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OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Quality Control Review Report
Weiss, Sugar, Dvorak & Dusek, Ltd.,
Single Audit of the Delta Institute and
Affiliates for Year Ended June 30, 2003
Report No. 2006-S-00004
August 17, 2006
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Report Contributors:
Leah Nikaidoh
Larry Gunn
James Clark
Abbreviations
AICPA American Institute of Certified Public Accountants
CFDA Catalog of Federal Domestic Assistance
EPA U.S. Environmental Protection Agency
GAO Government Accountability Office
GAS Government Auditing Standards
OIG Office of Inspector General
OMB Office of Management and Budget
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£* V, UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
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PRO"?4- OFFICE OF
INSPECTOR GENERAL
August 17, 2006
MEMORANDUM
SUBJECT: Quality Control Review of Weiss, Sugar, Dvorak & Dusek, Ltd.,
Single Audit of the Delta Institute and Affiliates for
Year Ended June 30, 2003
Report No. 2006-S-00004
/s/ Janet G. Kasper
FROM: Janet G. Kasper, Acting Director
Assistance Agreement Audits
TO:
Richard Kuhlman, Director
Grants Administration Division
This is our final report on the quality control review of the single audit of the Delta Institute and
Affiliates for year ended June 30, 2003, performed by Weiss, Sugar, Dvorak & Dusek, Ltd. The
report represents the opinion of the Office of Inspector General (OIG), and the findings
contained in this report do not necessarily represent the final U.S. Environmental Protection
Agency (EPA) position. The OIG has no objection to the release of this report.
The estimated cost of this report - calculated by multiplying the project's staff days by the
applicable daily full cost billing rates in effect at the time - $50,040.
On July 17, 2006, we issued a draft report to the single auditor for comment. The single auditor
agreed with all of the findings in our report, and took appropriate corrective action. We have
included an analysis of the single auditor's response in the appropriate sections of this report.
The single auditor's entire response is included as Appendix B to our report.
Action Required
The reported finding and related recommendations have been adequately addressed by the single
auditor, and no action is required by EPA. Therefore, this report is being closed upon issuance.
If you or your staff has any questions regarding this report, please contact me at (312) 886-3059
or LeahNikaidoh at (513) 487-2365.
Enclosure
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Weiss, Sugar, Dvorak & Dusek, Ltd., Single Audit of the
Delta Institute and Affiliates for Year Ended June 30, 2003
Table of Contents
Purpose 1
Background 1
Results of Review 1
Single Auditor Did Not Have Adequate Quality
Control Review Procedures 1
Single Auditor Response and OIG Evaluation 4
Recommendations 4
Action Required 4
Status of Recommendations and Potential Monetary Benefits 5
Appendices
A Scope and Methodology and Prior Audit Coverage 6
B Single Auditor's Response 7
C Distribution 14
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Purpose
The purpose of the quality control review of a single audit is to determine whether the audit was
conducted in accordance with generally accepted government auditing standards; the audit and
reporting requirements of Office of Management and Budget (OMB) Circular A-133, Audits of
States, Local Governments, andNon-Profit Organizations, including its related Compliance
Supplement; and other applicable audit guidance.
Background
Under OMB Circular A-133, entities that expend Federal funds of $300,000 or more in a given
year are required to have a single audit conducted. Subpart D (of OMB Circular A-133) enables
the OIG to conduct quality control reviews of single audits. Weiss, Sugar, Dvorak & Dusek,
Ltd., conducted the single audit of Delta Institute for the year ended June 30, 2003. Delta
Institute and its affiliates incurred $420,436 expenditures under EPA assistance agreements in
FY 2003.
As part of performing a quality control review, the reviewer is to determine whether any
noncompliance results in a substandard audit or a technically deficient audit. A substandard
audit contains significant audit deficiencies that could potentially affect the audit results, thus
making the report unusable for fulfilling one or more audit objectives. Technically deficient
audits have deficiencies requiring corrective action that do not appear to affect the audit results.
