Office of Water Corrects Guide on SRF Audits in Response to OIG Findings

In an August 15 report, EPA’s Office of Inspector General outlined findings that the Agency’s Office of Water policy memorandum, titled Updated Single Audit Act Borrower Audit Collection Policy, issued in September 2021, “incorrectly advised states that they do not have to review single audits of nonfederal entities that borrow money from state revolving funds.” The Office of Water’s memo was intended to reflect the changes the Office of Management and Budget (OMB) made to the Uniform Guidance in August 2020. The Uniform Guidance “requires any nonfederal entity that expends $750,000 or more in federal funds in a fiscal year to undergo a single audit of its financial statements and federally funded programs.” However, EPA’s Office of Water misinterpreted OMB’s changes. Its policy for states went directly against the Single Audit Act, which requires independent nonfederal auditors to conduct single audits and write reports summarizing the results of their audits, which are maintained in a repository called the Federal Audit Clearinghouse, and assist federal agencies in providing oversight of entities that receive federal funds.

For example, OIG found that the Mississippi State Department of Health (MSDH) did not review the single audit reports for the City of Jackson, a nonfederal entity that borrowed money from MSDH’s Drinking Water State Revolving Fund. This decision was made due to the Office of Water’s policy memorandum stating they did not need to do so. The OIG’s report noted that this policy was putting federal funding at risk. OIG’s findings were brought to the Office of Water in June. In response, EPA issued a second memorandum titled Clarification of Single Audit Requirements Under the Clean Water and Drinking Water State Revolving Fund Programs. The memo “clarified the requirement for single audits, federal funds, and the responsibilities of recipients of state revolving fund assistance and state programs.” Because this memorandum addressed OIG’s concerns, the office made no recommendations in its final report.