.01 The purpose of the City of Philadelphia Subrecipient Audit Guide is to implement the City of Philadelphia's audit requirements to be utilized by organizations and their independent auditors in preparing for and performing audits of organizations which receive financial assistance under an award from the City of Philadelphia. The Audit Guide is intended to be an initial non authoritative, reference source for an organization and their independent auditor. The Audit Guide is comprised of the following sections:

.02 This Audit Guide implements the City of Philadelphia's procedures to comply with the requirements of the Single Audit Act of 1984 and the Single Audit Act Amendment of 1996 and its implementation under Federal and Commonwealth of Pennsylvania directives. For subrecipients not covered by this Audit Guide, the subrecipient should refer to the City of Philadelphiaís Standard Accounting Procedures on "Subrecipient Audit Requirements."

.03 This Audit Guide supersedes any previous audit guides or directives issued by any City of Philadelphia Departments covered in Sections 1000 to 6000.

.04 Audits required under this Guide are to be performed on an annual basis for Single and Program Audits under OMB Circular A-133 (Revised June 24, 1997)

.05 This Audit Guide is not a complete manual of procedures nor should it supplant the auditor's judgment of the audit work required in a particular situation. Because of the variety of federal, state, and local financial assistance programs and the complexity of the regulations that govern them, the procedures contained in this Audit Guide cannot cover all circumstances or conditions that would be encountered in an audit of every organization. The auditor should use professional judgment to tailor their procedures to meet the conditions of the particular engagement so that the audit objectives may be achieved.

.06 The provisions of this Audit Guide are effective upon publication and shall apply to audits of subrecipient organizations receiving financial assistance from the City of Philadelphia.

.01 The provisions of this Audit Guide apply to subrecipient organizations receiving Federal financial assistance of $300,000 or more during the organization's fiscal year directly or indirectly from the City of Philadelphia (1). In addition, this Audit Guide has been prepared to assist the independent auditor in examining and reporting on subrecipient organizations who receive financial assistance from the City of Philadelphia. The organization must engage an independent auditor to perform either a Single Audit or a Program Financial Audit and would adhere to the following standards:

.02 The provisions of this Audit Guide apply to financial assistance received by an organization directly from the City of Philadelphia or indirectly from another recipient who receives funding from the City of Philadelphia that is passed along to the organization.

.03 The following definitions address who (organization) and what (award) is covered by this Audit Guide.

.04 For the purpose of this Audit Guide "financial assistance" means assistance provided by a Federal, State or City Agency to a subrecipient to carry out a program. Such assistance may be in the form of:

.05 A "subrecipient" is any person or government department, organization, establishment, or not-for-profit organization receiving financial assistance from the City of Philadelphia to carry out a program, but does not include an individual that is a beneficiary of such a program. A subrecipient may also be a direct recipient of Federal, State or other Locality awards under other agreements.

.06 A "vendor" is an entity that receives a procurement contract for goods or services from the City of Philadelphia which will be paid from federal, state or city assistance funds. The vendor's responsibility is to meet the requirements of the procurement contract. Some examples of vendor agreements are contracts for: printing services, conference meeting sites, administrative supplies, janitorial services, or any other type of adjunct service that is not provided with the primary purpose of meeting the objectives of the program.

.07 The test for a subrecipient relationship is whether a subrecipient receives financial assistance from the City of Philadelphia to carry out a program. When the City of Philadelphia enters into a procurement contract to buy goods or services, the other party to the contract is not a subrecipient, but rather a vendor, and is not subject to the provisions of this Audit Guide. This provision applies regardless of the type of entity involved (governmental, not-for-profit, etc.) or the form of the agreement between the parties.

.08 An "award" means financial assistance and cost-type contracts used to buy services or goods for the use of the government. It includes awards received directly from federal agencies or indirectly through the City of Philadelphia. It does not include procurement contracts to vendors under grants or contracts used to buy goods or services. Audits of such vendors shall be covered by the terms and conditions of the contract.

.09 Many awards received by a subrecipient are funded through "fixed fee" or "fee-for-service" contracts.

.10 A true fixed fee contract (award) is one that provides a service at an established rate and does not require determination of actual or allowable costs. Audits of financial statements are not required for "fixed fee" awards because such awards are generally based on a fixed payment for goods or services rather than as reimbursement for costs incurred.

.11 A "fee-for-service" contract funds an organization at a stipulated rate for a certain type of service (daily, hourly) and may or may not be a "fixed fee" contract. Many City of Philadelphia Department contracts (awards) are "fee-for-service" arrangements and are not true "fixed-fee" contracts.