Results of Review
Weiss, Sugar, Dvorak & Dusek, Ltd., did not have sufficient quality control review procedures in
place to ensure that all audit work performed was adequately supported by documentary
evidence, as required by the government auditing standards. As a result, we found that one
finding presented in the single audit report had no documented evidence to support this finding.
Until these deficiencies were corrected, we did not have assurance that the single auditor met
generally accepted government auditing standards.
On July 21, 2006, Weiss, Sugar, Dvorak & Dusek, Ltd., submitted a response to our draft quality
control review report. The single auditor agreed with our recommendations and corrected all
reported deficiencies. On August 8, 2006, we held an exit conference with the single auditor.
Single Auditor Did Not Have Adequate Quality Control Review Procedures
The single auditor did not have sufficient quality control review procedures in place to ensure
that all audit work performed was adequately supported by documentary evidence, as required by
the government auditing standards. As a result, we found that one finding presented in the single
audit report had no documented evidence to support this finding.
In accordance with Government Auditing Standards (GAS) 3.49, the general standard for quality
control and assurance:
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Each audit organization performing audits and/or attestation engagements in
accordance with GAGAS should have an appropriate internal quality control
system in place....
In addition, GAS 4.24(d) requires that the audit work should contain:
evidence of supervisory review, before the audit report is issued, of the work
performed that supports findings, conclusions, and recommendations contained in
the audit report.
More specifically, GAS 3.50 states:
...An audit organization's internal quality control system should include
procedures for monitoring, on an ongoing basis, whether the policies and
procedures related to the standards are suitably designed and are being
effectively applied.
During our review, we found no evidence that anyone other than the auditor at Weiss, Sugar,
Dvorak & Dusek, Ltd., reviewed the Delta Institute single audit report or the supporting working
papers. The single auditor agreed that supervisory reviews of the audit report and working
papers were not performed. He stated that the firm does not review a partner's working papers.
As a partner, he felt that it was unnecessary for his working papers to be reviewed by someone
else, i.e., another partner. In addition, being a small CPA firm, each partner acts as a sole
practitioner. Also, he stated, he had discussed this situation with the firm's peer reviewers. The
peer reviewers, according to the single auditor, did not consider this an issue.
We discussed this issue with the Government Accountability Office's (GAO's) Audit Standards
Branch. They told us that in the case where there is more than one partner (i.e., not a sole
practitioner), a second partner should perform a review of the working papers, as part of the
firm's quality assurance process. If there is no one in the firm that is qualified to perform this
review, then the single auditor should contact an outside practitioner to perform this review.
Because the single auditor did not ensure that his work was reviewed to meet government
auditing standards, the single auditor failed to adequately document his conclusions and findings.
For single audit report Finding 03-03, there was no supporting working papers for this finding.
Finding 03-03 in the audit report stated:
Staff responsible for determining activities allowed and allowable costs under
programs was not given printed cost principle circulars with which to refer to in
making such determinations. It was necessary for staff to refer to such information
via the Internet. Costs are allowable charges to programs as mandated by the
grant agreement and Circulars A-l 10, A-122 and 40 CFR 30.21.
The audit report recommended that Delta Institute provide Federal cost principles to staff
responsible for accounting and administering grant funds. In its response, Delta Institute agreed
with the recommendation stating, "We concur with the recommendation and it was implemented
on October 21, 2004." When we asked for support regarding this finding, the single auditor said
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that the finding was based on discussions with Delta Institute staff, but the discussions were not
documented in the working papers.
There were also instances where working paper conclusions were either missing or incomplete.
These deficiencies resulted in the single auditor having to provide verbal explanations to us
during our review. The explanations were necessary to determine that the auditor's reported
opinions and findings were sufficiently supported.
