In order to ensure that federal grant awards are handled in a fiscally responsible manner, the Office of Management and Budget (OMB) issued Circular A-133 and extended the audit requirements to all grantees, including for-profit Companies.
This means you – SBIR awardees!
Organizations with revenues that exceed $500,000 per year or more in federal funds (irrespective of amounts drawn) during their fiscal year must have an annual audit performed in accordance with OMB Circular A-133.
From the receipt of a Notice of Grant Award (NGA), policies and procedures that document direct and indirect grant expenditures will be tested to ensure that spending occurs in accordance with all applicable laws, rules, regulations, and terms and conditions governing your grant. The burden of proof rests with the grantee.
The level of accounting required by a small business subject to OMB A-133 is far greater than the acceptable accounting system needed for Phase 1 Grant and Contract awardees in several regards.
Some of the significant elements to be tested during the audit include:
1. Direct, indirect and unallowable costs should be properly identified and treated consistently. Costs which are clearly identifiable to a specific project should be treated as a direct expense. Costs which are common to a number of projects and cannot be clearly allocated to one project should be treated as an indirect expense.
2. All funds have been expended during the period of performance.
3. The generation of program income during the project has been credited to the government.
4. The grantee has properly managed cash and used the Payment Management System (PMS) correctly; and can demonstrate that funds have been drawn correctly as instructed on the quarterly filed form PSC 272.
5. The grantee has properly filed all Financial Status Reports (FSR).
6. Costs are consistently treated in accordance with the NIH Grants Policy Statement.
7. All sub recipients (subcontractors and consultants) have been properly monitored.
During the OMB A-133 audit, auditors will look for weaknesses in the grantee´s internal control system. Ultimately, all expenditures must be reasonable, prudent, allocable, and be of benefit to the government.
Each transaction should have a well-documented audit trail that includes authorization for expenditure, backup documentation and allocation of expenditure. Expenses on federal awards should be treated consistently with non-federal expenses.
The OMB A-133 audit must be performed by a CPA firm that has a solid understanding of the Federal Acquisition Regulation (FAR) and is well versed in the supplemental regulations issued by the specific funding agency awarding your project work. One of the top deficiencies found by the Office of Management and Budget is that companies are hiring CPAs who lack the specialty knowledge to handle their SBIR accounting and as a result are having their sub-standard audit reports rejected!
If you´d like a free pre-audit assessment to see how you would fare in an OMB A-133 audit please call our office at 781-862-5170.
Additionally, as a way to introduce our firm´s unique services, we are happy to provide the following free of charge:
1. provide benchmarking feedback on your indirect rate projection,
2. assist in the preparation of the financial portion of your government proposal,
3. negotiate your initial provisional indirect rate agreement
Edward G. Jameson, CPA
Understanding the Accounting System Requirements of an OMB A-133 Audit from NIH SBIR/STTR Grants
November 02, 2009