PART THREE - Compliance Requirements
Activities Allowed or Unallowed |
Allowable Costs | Cash Management
| Eligibility |
Equipment and Real Property Management |
Matching | Period of Availability
of State Funds | Reporting
| Subrecipient Monitoring |
Special Tests and Provisions
The objectives of most compliance
requirements for state projects are generic in nature. For example, many
projects have eligibility requirements for individuals or organizations. While
the criteria for determining eligibility vary by project, the objective of the
compliance requirement that only eligible individuals or organizations
participate is consistent across all state projects.
Rather than repeat these compliance
requirements, audit objectives, and suggested audit procedures for each of the
projects contained in Part Four - State Project Compliance Requirements, they
are provided once in Part Three. For each project in the Compliance Supplement,
Part Four contains additional information about the compliance requirements
that arise from laws and rules applicable to each project, including
requirements specific to each project that should be tested using the guidance
in Part Three.
Auditors shall consider the
compliance requirements and related audit objectives in Parts Three and Four in
every audit of nonstate entities required by the Florida Single Audit Act. In
making a determination not to test a compliance requirement, the auditor must
conclude that the requirement either does not apply to the particular nonstate
entity, or that noncompliance with the requirement could not have a material
effect on a major project. The descriptions of compliance requirements in Parts
Three and Four are generally summaries of the actual compliance requirements.
The auditor should refer to the referenced laws and rules for complete
compliance requirements.
The suggested audit procedures are
provided to assist auditors in planning and performing tests of nonstate entity
compliance with the requirements of state projects. Auditor judgment will be
necessary to determine whether the suggested audit procedures are sufficient to
achieve the stated audit objective and whether additional or alternative audit
procedures are needed.
Because of the diversity of systems
in place among nonstate entities, Part Three does not include suggested audit
procedures to test internal control. The auditor must determine appropriate
procedures to test internal control on a case-by-case basis considering factors
such as the nonstate entity's internal control, the compliance requirements,
the audit objectives for compliance, the auditor's assessment of control risk,
and the audit requirement to test internal controls as prescribed in Section
215.97(8), Florida Statutes. However, Part Five - Internal Controls, provides
the objectives of internal controls and certain characteristics of internal
control that, when present and operating effectively, may ensure compliance
with the requirements enumerated in Parts Three and Four.
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A. Activities Allowed or Unallowed
Compliance Requirements
This compliance requirement
specifies the activities that can or cannot be funded under a specific project.
The specific requirements for activities allowed or disallowed are unique to
each state project and are found in the laws, rules, and the provisions of
contracts or grant agreements. For projects listed in the Compliance
Supplement, these specific requirements are in Part Four.
Audit Objectives
Determine whether state financial assistance was expended only for allowable activities.
Suggested Audit Procedures
-
Identify the types of activities that are either specifically allowed or
prohibited by the laws, rules, and the provisions of contracts or grant
agreements pertaining to the project.
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When allowability is determined based upon summary level data, perform
procedures to verify that:
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Activities were allowable.
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Individual transactions were properly classified and accumulated into the
activity total.
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When allowability is determined based upon individual transactions, select a
sample of transactions and perform procedures to verify that the transaction
was for an allowable activity.
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The auditor should be alert for transfers of funds from project accounts that
may have been used to fund unallowable activities.
B. Allowable Costs
Compliance Requirements
Entities are prohibited from using
grant funds for lobbying the legislature. (Section 216.347, Florida Statutes).
Also, restrictions of expenditures are summarized in the Reference Guide for
State Expenditures of the Department of Financial Services. Other specific
requirements for allowable costs are unique to each state project and are found
in the laws, rules, and the provisions of contracts or grant agreements
pertaining to the project. For projects listed in the Compliance Supplement,
these specific requirements are in Part Four.
Audit Objectives
Determine whether expenditures of
state financial assistance were for allowable costs.
Suggested Audit Procedures
-
Identify the types of costs that are either specifically allowed or prohibited
by the laws, rules, and provisions of contracts or grant agreements pertaining
to the project.
-
Select a sample of transactions and perform procedures to verify that the
transactions were for an allowable cost and not for lobbying the legislature or
other prohibited uses.
