Finding a Simple Name for New Compliance Supplement Requirement Proves Difficult

Jerry Ashworth
June 12, 2019 at 10:36:16 ET
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The Office of Management and Budget (OMB) hasn't even issued the 2019 Compliance Supplement yet, and auditors providing training on the proposed changes in a draft version of the supplement are already having trouble with it. Well, to be clear, they’re not having trouble discussing the proposed provisions in the draft supplement, but they are finding it difficult to come up with an easy, shorthand name to call a major change expected in this year’s version.

OMB plans to include a new requirement in which auditors would test a maximum of six of the Part 3 compliance requirements to determine whether they are direct and material to their client’s program or cluster — if the program or cluster is included in the supplement — rather than up to 12 requirements as required in previous years’ supplements. Although auditors would be testing fewer requirement, auditees, however, still must ensure that they comply with all 12 requirements.

During several sessions at the American Institute of Certified Public Accountants’ (AICPA) Not-for-Profit Conference this week in Washington, D.C., auditors and other consultants leading training to attendees discussed the intricacies of this new provision. Federal awarding agencies select which compliance requirements are most important for auditor testing for each program. As in past years’ supplements, under the 2019 draft, if the federal awarding agency denotes in the Part 2 matrix with a “Y” that a requirement is subject to audit, auditors must determine if that requirement is direct and material to the client’s program. Requirements listed as an "N" are not subject to audit. If the auditor determines that the requirement will not be tested because it is not direct and material, he or she would still have to document the rationale for not testing.

The question for the trainers leading these sessions was what to call this process of auditing only six requirements. Many trainers referred to it as the “Pick 6” requirement, but some we’re skittish about using that terminology, stating that it sounded like a lottery term. We also heard them call it the “6-requirement mandate.” Still, this moniker is not quite truly accurate.

For example, under the proposed 2019 supplement, two compliance requirements addressing “allowability” — “activities allowed and unallowed” and “allowable costs and cost principles” — would be considered as one requirement, therefore some programs may require the testing of five compliance requirements, plus these two, to be counted as the six to be tested. In addition, the draft supplement identifies that agencies may select seven compliance requirements for testing for programs within the research and development cluster.

Also as point to note, the maximum of six requirements tested, according to the draft, would only apply to the programs included within the supplement in the Part 2 matrix. For programs not included in the supplement, auditors would continue to use guidance in Part 7 of the supplement to identify the types of compliance requirements to test as direct and material to the client’s program, and as a result, may test more than six requirements.

Perhaps you have suggestion as to a better phrase that can be used to reference this new requirement to test a maximum of six compliance requirements. If so, we’d like to hear your responses in reply to this blog post at our ThompsonGrants sites on LinkedIn and Twitter. And don’t forget, we’ll be sure to let all our followers know as soon as the supplement is finalized.

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