Working papers should reflect the evidence, and include the objective(s), scope, methodology,
criteria, and conclusion(s) on which findings are based. They provide the principal support for
the auditor's report and allow for review of audit quality. OMB Circular A-133, Government
Auditing Standards, and American Institute of Certified Public Accountants (AICPA) Statements
on Auditing Standards all contain requirements for documenting working papers.
Under OMB Circular A-133, single auditors are required to comply with Government Auditing
Standards (GAS). In accordance with GAS 4.23, information contained in audit documentation
constitutes the principal record of work that the auditors performed in accordance with
professional standards and the conclusions that the auditors have reached. GAS 4.22 states that
Audit documentation related to planning, conducting, and reporting on the audit should
contain sufficient information to enable an experienced auditor who has had no previous
connection with the audit to ascertain from the audit documentation the evidence that
supports the auditors' significant judgments and conclusions.
GAS 4.24(d) states that audit documentation should contain evidence of supervisory review,
before the audit report is issued, of the work performed that supports findings, conclusions, and
recommendations contained in the audit report. GAS 5.16 states that auditors should include in
their audit documentation evidence of all communications to officials of the audited entity about
deficiencies in internal control found during the audit.
In addition to the audit documentation and supervisory review requirements under GAS 4.22,
4.24, and 5.16, AICPA Statements on Auditing Standards Number 96 requires that audit
documentation be sufficient to show that standards of fieldwork have been observed. The
criteria for documentation to be included in the working papers should enable reviewers to
understand the audit work performed, who performed and reviewed the work, and the nature of
the audit evidence examined.
AU Section 339, entitled "Audit Documentation" also provides that, as part of ensuring that
adequate audit work is performed and related documentation obtained, the audit firm should have
in place a system of quality control policies to ensure that professional standards and generally
accepted government auditing standards are met. As part of this system, review of audit
documentation by the firm is one of the procedures to monitor compliance with applicable
standards.
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Single Auditor Response and OIG Evaluation
The single auditor agreed, "All audits performed under generally accepted governmental
auditing Standards (GAGAS) will be reviewed by an audit partner of the firm qualified to
perform such a review. This will be done even in cases such as the Delta audit where an
audit partner has performed substantial portions of the engagement work." In view of the
fact that the single audit firm's procedures have been changed, and all work under
GAGAS, in the future will be reviewed by a partner, the OIG considered this issue
resolved.
The single auditor had a partner of the firm qualified to perform and review GAGAS
audits has reviewed the subject audit, and provided documentation to support this review.
The OIG reviewed the documentation submitted by the single auditor and consider this
issue resolved.
The single auditor also prepared a memo to the working papers that documented his
discussions with the grant recipient related to Finding 03-03 in the single audit report.
The OIG reviewed the documentation submitted by the single auditor and consider this
issue resolved.
Due to the fact that the single auditor revised its policy for review of GAGAS audit work,
completed a partner review of the Delta Institute and Affiliates, Inc. audit work, and
supported the exceptions we noted in our draft report, the single audit now meets
GAGAS and OMB Circular A-133 requirements.
Recommendations
We have no recommendations for EPA.
Action Required
All findings in our draft report have been resolved and no action is required by EPA. Therefore,
this report has been closed upon issuance. If you or your staff has any questions regarding this
report, please contact me at (312) 886-3059 or Leah Nikaidoh at (513) 487-2365.
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Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Rec.
No.
Page
No.
Subject
At_a_ Implement adequate quality control procedures to
Glance ensure that all audit work, regardless of who
performs the audit, is reviewed, to ensure that all
audit standards are met.
At-a- Perf°rm appropriate quality control review of the
Glance s'n9'e aucM f°r De"a Institute and Affiliates for Year
Ended June 30, 2003, and provide the documented
results of this review to our office for review.