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C. Cash Management
Compliance Requirements
State agencies which are expressly
authorized by law to make advances for project startup or contracted services
in total or periodically, shall limit such advances to other governmental
entities and nonprofit entities. The amount to be advanced may not exceed the
expected cash needs of the recipient within the initial 3 months. Thereafter
disbursements are to be made only on a reimbursement basis. The Chief Financial
Officer, after consultation with the appropriations committee, may advance
funds beyond a 3-month requirement if it is determined to be consistent with
the intent of the approved operating budget. Any agreement that provides for
advances may contain a clause that permits the recipient to temporarily invest
the proceeds, provided that any interest income either be returned to the
agency or applied against the agency's obligation to the pay the contract
amount. (Section 216.181, Florida Statutes) Specific cash management
requirements unique to a state project may be found in the laws, rules, and the
provisions of contracts or grant agreements pertaining to the project. For
projects listed in the Compliance Supplement, these specific requirements are
in Part Four.
Audit Objectives
-
Determine that cash management procedures are in accordance with Section
216.181, Florida Statutes, and other laws, rules, and the provisions of
contracts or grant agreements pertaining to the state project.
-
Determine that interest income, when allowable, is correctly recorded and
returned to the state agency or applied against the contract or grant
agreement.
Suggested Audit Procedures
-
Review reimbursement requests and trace to supporting documentation. Ensure
that costs for which reimbursement was requested were paid prior to the date of
the reimbursement request.
-
Determine whether any interest income was owed to the state agency and either
remitted to the agency or applied against amounts owed by the state agency.
D. Eligibility
Compliance Requirements
This compliance requirement
specifies the criteria for determining the beneficiaries (individuals or groups
of individuals), or the subrecipients that can participate in the project and
the amounts for which they qualify. The specific requirements for eligibility
are unique to each state project and are found in the laws, rules, and the
provisions of contracts or grant agreements pertaining to the project. For
projects listed in the Compliance Supplement, these specific requirements are
in Part Four.
Audit Objectives
-
Determine whether required eligibility determinations were made and that only
eligible beneficiaries (individuals or groups of individuals), participated in
the project.
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Determine that subawards were made only to eligible subrecipients.
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Determine that amounts provided to, or on behalf of, eligible beneficiaries and
subrecipients were calculated in accordance with project requirements.
Suggested Audit Procedures
-
Eligibility for Beneficiaries:
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For state projects with large numbers of people receiving benefits, the
nonstate entity may use a computer system for processing individual eligibility
determinations and delivery of benefits. In such cases the auditor should
perform audit procedures relative to any computer systems used for determining
eligibility as may be necessary to support the opinion on compliance.
-
Perform audit procedures to ascertain if the nonstate entity's records/database
includes all individuals or groups of individuals receiving benefits during the
audit period.
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Perform tests to determine whether: the nonstate entity performed the required
eligibility determination and the individual or group of individuals was
determined to be eligible; benefits were calculated correctly and in compliance
with requirements of the project; and benefits were discontinued when the
period of eligibility ended.
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Eligibility for subrecipients
-
If the determination of eligibility is based upon an approved application or
plan, obtain a copy of this document and identify the applicable eligibility
requirements.
-
Select a sample of the awards to subrecipients and perform procedures to verify
that the subrecipients were eligible and amounts awarded were within funding
limits.
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E. Equipment and Real Property
Management
Compliance Requirements
This requirement specifies the use,
management, and disposition of equipment and real property acquired with state
financial assistance.
If compliance with Section 216.348,
Florida Statutes, is required by the appropriations bill, the nonprofit entity
must execute a written agreement with the state agency pursuant to the
following:
The nonprofit entity that acquires real property with the grant, or that owns
real property upon which an improvement is being constructed, renovated,
altered, modified, or maintained with the grant, must execute, deliver and
record in the county in which the subject property is located an agreement that
prohibits the nonprofit entity from selling, transferring, mortgaging, or
assigning its interest in the real property during the term of the agreement
unless approved by the state agency.
For the nonprofit entity that does not acquire real property or does not own
the real property being improved, the agreement shall prohibit the nonprofit
entity from selling, transferring, mortgaging, or assigning its interest in the
leasehold, improvements, renovations, or personality, unless approved by the
agency. Additionally, the nonprofit entity shall execute and deliver a security
instrument, financing statement, or other appropriate document securing the
interest of the state agency.
All agreements must require the nonprofit entity to continue the operation,
maintenance, repair and administration of the property in accordance with the
purposes for which the funds were originally appropriated and for the period of
time expressly specified by the bill appropriating the grant or, failing to do
so, the nonprofit entity must return to the state agency grant funds as
specified by law.
All agreements must require that the nonprofit entity adopt an accounting
system in compliance with generally accepted accounting principles, which shall
provide for a complete record of the use of the grant money.