.12 Subrecipients that have contracts which are intended to be based on provider costs, but are funded during a fiscal period based on a negotiated "fixed fee" - "fee-for-service" basis are not exempt from the requirements of this Audit Guide. For example, some subrecipients are paid during a fiscal period based on a fixed fee per client served; however, the subrecipient's contract with the City of Philadelphia provides that the subrecipient will be reimbursed based on actual costs incurred up to a maximum amount of reimbursement. The subrecipient in this case is not exempt from the appropriate requirements of this Audit Guide because the contract is actually a "cost reimbursement" type contract and not a "fixed fee" type contract. In this case, the method of payment to the subrecipient is only the funding mechanism and not the contractual basis on which the subrecipient is entitled to the funds.

.13 The maximum reimbursement restriction within a contract does not change the nature of the contract from a "cost reimbursement" type agreement to a "fixed fee" agreement even if the subrecipient's actual costs for a contract period exceed the maximum reimbursement amount in the contract and those excess costs are not reimbursed. The contract is still a "cost reimbursement" type contract and the subrecipient is still required to meet the appropriate audit requirements of this Audit Guide.

.01 In procuring the services of an independent auditor the organization, if it is a not-for-profit, is to follow the procurement procedures of Office of Management and Budget (OMB) Circular A-110, Subpart C, ß44. (This revised OMB Circular is effective May 30, 1994.) These standards require a formalized process in procurement of services such as auditing and accounting services. The following are highlights of some of the more important requirements of the circular's provisions.

.02 As a result of the current 41U.S.C. small purchase threshold being raised to $100,000, the following parameters are applicable for procurement of auditing services per federal regulations:

.03 The requirements in Sections 103.01 and 103.02 are to be followed by an organization procuring audit services regarding programs to be audited under this Audit Guide.

.04 Where the annual audit fee to be paid out of either Federal, State or City of Philadelphia financial assistance is expected to exceed $10,000, a written bidding procedure, with both the auditors qualifications and audit fee price obtained, is strongly encouraged by the City of Philadelphia.

.05 The City of Philadelphia will allow multiple year contracts in one bidding process of up to three fiscal years for auditing services, unless the organization's contract with the particular City of Philadelphia Department allows more lenient or stringent requirements.

.06 Documentation to the above bidding procedure and selection process is to be maintained by the organization in accordance with the record retention requirements of the particular City of Philadelphia contract(s) funded. The organization will not be required to submit the above information to the City of Philadelphia unless specifically requested.

.07 Most organizations and their independent auditors recognize the necessity of a written communication between the client (organization) and the independent auditor that specifies the responsibilities of both the client and auditor. That communication, referred to as an "engagement letter," is not required by generally accepted auditing standards, but is widely utilized to avoid misunderstanding as to the auditor's responsibility and the organizations responsibility during the audit, and to notify the organization of the inherent limitations of an audit. (Most auditors also include fee terms and other arrangements in this correspondence.) Both the organization and the independent auditor sign the engagement letter indicating their acceptance of and agreement with the contents of the letter. For all audits performed under the provisions of this Audit Guide the independent auditor and the organization must have a written and executed engagement letter.

.08 It is in the interest of both the auditor and the organization to document the scope of the audit in the engagement letter. This will ensure a proper understanding of the responsibilities of each party. The engagement letter should consider including, in addition to those items normally included, items such as:

.09 Where the auditor is to make the distribution of the final audit report, the engagement letter should indicate what officials or organizations are to receive the report.

.10 The subrecipient organization should ascertain that the audit firm engaged to perform any audit under this Audit Guide meets the qualifications specified in Sections 103.14 to 103.16.

.11 In all matters relating to the audit work, the audit organization and the individual auditors, whether government or public, should be free from personal and external impairments to independence, and should maintain an independent attitude and appearance.

.12 No person may audit any organization in which the auditor, audit firm member or any member of his or her immediate family, is a member of the Board of Directors, is an officer or employee or has any other direct or indirect interest in the organization or program to be audited.

.13 No auditor or firm of auditors that has been engaged to audit an organization or program or any member of his or her immediate family, may engage in any business transactions or serve as a member of the Board or serve as an officer or employee of the organization or program during the period of performance.

.14 Audits performed in accordance with the City of Philadelphia Subrecipient Audit Guide are to conform to the requirements established in Government Auditing Standards. Those standards in part require the auditor and the audit firm to adhere to continuing professional education and peer review requirements. In addition:

.15 Government Auditing Standards (GAS) under the first general standard for auditing requires that the staff assigned to conduct the audit should collectively possess adequate professional proficiency for the tasks required. To meet that standard, the auditor(s) are required to participate in a program of continuing education and training. Every two years, auditors performing audits in accordance with GAS should complete at least eighty credit hours that contribute directly to their professional proficiency. At least twenty of these hours should be completed in each year of the two-year period and at least twenty-four hours should be in topics directly related to the government environment and governmental auditing. A detailed interpretation of the CPE standards, Interpretation of Continuing Education and Training Requirements, is available from the Government Printing Office. During engagement planning, auditors and audit organizations should ensure that appropriate members of the audit team have met the CPE requirement.

