Copyright© 2007 by School Services of California, Inc.

                                      Volume 20                   For Publication Date: August 3, 2007             No. 17

OMB Circular A-133 Revision Focuses On Internal Control 

On June 7, 2007, the Office of Management and Budget (OMB) published a revision to OMB Circular A-133 “Audits of States, Local Governments, and Non-Profit Organizations.” 

The most notable change requires auditors to classify findings as a “control deficiency,”  “significant deficiency,” or “material weakness.” Listed below is each classification as it is defined in the circular: 

·                    Control deficiency—exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect on a timely basis noncompliance with a type of compliance requirement of a federal program

·                    Significant deficiency—a control deficiency, or a combination of control deficiencies, that adversely affect(s) the entity’s ability to administer a federal program in a way that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected 

·                    Material weakness—a significant deficiency or combination of significant deficiencies, that result(s) in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected 

The OMB warns that the revision will result in an increase in internal control findings reported in single audits. Also, the revision will impact how auditors assess risk as well as how they choose which programs to audit. In addition, the U.S Department of Education (USDE) plans to use the auditors’ assessments to help with department’s concerns about managing risk levels in state and local education agencies. USDE’s goal is to utilize this information to assist with monitoring responsibilities of state and local agencies. The USDE will make use of single audit findings, especially findings related to internal control, to assist with the process.  

These revisions apply to audits of fiscal years ending on or after December 15, 2006. 

The revision to the OMB Circular can be read in its entirety at the following link:  http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/E7-12320.pdf.   

             —Lewis Wiley, Jr.