All agreements must require the nonprofit entity to purchase and maintain
insurance on behalf of the directors, officers, and employees of the nonprofit
entity against any personal liability or accountability by reason of actions
taken while acting within the scope of their authority.
All agreements must require the nonprofit entity to return any portion of the
grant money received that is not necessary to the purchase of the land, or to
the cost of the improvements, renovations, and personality, for which the grant
was awarded.
The state agency may require that the nonprofit entity obtain a blanket
fidelity bond, in the amount of the grant, which will reimburse the agency in
the event that anyone handling the grant money either misappropriates or
absconds with the grant moneys.
(Section 216.348, Florida Statutes)
Other requirements for equipment
and real property management are unique to each state project and are found in
the laws, rules, and the provisions of contracts or grant agreements pertaining
to the project. For projects listed in the Compliance Supplement, these
specific requirements are in Part Four.
Audit Objectives
-
Determine whether the nonstate entity maintains proper records for equipment
and adequately safeguards and maintains equipment.
-
Determine whether disposition of any equipment or real property acquired under
state awards is in accordance with laws, rules, and the provisions of contracts
and grant agreements.
-
Determine whether the nonprofit entity receiving grant funds was subject to and
complied with the requirements of Section 216.348, Florida Statutes.
Suggested Audit Procedures
-
Determine the population of equipment and real property acquisitions made with
the state financial assistance.
-
Review any physical inventory records and determine whether any differences
between physical inventory and equipment records were resolved. Physically
inspect a sample of equipment identified as acquired with state financial
assistance.
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Select a sample of equipment transactions and test for compliance with laws,
rules, and the provisions of contracts or grant agreements.
-
Determine whether the nonstate entity disposed of equipment or real property
acquired with state financial assistance in accordance with laws, rule, and
provisions of contracts or grant agreements pertaining to the project.
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For a nonprofit entity subject to Section 216.348, Florida Statutes, determine
the following:
-
That the nonprofit entity that acquired real property with the grant, or that
owned real property upon which an improvement was being constructed, renovated,
altered, modified, or maintained with the grant, executed, delivered and
recorded in the county in which the subject property was located an agreement
that prohibited the nonprofit entity from selling, transferring, mortgaging, or
assigning its interest in the real property during the term of the agreement
unless approved by the agency.
-
That the nonprofit entity that did not acquire real property or did not own the
real property being improved, executed and delivered a security instrument,
financing statement, or other appropriate document securing the interest of the
state agency. (Refer to Chapter 679, Florida Statutes, Uniform Commercial Code
regarding the filing and perfecting of a security instrument.)
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That the nonprofit entity continued the operation, maintenance, repair and
administration of the property in accordance with the purposes for which the
funds were originally appropriated and for the period of time expressly
specified by the bill appropriating the grant or, if failing to do so, returned
to the state agency grant funds as specified by law.
-
That the nonprofit entity adopted an accounting system in compliance with
generally accepted accounting principles, which provided for a complete record
of the use of the grant money.
-
That the nonprofit entity purchased and maintained insurance on behalf of the
directors, officers, and employees of the nonprofit entity against any personal
liability or accountability by reason of actions taken while acting within the
scope of their authority.
-
That the nonprofit entity returned any portion of the grant money received that
was not necessary to the purchase of the land, or to the cost of the
improvements, renovations, and personality, for which the grant was awarded.
-
That, if required by the state agency, the nonprofit entity obtained a blanket
fidelity bond, in the amount of the grant.
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That the nonprofit entity complied with any other requirements specified by the
state agency in the agreement.
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F. Matching
Compliance Requirements
This requirement specifies the
acceptable contributions of a stated amount or percentage to match state
awards. Matching may be in the form of allowable costs incurred or in-kind
contributions. The specific requirements for matching are unique to each state
project and are found in the laws, rules, and the provisions of contracts or
grant agreements pertaining to the project. For projects listed in the
Compliance Supplement, these specific requirements are in Part Four.
Audit Objectives
Determine whether the minimum
amount or percentage of contributions or matching funds was provided.
Suggested Audit Procedures
-
Perform tests to verify that the required matching contributions were met.
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Ascertain the sources of matching contributions and perform tests to verify
that they were from an allowable source.
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Test records to corroborate that the values placed on in-kind contributions are
in accordance with laws, rules, and provisions of the contract or grant
agreement pertaining to the project.
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G. Period of Availability of State Funds
Compliance Requirements
This requirement specifies the time
period during which the nonstate entity may use the state financial assistance.
