These regulations implement the Education Article, §5-109, Annotated Code of Maryland, which requires each local board of education to provide for an annual audit of its financial statements. The regulations also implement the Single Audit Act of 1984 and the Single Audit Act Amendments of 1996 and the Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, which require State, local governments, and nonprofit organizations to provide for an annual audit of federal awards. In these regulations, the following terms have the meanings indicated. Terms Defined. “Department” means the Maryland State Department of Education. “Fiscal year” means the period beginning on July 1 of a calendar year and ending on June 30 of the next calendar year. “Local board” means the board of education of a county and includes the Board of School Commissioners of Baltimore City. In this chapter, the following documents are incorporated by reference. Documents Incorporated. Audit and Accounting Guide for State and Local Governments (2005 Edition—American Institute of Certified Public Accountants). Government Auditing Standards (2003 Revision—Comptroller General of the United States). The Single Audit Act of 1984 (31 U.S.C. §§7501—7507, Public Law 98-502) and the Single Audit Act Amendments of 1996 (31 U.S.C. §§7501—7507, Public Law 104—156). The Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations (62 FR 35278 (2003)). Office of Management and Budget Circular A-133 Compliance Supplement (64 FR 26793 (2004)). Audit Required. Each local board shall have an audit made of its financial statements for each fiscal year in accordance with this regulation. Qualifications of Auditor. An independent certified public accountant, or a partnership or corporation of certified public accountants who hold a license or permit issued by the State Board of Public Accountancy shall perform the audit. Approval by State Superintendent of Schools. The local superintendent of schools shall submit to the State Superintendent of Schools for approval, by May 1 of the fiscal year to be audited, the name of the auditor. Standards. The auditor shall conduct the audit in accordance with generally accepted auditing standards and the requirements set forth in the following documents: “Audit and Accounting Guide for State and Local Governments”; and “Government Auditing Standards”. Report on Audit of Financial Statements. The audit reporting package shall include, at a minimum: The auditor's opinion which states whether the local board's financial statements are presented fairly in accordance with generally accepted accounting principles; Management's discussion and analysis of the local board's financial performance during the fiscal year; Basic financial statements prepared in accordance with generally accepted accounting principles and current Government Accounting Standards Board pronouncements that provide at least the following information, if applicable: Statement of net assets; Statement of activities that presents expenses and revenues by individual functions and the corresponding change in net assets; Governmental funds balance sheet; Reconciliation of the governmental funds balance sheet to the statement of net assets; Statement of revenues, expenditures, and changes in fund balances of governmental funds; Reconciliation of the statement of revenues, expenditures, and changes in fund balances of governmental funds to the statement of activities; Statement of net assets of proprietary funds; Statement of revenues, expenses, and changes to fund net assets of proprietary funds; Statement of cash flows of proprietary funds; Statement of fiduciary net assets; and Notes to the financial statements with all required disclosures; Required supplemental information that includes, if not already included as part of the basic financial statements, budgetary comparison schedules for the General Fund and for each major special revenue fund that has a legally adopted budget; The auditor's report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Governmental Auditing Standards; and The letter of recommendation submitted by the auditor to the management of the local board noting other matters involving the internal control over financial reporting, certain matters relating to compliance, or both. Submission of Report. The local superintendent of schools shall submit a copy of the audit reporting package required under §E of this regulation to the State Superintendent of Schools and the appropriate local authority by September 30 after the close of the fiscal year. Reconciliation. If there are any differences between the audited financial statements and the annual school financial report submitted pursuant to COMAR 13A.02.01.02D, the local superintendent of schools shall submit a report reconciling the differences to the State Superintendent of Schools by December 31 after the close of the fiscal year. Additional Audit Requirements and Standards. In addition to the requirements of Regulation .04 of this chapter, if a local board expends $500,000 or more in a fiscal year in federal awards, the local board