Phase: Applied learning · Worked scenarios · Calculations · Audit findings · Document drills
Apply what you've read — scenario by scenario, calculation by calculation
CIAO Pre/post-award, IOAI risk-based, Single Audit. Each exercise has a hidden solution — work through your answer before revealing.
I
Scenario 01
Triggering a Single Audit
Setup
A small county received $1,150,000 in federal funds in FFY 2026 across various federal programs, including federal-aid highway funds. The County Auditor asks whether a federal Single Audit is required.
Question
What is the threshold? What is required?
Solution
Yes — Single Audit is required. Per 2 CFR 200 Subpart F (Audit Requirements), a non-federal entity expending $1,000,000 or more in federal awards during the fiscal year must have a Single Audit.
(Note: The threshold was $750,000 prior to October 2024 and was raised to $1,000,000 effective FFY 2025. Always verify current threshold.)
Single Audit requirements:
1. Audit firm. Must be an independent CPA firm. Cannot be the entity's internal audit.
2. Scope. Audit of entity's financial statements AND a compliance audit of federal awards (major programs).
3. Major programs. Determined by Type A/B classification and risk assessment. Federal-aid highway programs are typically Type A (higher dollar).
4. Audit report submission. Within 9 months of fiscal year-end (or 30 days after audit completion, whichever is sooner). Submitted to Federal Audit Clearinghouse.
5. Findings and corrective actions. Any findings require written corrective action plans.
LPA preparation for Single Audit:
• Maintain compliance documentation (DBE, labor compliance, environmental, R/W).
• Retain all federal-aid project records (3 years from final voucher, Ch 2 §2.12.4).
• Ensure ICRP/ICAP is approved (if used).
• Track sub-recipient compliance if applicable.
• Document internal controls over federal funds.
For federal-aid highway funds:
• Common Single Audit findings: improper allocation of costs, missing supporting documentation, late invoicing, inadequate internal controls over draws.
• Adverse Single Audit findings can affect future federal-aid eligibility and may trigger additional CIAO or IOAI audits.
Different from CIAO Pre/Post-Award audits (state-administered, Caltrans-conducted) which focus specifically on LAPM compliance.
Authority: LAPM Ch 20; 2 CFR 200 Subpart F
II
Calculation 01
$500K state-administered audit threshold
Given
A federal-aid construction project will receive $620,000 in federal funds for the construction phase. The project is state-administered (Caltrans is the contracting agency, LPA is local partner via cooperative agreement).
Find
What CIAO/IOAI audit is triggered, and why?
Worked solution
Workings
- LAPM Ch 20: Caltrans CIAO Independent Office of Audits and Investigations (IOAI) conducts risk-based audits.
- For state-administered federal-aid construction projects with federal share ≥ $500,000, IOAI conducts a post-award construction audit.
- Federal share here: $620,000 ≥ $500,000 threshold → IOAI audit triggered.
Answer: IOAI post-award construction audit. The $500,000 threshold applies to state-administered (not LPA-administered) construction projects. IOAI reviews construction cost compliance, labor compliance, DBE compliance, and project administration.
For LPA-administered projects, the CIAO audit cycle applies (Pre-Award, ICRP review, project-specific reviews, Maintenance Review every 4 years).
Distinguish:
• CIAO — pre-award and ongoing compliance audits, focuses on LAPM/program compliance.
• IOAI — risk-based audits, specifically the $500K state-admin construction threshold.
• FHWA — federal FIRE audits, CAP reviews, other federal-level audits.
• Single Audit — entity-wide audit when LPA spends $1M+ in federal funds.
All four audit types can apply to a single LPA in the same year. Each has its own scope and findings tracking.
Authority: LAPM Ch 20
III
Audit Finding 01
Read the fact pattern — what's the finding?
Facts
A CIAO Pre-Award audit reviews a new LPA seeking its first Master Agreement. The audit identifies three deficiencies: (1) no written DBE Implementation Agreement, (2) no Cost Allocation Plan / ICRP, (3) no internal controls over federal funds.
Analysis
What is the LPA's path forward?
Finding · Citation · Corrective action
Path forward — corrective actions required before Master Agreement processing (LAPM Ch 4 §4.4: "Neither a Master Agreement nor project-specific requests or agreements will be processed until after the associated pre-award audit process is completed and Caltrans has determined that findings (if any) have been addressed satisfactorily"):
Deficiency 1: No DBE Implementation Agreement.
• LPA must prepare and submit Exhibit 9-A DBE Implementation Agreement.
• Designate DBE Liaison Officer (DBELO).
• Adopt DBE goal-setting methodology.
• Adopt DBE compliance and monitoring procedures.
• Submit Exhibit 9-B Annual DBE Submittal Form by June 30.
Deficiency 2: No Cost Allocation Plan / ICRP.
• Options:
(a) Develop ICRP/ICAP per 2 CFR 200 Subpart E. Time-consuming (6-18 months to prepare, plus CIAO review).
(b) Elect 15% de minimis rate per 2 CFR 200.414. Faster — no ICRP needed.
(c) Forgo indirect cost reimbursement. Charge only direct costs.
• Document the choice in writing.
Deficiency 3: No internal controls over federal funds.
• Develop written internal control procedures covering:
- Authorization and approval for federal-aid expenditures.
- Segregation of duties (authorization, cash handling, recording, reconciliation).
- Documentation requirements (invoices, contracts, payroll).
- Reconciliation procedures (federal funds vs total expenditures).
- Conflict of interest policy (per Ch 2 §2.11.3 and 49 CFR 19.36).
- Records retention procedures (3 years from final voucher).
• Council/Board adoption of internal control procedures.
Timeline: Resolve all three deficiencies before Master Agreement is processed. Typically 3-6 months. CIAO will re-review the corrective actions before clearing.
Once cleared, the Master Agreement can be processed. The first project can begin moving through the authorization-PSA-invoicing pipeline.
Lesson: Pre-Award audit findings are not optional. They are the gate to federal-aid participation. New LPAs should engage CIAO early to understand requirements before pursuing first federal-aid project.
Authority: LAPM Ch 20; LAPM Ch 4 §4.4; LAPM Ch 9; LAPM Ch 5
Applied learning · Companion chapter
These exercises apply the procedural framework presented in LAPM Chapter 20: Audits and Corrective Actions. For the full chapter reference, glossary, and recall quiz, see the deep chapter file.