DFAS - FAQ

Non-Federal Audit Requirements for Commercial (For-Profit) Organizations

Questions
1. What are the HHS audit requirements for commercial (For-Profit) organizations?
2. Do non-federal audit requirements for commercial organizations apply only to HHS grants?
3. How do you define “expended”?
4. Are fixed price contracts included in threshold calculations?
5. Are pass through dollars (i.e., dollars not received directly from HHS) included in the threshold calculations?
6. What is expected if the Yellow Book option is selected?
7. What is the audit period?
8. How often is an audit required?
9. Who can perform the required audit? Can my internal auditor do it?
10. Who pays for the required audit?
11. What is the deadline for submission of the audit report(s)?
12. Do for-profit entities have to complete the data collection form?
13. Is the management letter to be submitted as part of the reporting package?
14. Where should audit reports on for-profit organizations be submitted?
15. Are there any requirements for awardees not meeting the threshold?
16. Who can I contact if I have a technical question on how to conduct the audit?
 
Answers
1. What are the HHS audit requirements for commercial (For-Profit) organizations?
The Department of Health and Human Services (HHS) has specified requirements for non-Federal audits of for-profit (commercial) organizations in HHS' Title 45, Code of Federal Regulations (CFR), Part 74.26 , "Non-Federal Audits." Per the regulations, a for-profit (commercial) organization is subject to audit requirements for a non-Federal audit if, during its fiscal year, it expended $500,000* or more under HHS awards and at least one award is a HHS grant or subgrant. Title 45 CFR Part 74.26 essentially incorporates the thresholds and deadlines of Office of Management and Budget (OMB) Circular No. A-133, "Audits of States, Local Governments and Non-Profit Organizations," but provides for-profit organizations with two options regarding the type of audit that will satisfy the audit requirements either:
  1. a financial related audit (as defined in the Government Auditing Standards, GPO Stock #020-000-00-265-4, http://www.gao.gov/govaud/ybk01.htm) of the HHS awards in accordance with Government Auditing Standards, or
  2. an audit that meets the requirements contained in OMB Circular No. A-133 ( http://www.whitehouse.gov/sites/default/files/omb/assets/a133/a133_revised_2007.pdf)

    [* Note: The threshold was $300,000 for audits of fiscal years ending before January 1, 2004.]

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2. Do non-federal audit requirements for commercial organizations apply only to HHS grants?
No. Per the regulations, a commercial organization is subject to audit requirements for a non-federal audit if, during its fiscal year, it expended $500,000* or more under HHS awards and at least one award is an HHS grant or subgrant. Therefore, the organization must have one grant or subgrant in order to be required to obtain a non-federal audit, but other HHS awards are included in the threshold calculations and the scope of the audit.  (See threshold calculation examples.) [* Note: The threshold was $300,000 for audits of fiscal years ending before January 1, 2004.]
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3. How do you define “expended”?
The determination of when an award is expended should be based on when the activity related to the award occurs. Generally, the activity pertains to events that require the non-Federal entity to comply with laws, regulations, and the provisions of contracts or grant agreements, such as: expenditure/expense transactions associated with grants, cost-reimbursement contracts, cooperative agreements and the disbursement of funds passed through to subrecipients.
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4. Are fixed price contracts included in threshold calculations?
No, fixed price contracts are not included in the threshold calculations.  HHS financial assistance (typically grants and cooperative agreements) and HHS cost-reimbursement contracts that the for-profit entity receives directly from HHS or indirectly from a pass-through entity are to be included in the threshold calculations. (See threshold calculation examples.)
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5. Are pass through dollars (i.e., dollars not received directly from HHS) included in the calculations?
HHS grants/cooperative agreements or cost-reimbursement contract dollars received directly, as well as, indirectly (i.e., through a pass-through entity) must be included in the threshold calculation and the scope of any required audit. (See threshold calculation examples.)
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6. What is expected if the Yellow Book option is selected?
The Yellow Book option is a financial statement audit of all HHS award activities of the commercial (for-profit) organization in accordance with Government Auditing Standards. For further technical information contact the National External Audit Review Center (see FAQ # 13 below).
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7. What is the audit period?
The organization’s fiscal year.
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8. How often is an audit required?
Audits are required annually for each fiscal year that the threshold is met.
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9. Who can perform the required audit? Can my internal auditor do it?
The Circular defines the term auditor as a public accountant or a Federal, State or local government audit organization, which meets the general standards specified in the generally accepted government auditing standards (GAGAS). This definition of the term auditor would not include internal auditors of the organization. (See the “Yellow Book” at http://www.gao.gov/govaud/ybk01.htm for GAGAS.)
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10. Who pays for the required audit?
The auditee pays for the audit. Audit costs are typically recovered as part of indirect costs.
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11. What is the deadline for submission of the audit report(s)?
45 CFR 74.26(d) essentially incorporates the deadlines of OMB Circular A-133; i.e., Audits shall be completed and submitted within the earlier of 30 days after receipt of the auditor’s report or nine months after the end of the organization’s fiscal year.  Note: The Federal Acquisition Regulation requires submission of final indirect cost (IDC) rate proposals within six months of the end of the awardee’s fiscal year. It would therefore appear beneficial for the awardee to have the required audits completed within six months to allow for their use in the preparation of the IDC proposals.
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12. Do for-profit entities have to complete the data collection form?
No, for-profit entities should not complete a data collection form (SF-SAC). The data collection forms are used to enter data on audits of states, local governments and non-profit organizations in the Federal Audit Clearinghouse (FAC) database. For-profit entities should submit audits directly to the National External Audit Review Center (see FAQ # 13 below for address). Audits of for-profit entities should not be sent to FAC.
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13. Is the management letter to be submitted as part of the reporting package?
Yes, the management letter is an integral part of the reporting package.
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14. Where should audit reports of for-profit organizations be submitted?
Audit reports of for-profit organizations are to be submitted to:

Department of Health and Human Services
Office of Inspector General
Office of Audit Services
National External Audit Review Center
1100 Walnut Street, Suite 850
Kansas City, MO 64106-2197
Phone: 800-732-0679 or 816-426-7720

(Do not send audits of for-profit entities to FAC.)

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15. Are there any requirements for awardees not meeting the threshold?
Commercial organizations with HHS expenditures less than the audit requirement threshold are exempt from requirements for a non-Federal audit for that year, but records must be available for review by appropriate HHS officials.
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16. Who can I contact if I have a technical question on how to conduct the audit?
Contact the National External Audit Review Center at 800-732-0679 and follow the prompt for technical assistance.
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Last Modified On: Nov 10, 2014