Sneak Preview: 2018 Yellow Book Will Not Require Review on Waste

July 13, 2018 | By Jerry Ashworth | Post a Comment

xsass_bookshot(The following was excerpted from a recent article in the Single Audit Information Service.) A partner with KPMG LLP and member of the Government Auditing Standards (GAGAS) advisory council recently explained why a requirement for auditors to assess waste and abuse was removed from the 2018 final revision of GAGAS, which the Government Accountability Office (GAO) expects to release soon. KPMG’s Mandy Nelson told attendees at the American Institute of Certified Public Accountants’ (AICPA) annual Not-for-Profit Conference at National Harbor, Md., that fraud, waste and abuse of federal funding is a growing concern.

Emphasizing this point, the Office of Management and Budget’s (OMB) uniform guidance in §200.513(c)(4) requires federal agencies to work with OMB to “ensure that the annual Compliance Supplement focuses the auditor to test the compliance requirements most likely to cause improper payments, fraud, waste, abuse or generate audit finding for which the federal awarding agency will take sanctions.”

As part of the plan to revise the 2011 version of GAGAS, otherwise known as the Yellow Book, GAO issued an exposure draft in April 2017 for public comment. While the 2011 version discussed fraud and abuse in Yellow Book audits, GAO proposed language in Chapter 6.16 of the exposure draft to include waste. It stated that “as part of a GAGAS audit, if auditors become aware of waste or abuse that could be quantitatively or qualitatively material to the financial statements or other financial data significant to the audit objectives, auditors should perform audit procedures to ascertain the potential effect on the financial statements or other financial data significant to the audit objectives. Also, if auditors become aware of waste or abuse that could be significant to the entity’s operations, they should consider the potential effect on the entity’s operations.”

However, GAO officials told the advisory council that it received many comments urging it to eliminate this requirement because it was not related to a financial audit, with some auditors explaining that auditors could have differing opinions as to whether a particular matter constitutes waste or abuse. In response, GAO officials amended the draft to eliminate the auditor reporting requirements related to waste and abuse, but expanded information in the application guidance included in the Yellow Book to highlight that internal control deficiencies could result in waste or abuse.

“There is no more responsibility for reporting neither waste nor abuse,” Nelson said. “If you think about the types of things you could have as findings under the Yellow Book, GAO found that this was so judgmental and outside the federal [inspector general] community, and it wasn’t something that would work very well. GAO did add application guidance for internal controls that has a definition of waste and a short discussion, but the main point is that internal controls should be developed sufficiently to promote financial compliance and prevent waste, fraud and abuse.”

Nelson and fellow panelist Kim McCormick, partner with Grant Thornton LLP and a member of the GAGAS advisory council, discussed some of the changes GAO planned to make to the final 2018 Yellow Book revision. These changes stemmed from a recent meeting that GAO officials had with the advisory council, and from the 1,700 individual comments received on the exposure draft.

(The full version of this story has now been made available to all for a limited time on Thompson’s Grants Compliance Expert site.)

As a reminder, we have all of our Federal Funding Training Forums scheduled for 2018. Please let me know if you have questions or can make any of these. We hope to see you there!

  • Wednesday July 25 – Friday July 27 in MINNEAPOLIS

http://www.federalgrantsforum.com/minneapolis/index.html?src=AT

  • Wednesday October 17 – Friday October 19 in ATLANTA

http://www.federalgrantsforum.com/atlanta/index.html?src=AT

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