shall have an audit made in accordance with the Single Audit Act of 1984 and the Single Audit Act Amendments of 1996 and the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Submission of Report. The local superintendent of schools shall submit a copy of the audit reporting package required under §A of this regulation and responses to the findings noted therein to the State Superintendent of Schools and to the federally designated central clearinghouse within 30 days after receipt of the audit report, but not later than December 31 after the end of the fiscal year. Costs. Additional costs incurred by a local board in meeting the requirements of this regulation may be charged to federal awards as a direct expenditure provided that all standards are met. The percentage of costs charged to federal awards for this purpose may not exceed the percentage that federal funds expended represent of total funds expended by the local board during the fiscal year. The percentage may be exceeded if the costs are the subject of a separate and distinct billing supported with appropriate documentation that demonstrates higher actual costs. The cost of an audit of expenditures of federal awards of less than $500,000 in a fiscal year may not be charged to federal awards. Auditor Selection. If federal funds are used to pay for any of the costs of an audit, the local board shall follow the procurement standards prescribed by 34 CFR Part 74, Subpart P, “Procurement Standards”, and shall give small audit firms and audit firms owned and controlled by socially and economically disadvantaged individuals the maximum practicable opportunity to participate in contracts awarded. Department Responsibilities. The Department shall review all audits of the local boards made pursuant to Regulations .04 and .05 this chapter, monitor the implementation of corrective action, and determine the amount of questioned costs to be disallowed. Written Notice of Disallowed Costs. The Department shall give the local superintendent of schools written notice whenever it determines that any questioned costs are to be disallowed. If the auditor becomes aware of any fraudulent acts, the auditor shall promptly notify the local superintendent of schools and prepare a separate written report. The local superintendent of schools shall promptly notify the Department of the fraudulent acts and any actions taken or proposed. Fraudulent acts include: Fraudulent financial reporting; Misappropriations of funds or other assets; and Conflicts of interest. Audit reports shall be made available by the local superintendent of schools for public inspection within 30 days after receipt of the audit report. Audit reports and working papers shall be retained for 5 years unless the Department or appropriate federal agency notifies the local superintendent of schools in writing to retain the records for a longer period. Audit working papers shall be made available upon request to the Department or an appropriate federal agency. The State Superintendent of Schools may extend the time periods in Regulations .04C and G and .05B of this chapter upon written request by the local superintendent of schools. A written request for extension of a time period shall be made at least 15 days before an act is required or report is due and shall state the reasons for requesting the extension. These regulations do not limit the authority of local, State, or federal agencies to conduct additional audits necessary to carry out their responsibilities under any other law or regulation. Education Article, §§2-205, 5-109, and 5-206, Annotated Code of Maryland Effective date: January 28, 1970 Chapter revised effective June 7, 1983 (10:11 Md. R. 976) Regulation .01E and F amended effective July 30, 1984 (11:15 Md. R. 1332) Regulation .01, Annual Audit of Financial Accounts, repealed effective April 4, 1988 (15:7 Md. R. 850) Regulations .01—.09, Annual Audits of Financial Statements and Federal Assistance Programs, adopted effective April 4, 1988 (15:7 Md. R. 850) Regulation .03D amended effective October 16, 1989 (16:20 Md. R. 2181); August 3, 1992 (19:15 Md. R. 1392) Regulation .03E—G amended effective August 15, 1994 (21:16 Md. R. 1386) Regulation .04A amended effective August 3, 1992 (19:15 Md. R. 1392) Regulation .04C amended effective August 15, 1994 (21:16 Md. R. 1386) Regulation .04E amended effective October 16, 1989 (16:20 Md. R. 2181); August 15, 1994 (21:16 Md. R. 1386) Regulation .04F, G amended effective August 15, 1994 (21:16 Md. R. 1386) Regulation .05A amended effective August 15, 1994 (21:16 Md. R. 1386) Regulation .08A amended effective August 15, 1994 (21:16 Md. R. 1386) Chapter revised effective October 4, 1999 (26:20 Md. R. 1547) Regulation .02B amended effective September 25, 2006 (33:19 Md. R. 1561) Regulation .03B amended effective September 25, 2006 (33:19 Md. R. 1561); July 2, 2007 (34:13 Md. R. 1152) Regulation .04 amended effective September 25, 2006 (33:19 Md. R. 1561) Regulation .05 amended effective September 25, 2006 (33:19 Md. R. 1561) Regulation .08 amended effective September 25, 2006 (33:19 Md. R. 1561)