.16 Government Auditing Standards under the fourth general standard for auditing requires that the audit organization conducting government audits should have an appropriate internal quality control system in place and participate in an external quality review program.

To meet that standard the audit firm should have in place an internal quality-control system and participate in an external quality-review program. An external quality review is to be conducted once every three years.

.17 In order to monitor adherence to the external quality review requirement and to ensure City of Philadelphia subrecipient audits are performed by only qualified independent auditors the following is to be submitted to each Department within the City of Philadelphia that the subrecipient receives funding from during the fiscal year.

.18 Auditors or audit firms which do not meet Government Auditing Standards, such as continuing professional education or external quality control review, need to disclose in the auditors' reports those audit standards not met. These auditor's reports will not be accepted by the City of Philadelphia.

.19 Where a review of the audit report or the working papers, as performed by any representatives of the City of Philadelphia, discloses an inadequacy, the audit firm will be contacted. Where such inadequacies are deemed significant or the associated working papers are deemed substandard, the City of Philadelphia may proceed with further action against the particular auditor and/or audit firm.

.20 In those instances where the audit was performed by a certified public accountant and the work was determined to be substandard by City of Philadelphia, the matter may be submitted to the Commonwealth of Pennsylvania, Department of State - Bureau of Professional and Occupational Affairs and the Pennsylvania Institute of Certified Public Accountants.

.01 The completed audit report (as required under the applicable type of audit under Section 400 or 500 of this Audit Guide) is due as follows:

For Single Audit under For Program Audit under

OMB Circular A-133 OMB Circular A-133

120 days after the close of the 120 days after the close of the

organization's fiscal year. organizationís fiscal year.

City of Philadelphia

Grants Accounting Unit

Municipal Services Building

1401 John F. Kennedy Boulevard

Room 1380

Philadelphia, Pennsylvania 19102-1693

.03 In addition to the above, copies of the audit report, based upon the City Department funding the organization being reported upon, are to be delivered to the appropriate City Department, for the number of copies specified below.

Number of Copies

City Department of Audit Report

Economic Development Administrator

Office of Economic Development

1600 Arch Street - 13th Floor

Philadelphia, Pennsylvania 19103

Contracts Audit Unit

1401 Arch Street, Room 308

Philadelphia, Pennsylvania 19102

Assistant Director of Finance

Fiscal Department

1600 Arch Street, 13^th Floor

Philadelphia, Pennsylvania 19103

Development

Audit Manager - Audit Department

1234 Market Street, 17th Floor

Philadelphia, Pennsylvania 19107

Contracts Auditor-Fiscal Unit

1315 Cherry Street, 2^nd Floor

Philadelphia, Pennsylvania 19107

2. Where U.S. Department of Housing and Urban Development federal programs under CFDA Numbers 14.218, 14.221, 14,227, 14.239, 14.241, 14.231, 14.238 and 14.900 are included in the audit report, then eight additional copies of the report must be sent to the City of Philadelphia, Office of Housing and Community Development.
4. Section 104 (Cont.)

Number of Copies

City Department of Audit Report

Contract Audit Supervisor

Audit Unit-Special Financial Services

1600 Arch Street, 3^rd Floor

Philadelphia, Pennsylvania 19103

.04 Where an organization has multiple City of Philadelphia Departments funding program operations then the audit reports (combining copies listed above by City Department) are to delivered to the designated cognizant City Department.

.05 If the organization believes that an extension of the deadline for submission of the report is necessary, the request must be in writing and be specific in nature. The reasons for the request and the expected delivery date must be stated.

.06 The request for extension should be received by the City of Philadelphia, that is to receive the audit report, as soon as the organization becomes aware of the need for an extension and at least 20 days prior to the date the report is due.

.07 The City of Philadelphia or a City Department may impose sanctions in cases where the audit report is not submitted on a timely basis and an extension request has not been approved.

.01 In preparing for or conducting an audit, the personnel at the subrecipient organization and/or their independent auditor may have questions which arise concerning the implementation of the requirements of this Audit Guide. These questions should be directed to the contact listed below for the City Department which has awarded the funds to be audited.

Telephone Fax

City Department Title of Contact Number Number

Commerce Department Economic Development 686-7307 557-8538

Administrator

Human Services Department Contracts Audit 686-7545 686-7592

Supervisor

Mayor's Office of Community Assistant Director of 686-9078 686-9083

Services Finance

Office of Housing and Audit Manager 686-9728 686-9800

Community Development

Office of Emergency Contracts Auditor, 686-7199 686-7187

Shelter and Services Fiscal Unit

Public Health Department Contract Audit 686-0438 686-0432

Supervisor