ED Reinforces Annual Audit Rules
By Joan Berkes, Policy & Federal Relations Staff
Recent confusion regarding the applicability of the Single Audit Act to the annual audit requirement under the Higher Education Act (HEA), as reflected in section 668.23 of the general provisions regulations, prompted the Department of Education (ED) to issue an Electronic Announcement (EA) on August 5. Schools that are currently undergoing a Single Audit must, in certain cases, contact their ED School Participation Division.
The EA fundamentally states that for the Federal Student Aid (FSA) programs, financial and compliance audits are required annually, without exception. An audit conducted under the Single Audit Act, applicable to public and private nonprofit institutions with total federally funded expenditures of $750,000 or more in a fiscal year, can be used to satisfy the FSA audit requirement for the year the programs were audited. However, changes to Single Audit Act rules published in December 2013, effective in 2014, permit a Single Audit to be conducted only every three years if certain conditions are met. ED maintains that institutions covered by the Single Audit Act are not thereby excused from submitting audits of the FSA programs every year, including years not encompassed by a Single Audit.
Further, under Single Audit Act regulations, the Title IV student assistance programs need not be audited if they do not meet a “high-risk” threshold. The EA explains that “a low risk program exists when it had been audited as a major program [related to total dollar amount] in at least one of the two most recent audit periods and the program did not have any ‘internal control deficiencies which were identified as material weaknesses.’”
The issue identified by the EA, and debated within the higher education community, is whether the annual compliance audit required by the HEA can be considered satisfied by submission of a Single Audit that does not cover the FSA programs because they were deemed low risk. ED concludes that “a submission prepared under the Single Audit Act requirements that does not include a compliance audit does not meet the HEA audit requirement.”
The HEA used to require audits every two years, but was amended in 1992 to require annual audits. It has long allowed Single Audits to satisfy Title IV requirements “for the period covered by such audit.” The HEA further requires that each audit cover the period since the most recent audit. Single Audits conducted every three years do not cover the entire three-year period, just the most recent year.
Given the confusion generated by this divergence in the HEA and the Single Audit Act, ED is preparing more explicit guidance to be included in its 2017 Compliance Supplement. NASFAA’s understanding is that for school fiscal years beginning after June 30, 2016, ED expects an annual audit submission that encompasses the Title IV FSA programs, whether or not the institution can in general be audited under the Single Audit Act.
For audits of school fiscal years ending on or before June 30, 2016, ED will accept Single Audit submissions that were prepared under the rules in effect prior to the 2014 changes. The EA directs schools that have engaged a Single Audit under the new OMB guidance issued in December 2013, with a determination that the Title IV programs were low risk, to contact their respective School Participation Division.
Publication Date: 8/30/2016
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