At-a-
Glance as Par'0^our rev'ew-
Status1 Action Official
C Director, Grants
Administration Division
Correct audit documentation deficiencies identified,
Director, Grants
Administration Division
Director, Grants
Administration Division
Planned
Completion
Date
POTENTIAL MONETARY
BENEFITS (in $000s)
Claimed
Amount
Agreed To
Amount
1 0 = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is undecided with resolution efforts in progress
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Appendix A
Scope and Methodology
and Prior Audit Coverage
Scope and Methodology
We conducted a quality control review of the Weiss, Sugar, Dvorak & Dusek, Ltd., audit of
Delta Institute for the year ended June 30, 2003, and the resulting reporting package that they
submitted to the Federal Audit Clearinghouse, dated February 10, 2005. We performed the
review using the 1999 editions of the Uniform Quality for Initial Review of A-133 Reports, and
the Uniform Quality Control Review Guide for the A-133 Audits, issued by the President's
Council on Integrity and Efficiency. These guides apply to any single audit subject to OMB
Circular A-133 and the approved checklist of the President's Council on Integrity and Efficiency
for performing the quality control reviews.
We conducted our review in April and May 2006 in accordance with applicable Government
Auditing Standards, issued by the Comptroller General of the United States. We assessed the
following areas:
• Qualification of Auditors
• Independence
• Due Professional Care
• Quality Control
• Planning and Supervision
• Federal Receivables and Payables
• Other Standards Affecting Federal Awards
• Determination of Maj or Programs
• Schedule of Expenditures of Federal Awards
• Audit Follow-up
• Reporting
• Data Collection Form
• Materiality
• Internal Controls
• Compliance Testing
We reviewed the audit documentation prepared by the single auditor, and discussed the audit
results with the single auditor representative.
Prior Audit Coverage
None.
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Appendix B
Single Auditor's Response
Weiss, Sugar, Dwrak & Dusek, Ltd.
Certified f'ttblir AccnuntanIs & Gnnsuliants
20 ?farth Hfisefcr TbivK, Suite 2250
CJiit'.ngii, Illinois fiftfjOfi
Trlrfthnur: (312) 332-M22
Fsaimik; f J12) 312 ?70?
ftonfey fl W>,«. f ,7M
Dai-id A. Sugar, Cl'A
Kenneth (J. Ihxrrak. Cl'A
Frank .-4. Dm«k, (J'A
Mobcr l Jiahayt-m. tiiJA
Jay 21, 2006
Mr Mir.hxwl A Rii-key,
Ass'stHnce Agreement Audits
United Slates L-nviranmental Protection Ajercy
Washington, D.O. 20460
RC; Quality Control Review of Weiss, Sugar, Dvorak & Dusek, Ltd.
Single Audit of the Delta Institute and Affiliates
For Year Ended Juno 30, 2003
Dear Mr, Rickey:
i ins correspondence roorosorrts our response to your draft quality control re-vtow report dated
July 1T, 2006 on the single audit performed by Weiss, Sugar, Dvorak & puselc, Ltd., of ;h« Delta
Institute and Affiliates for the year ertcferi June 3C, 2CQ3 Our specific responses to youi
wti as follows.
Recommendation 1
Wo agreo that in tfto f-jijro ail audits performed undor Juifor &laff pefforrt'ttE liniled porttens of Oie audit, and tH"s work was in fact reviewed by the
audit partner and docurranted in our working papaya Ou' firm pf»rtielpB?eei in the Peer
Review program of the ajcpa since 1S91? and has rocovod unquoii'iod opinions frorr our
reviewer oarh war. Our position on partner review of partrer work nas never been an issue with
qui )*»>»' icvitrMf)' Wn believe fiiai the ifsu'fs of cut p«e» t^vtews (wMeti Includes auaits
iJiKkif GAGA35 sUpeoiS iilyh level of finer' at quality controls we maintain The
GAS statements '¦ofcrreo to in vour report do rot specifically address the s-.tuation onccLnte-ed
on tr-is audit (i.e. partner on partner rsv®w| however, as stated, wo will change our policy to
co'Oply uvifli yyjr iei}uest
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Mr. Michael A. Rickey, Director
July 20, 2006
Page 2
Recommendation 2
A partner of the firm qualified to perform and review GAGAS audits has reviewed the subject
audit. This review has been documented on page 4 of the "Nonprofit Organization Audit
Supervision, Review, and Approval Form" included in the attached PDF file.
