending $750,000 or more per year in Federal awards are required to have an audit performed in accordance with the regulation. However, if the awards are under one program, the organization can have either a single organization-wide audit or a program-specific audit of the single program. Prior to electing a program-specific audit, the recipient must obtain written prior approvalWritten approval by an authorized HHS official, e.g., a designated IC GMO, evidencing prior consent before a recipient undertakes certain activities or incurs specific costs (see Administrative Requirements-Changes in Project and Budget-Prior Approval Requirements). from the NIH awarding ICThe NIH organizational component responsible for a particular grant program or set of activities. The terms "NIH IC," or "awarding IC" are used throughout this document to designate a point of contact for advice and interpretation of grant requirements and to establish the focal point for requesting necessary prior approvals or changes in the terms and conditions of award.. Covered organizations expending less than $750,000 in any year are exempt from these audit requirements in that year but must have their records available for review as required by Administrative Requirements-Monitoring-Record Retention and Access.
  • The reporting package must contain the following:
    • Financial statements and schedule of expenditures of Federal awards.
    • Independent auditor's report, including an opinion on the financial statements and the schedule of expenditures of Federal awards, a report on compliance and internal control over financial reporting, and a report on compliance with requirements applicable to each major program and on internal control over such compliance requirements.
    • A schedule of findings and questioned costs.
    • If applicable, a summary of prior audit findings and a corrective action plan.
  • An audit under the Audit Requirements is in lieu of a financial audit of individual Federal awards. However, Federal agencies may request additional audits necessary to carry out their responsibilities under Federal law or regulation. Any additional audits will build upon work performed by the independent auditor.
  • The data collection form (SF-SAC) and a copy of the Single Audit reporting package must be submitted electronically to the FAC at the address provided in Part III.
  • A senior level representative of the auditee (e.g., state controller, director of finance, chief executive officer, or chief financial officer) must sign a statement to be included as part of the data collection that says that the auditee complied with the requirements of this part, the data were prepared in accordance with this part (and the instructions accompanying the form), the reporting package does not include protected personally identifiable information, the information included in its entirety is accurate and complete, and that the FAC is authorized to make the reporting package and the form publicly available on a Web site. Exception: An auditee that is an Indian tribe or a tribal organization (as defined in the Indian Self- Determination, Education and Assistance Act (ISDEAA), 25 U.S.C. 450b(l)) may opt not to authorize the FAC to make the reporting package publicly available on a Web site, by excluding the authorization for the FAC publication. If this option is exercised, the auditee becomes responsible for submitting the reporting package directly to any pass-through entities through which it has received a Federal award and to pass-through entities for which the summary schedule of prior audit findings reported the status of any findings related to Federal awards that the pass-through entity provided. Unless restricted by Federal statute or regulation, if the auditee opts not to authorize publication, it must make copies of the reporting package available for public inspection.

If the schedule of findings and questioned costs discloses an audit finding related to an HHS or NIH award or if the schedule of prior audit findings reports the status of any audit finding relating to an HHS or NIH award, the FAC will provide copies of the audit report to NEARC, OIG, HHS. NEARC will, in turn, distribute them within HHS for further action, as necessary. Audit reports should not be sent directly to the GMO.

Recipients must follow a systematic method for ensuring timely and appropriate resolution of audit findings and recommendations, whether discovered as a result of a Federal audit or a recipient-initiated audit. Recipients usually are allowed 30 days from the date of request to respond to the responsible audit resolution official (Action Official) concerning audit findings. Failure to submit timely responses may result in cost disallowance or other actions by NIH or HHS. At the completion of the audit resolution process, the recipient will be notified of the Action Official's final decision. The recipient may appeal this decision if the adverse determination is of a type covered by the NIH or HHS grant appeals procedures (see Administrative Requirements-Grant Appeals Procedures). Refunds owed to the Federal government as a result of audit disallowances must be made in accordance with instructions issued by the Action Official or OFM.

It is imperative that recipients submit required audits within the time limits specified in the regulation. If recipients are delinquent in complying with the provisions of the regulation, NIH will take one or more actions that may result in the loss of Federal funds. No audit costs will be allowed either as F&A costsNecessary costs incurred by a recipient for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. To facilitate equitable distribution of indirect expenses to the cost objectives served, it may be necessary to establish a number of pools of F&A (indirect) costs. F&A (indirect) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived. or direct costsCosts that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. to Federal awards if the required audits have not been completed or have not been conducted in accordance with the regulations.

See Cost Considerations-Allowability of Costs/Activities-Selected Items of Cost for the allowability of audit costs.