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• <br /> R <br /> Applicable Laws and Regulations <br /> U.S. Office of Management and Budget Circular A-133,Audits of States, Local <br /> Governments, and Non-Profit Organizations,Section 300,states in part: <br /> The auditee shall: <br /> (b) Maintain internal control over Federal programs that provides <br /> reasonable assurance that the auditee is managing Federal awards <br /> in compliance with laws, regulations, and provisions of contracts <br /> or grant agreements that could have a material effect on each of its <br /> Federal programs. <br /> (c) Comply with laws, regulations, and the provisions of contracts <br /> or grant agreements related to each of its Federal programs. <br /> Government Auditing Standards,December 2011 Revision,paragraph 4.23 states: <br /> 4.23 When performing GAGAS financial audits, auditors should <br /> communicate in the report on internal control over financial <br /> reporting and compliance, based upon the work performed, (1) <br /> significant deficiencies and material weaknesses in internal <br /> control; (2) instances of fraud and noncompliance with provisions <br /> of laws or regulations that have a material effect on the audit and <br /> any other instances that warrant the attention of those charged with <br /> governance; (3) noncompliance with provisions of contracts or <br /> grant agreements that has a material effect on the audit; and (4) <br /> abuse that has a material effect on the audit. <br /> The American Institute of Certified Public Accountants defines significant <br /> deficiencies and material weaknesses in its Codification of Statements on Auditing <br /> Standards,section 935,as follows: <br /> .11 For purposes of adapting GAAS to a compliance audit, the <br /> following terms have the meanings attributed as follows: <br /> Deficiency in internal control over compliance. A <br /> deficiency in internal control over compliance exists when <br /> the design or operation of a control over compliance does <br /> not allow management or employees, in the normal course <br /> of performing their assigned functions,to prevent,or detect <br /> and correct,noncompliance on a timely basis. A deficiency <br /> in design exists when (a) a control necessary to meet the <br /> control objective is missing, or(b) an existing control is not <br /> properly designed so that, even if the control operates as <br /> designed, the control objective would not be met. A <br /> deficiency in operation exists when a properly designed <br /> Washington Stale Auditor's Office 91 Page 8 <br />