Recommendation 3
We prepared a memo to the work papers documenting our discussions with the client related to
Finding 03-03. It Is included in the attached PDF file.
If I can be of any further assistance, please do not hesitate to contact me.
Sincerely yours,
Robert Rehayem
RRJ
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NPO 3/03
NCX-19
NCX-1S: Nonprofit Organization Audit Supervision, Review,
and Approval Form
Inde^
Organization Delta Institute
[Statement of Financial Position Date: 08/30/2003
Instructions; This form should be completed as the last procedure before issuance of the signed auditor's
'report. Any item answered "No" should be explained in the "Comments" column or in an attached
memorandum. File this form In the genera! file.
For audits performed in accordance with Government Auditing Standards (as amended) (Yellow Book), the
authors hava been informed by a senior GAO official that, based on the official's interpretation of the Yellow
;Book, the official expects to see "supervisory" initials on "significant" workpapers, such as summary
[Spreadsheets and other "important" workpapers. The supervisory initials may be those of a partner or
isomeone in a supervisory position, (A sole practitioner is not expected to engage another practitioner to
review and initial his or her workpapers.} A further explanation of which workpapers are "significant" was not
[offered.
Detailed Review (To be performed by the staff person in
charge of fieldwork.)
1. I have reviewed all workpapers prepared by the personnel in
my charge on this engagement and, if aoplicable, have
initialed all "significant" workpapers. Each schedule is
complete, properly headed, initialed, indexed, and cross-
referenced.
2. I have reviewed the permanent file and general file, and all
relevant information has been incorporated or cross-
referenced.
3. I have compared the work performed as evidenced by our
work-papers with the procedures called for by the audit
programs and find that our audit complies with the
requirements of the programs.
4. I have compared the workpapers with the general ledger
trial balance and find that satisfactory audit recognition has
been given to all asset, liability, net asset, support,
revenue, expense, and reclassification accounts, (and if
applicable, program expenditures related to major federal
award programs).
5. I have reviewed ail workpapers and am satisfied that all
significant audit findings or issues are adequately
addressed and documented.
Yes
No . M/A I Comments
/
/
/
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NPO 3/03
NC/ 1
Yes I No HIA
Comments
6. I have reviewed the completed audit programs and am
satisfied that our audit, as evidenced by the workpapers
reviewed by me, was conducted in accordance with
generally accepted auditing standards (and, if applicable,
with the GAO's Government Auditing Standards and the
requirements related to a Single Audit).
7. I have compared the accounts in the general ledger trial
balance with their summarizations, classifications,
descriptions, and disclosures in the financial statements,
8. I have obtained a review of the tax accrual and provision (if
applicable) by the tax department and included their
approval in the workpapers, (Optional step.)
9. 1 have reviewed the financial statements and am satisfied
that they meet accepted standards of presentation and
disclosure and that they have been prepared in conformity
with generally accepted accounting principles (or an other
comprehensive basis of accounting) consistently applied, A
financial disclosure checklist has been completed.
10. If applicable, I have reviewed the Schedule of Expenditures
of Federal Awards and am satisfied that it meets accepted
standards of presentation and disclosure and that it has
been prepared in accordance with Single Audit reporting
requirements.
11. I have reviewed the legal representation and management
representation letters for consideration of ail important
representations.
12. I have reviewed the auditor's report on the financial
statements and am satisfied it properly expresses our
opinion in accordance with generally accepted auditing
standards (and, if applicable, the GAO's Government
Auditing Standards).
13. If applicable, I have reviewed the auditor's reports required
by Government Auditing Standards and OMB Circular A-
133 and am satisfied that they are in accordance with the
standards described in Step 5.