The specific requirements for the availability of funds are unique to each
state project and are found in the laws, rules, and the provisions of contracts
or grant agreements pertaining to the project. For projects listed in the
Compliance Supplement, these specific requirements are in Part Four.
Audit Objectives
Determine whether state funds were
obligated within the period of availability and obligations were liquidated
within the required time period.
Suggested Audit Procedures
-
Review laws, rules, and contracts or grant documents pertaining to the project,
determine any award-specific requirements related to the period of
availability, and document the availability period.
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Test a sample of transactions that were charged to the state project after the
end of the period of availability and verify that the underlying obligations
occurred within the period of availability.
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Test a sample of transactions that were charged to the state project during the
period of availability and verify that the underlying obligations occurred
within the period of availability.
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H. Reporting
Compliance Requirements
This requirement specifies the
type(s) of financial, performance, and special reporting to be prepared by the
nonstate entity as a result of receiving state financial assistance. The
specific requirements for reporting are unique to each state project and are
found in the laws, rules, and the provisions of contracts or grant agreements
pertaining to the project. For projects listed in the Compliance Supplement,
these specific requirements are in Part Four.
Audit Objectives
Determine whether required reports
include all activity of the reporting period, are supported by applicable
accounting or performance records, and are fairly presented in accordance with
project requirements.
Suggested Audit Procedures
-
Review award documents and rules pertaining to the project and determine any
award-specific reporting requirements.
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Perform analytical procedures on reported amounts, ascertaining the reason for
any unexpected differences.
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Select a sample of reports and test specified line items for accuracy and
completeness.
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I. Subrecipient Monitoring
Compliance Requirements
Nonstate entities that provide
state financial assistance to a subrecipient shall: provide to a subrecipient
information needed by the subrecipient to comply with the requirements of the
Florida Single Audit Act; review subrecipient audit reports, including
management letters, to the extent necessary to determine whether timely and
appropriate corrective action has been taken; perform such other procedures as
specified in the terms and conditions of the written agreement with the state
agency including any required monitoring of the subrecipient's use of state
financial assistance through site visits, limited scope audits, or other
specified procedures; and require that the subrecipient provide access to its
records to the nonstate entity's independent auditor, the state awarding
agency, the Chief Financial Officer, and the Auditor General. (Section 215.97,
Florida Statutes) For projects listed in the Compliance Supplement,
other requirements are provided in Part Four.
Audit Objectives
-
Determine whether award information and compliance requirements were identified
in award documents to subrecipients.
-
Determine whether the nonstate entity identified all applicable subrecipient
audits and monitored the receipt thereof.
-
Determine whether subrecipient audits, including management letters, were
reviewed.
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Determine whether specific requirements regarding subrecipients addressed in
the recipient's agreement with the state agency, including any required
monitoring of the subrecipient's use of state financial assistance through site
visits, limited scope audits, or other specified procedures, were met.
-
Determine whether subrecipient agreements required that access to records be
provided as required by law.
Suggested Audit Procedures
-
Review award documents to ascertain if the nonstate entity made subrecipients
aware of information and requirements, including the required access to
records.
-
Verify that the nonstate entity had a system in place to monitor the receipt of
audit reports from subrecipients required to have a state single audit,
including follow-up procedures when required audits were not made or were made
but not in accordance with Section 215.97, Florida Statutes.
-
Verify that the nonstate entity reviewed subrecipient audits, including
management letters, to determine whether timely and appropriate corrective
action was taken with respect to audit findings and recommendations pertaining
to the state financial assistance provided.
-
Determine whether other procedures specified in the terms and conditions of the
written agreement with the state agency, including any required monitoring
through on-site visits, limited scope audits, or other procedures, have been
performed.
J. Special Tests and Provisions
Compliance Requirements
The specific requirements for
Special Tests and Provisions are unique to each state project and are found in
the laws, regulations, and the provisions of contracts or grant agreements
pertaining to the project. For projects listed in the Supplement, the
compliance requirements, audit objectives, and suggested audit procedures for
Special Tests and Provisions are in Part Four, State Projects Compliance
Requirements. For projects not listed in this supplement, the auditor shall
review referenced laws, rules, and the project's contracts or grant agreements
to identify the compliance requirements and develop the audit objectives and
audit procedures for Special Test and Provisions which could have a direct and
material effect on a major project. The auditor should also inquire of the
nonstate entity to help identify and understand any Special Tests and
Provisions.
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