Single Audit Act Findings and their Impact on State Funding Levels

Abstract

Enacted in 1984, the Single Audit Act was created to improve oversight of federal aid to state and local governments. However, recent studies have called into question the quality of work performed under the SAA. Such concerns raise doubts as to the effectiveness of the SAA in achieving two notable objectives: promote audit uniformity and maximize the extent to which federal officials rely upon SAA reports. With both federal and state governments confronted with budget deficits and demand for audit information elevated, the literature has been generally silent as to how effectively SAA is meeting the aforementioned objectives at the state level. After the SAA was amended in 1996, a comprehensive database of audit observations was created, known as the Federal Audit Clearinghouse (FAC). The FAC contains thousands of records relating to the single audit process. Using all data available for state governments since the inception of the FAC, this study explores the extent of audit uniformity by analyzing the frequency of audit findings and other trends. To determine whether single audit findings impact federal aid to states, a panel dataset is constructed using single audit observations and other determinants of federal aid. These analytical procedures are coupled with interview data. I find only limited evidence of audit uniformity and no statistically significant relationship between the total amount of federal aid distributed to state governments and single audit observations. Although the single audit process serves as an important tool for accountability, significant opportunities exist to enhance the usefulness of these reports and their impact across the states.