/
/
/
JM /§f-
/
In-Charge's Signature.
Date:
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NPO 3/03
NCX-19
Yes ; No M/A j Comments I
I ;
Partner Review (To be performed by the EngagementPartnen
Omit all except the last three items if the detailed review was ! !
performed by a Partner.) t
1. I have reviewed the planning documents and am satisfied
with the sufficiency of the audit programs.
2. I have reviewed all workpapers prepared by the personnel in
my charge on this engagement that were not reviewed as a
part of the detailed review and, if applicable, have initialed
ail "significant" workpapers.
3. I have also reviewed sufficient additional workpapers to be
satisfied with the adequacy of our audit and with the
detailed review.
4. I have reviewed the completed audit programs and am
satisfied that our audit, as evidenced by the workpapers
reviewed by me, was conducted in accordance with
generally accepted auditing standards {and, if applicable,
with the GAO's Government Auditing Standards and the
requirements related to a Single Audit).
5. I have reviewed the financial statements and am satisfied
that they meet accepted standards of presentation and
j disclosure and that they have been prepared in conformity
j with generally accepted accounting principles (or an other
| comprehensive basis of accounting) consistently applied. j
8. If applicable, I have reviewed the Schedule of Expenditures
of Federal Awards and am satisfied that it meets accepted
standards of presentation and disclosure and that it has !
been prepared in conformity with Single Audit reporting j
requirements. I
7. I have reviewed the legal representation and management
representation tetters for consideration of all important
representations.
8. I have reviewed the auditor's report on the financial
statements and am satisfied it properly expresses our j
opinion In accordance with generally accepted auditing j
standards (and, if applicable, the GAO's Government
Auditing Standards).
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NPO 3/03
MUX IB
9. If applicable, I have reviewed the auditor's reports required
by Government Auditing Standards and OMB Circular A-
133 and am satisfied they are in accordance with the
standards described in Step 4.
10. I have reviewed documentation relating to any significant
audit findings or issues, significant consultations, unusual
technical Issues, and resolution of disagreements on
technical issues among personnel assigned to the audit
engagement. In addition, I am satisfied that consultation
has occurred in ail areas required by firm policy and any
other areas deemed necessary.
11.1 have communicated to the engagement team the
importance of exercising professional skepticism. I have
ascertained that there has been appropriate
communication among the engagement team throughout
the audit regarding information or conditions that indicate
risks of material misstatement due to fraud,
12. I approve issuance of our report on the financial
statements.
i
Yas
No
WA ! Comments
/
Partner's Signature:
—
Date:
Review by independent Partner or Independent Review
Department (Required only at the Engagement Partner's option
or if the firm's quality control policies and procedures require this
step.)
1. The preceding review sections of this form have been
completed to my satisfaction.
2. I have read the financial statements and the auditor's
reports referred to in the previous section (as applicable).
3. I approve issuance of our report on the financial
statements.
Yes
No
N/A
/
/
Comments
Completed by:
Date:
1 faL
Yes i No N/A
Partner Signing Auditor's Report(s)
Comments
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The Delta Institute
Memo Re: Cost Principles for Government Funds
Juno 30, 2003
Based on discussions with Delta personnel (Saundra Fleming - Accountant,
Janet Hanley - Outside CPA and Lillian Saez - Bookkeeper), it was noted that
Delta staff responsible for determining activities a flowed and allowable costs
under programs were not given printed cost principle circulars with which to refer
to in making such determinations, The staff shou'd be given and trained in the
use of Circulars A-TG, A-122 and 40-CFR 30,21.
This situation will be reported in the Findings and Questioned Costs section of
Uie single audit repcrl
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Appendix C
Distribution
EPA
Director, Grants Administration Division
Audit Followup Coordinator, Grants Administration Division
Agency Followup Coordinator
Director, Office of Grants and Debarment
Acting Inspector General
External
Weiss, Sugar, Dvorak & Dusek, Ltd.,
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