3 Steps to a Smooth Single Audit

If your nonprofit is like many, you’ve received federal aid in response to the COVID-19 pandemic. This funding provided critical help; however, it might also bring an administrative burden — a single audit requirement.

A single audit is required when a nonfederal entity expends $750,000 or more of federal awards (direct or indirect) during their fiscal year. More substantially detailed than a traditional audit, it focuses on programmatic compliance. The audit concludes with reports on internal control over financial reporting, compliance, and internal control over compliance and Schedule of Federal Awards (SEFA).

Larger nonprofits often receive and spend above the $750,000 threshold and, as a result, are familiar with federal single audits. But if yours is a smaller organization, this could be new territory for you. While you’ve likely had some sort of traditional audit on private grants or other funding, the money you’ve received from the CARES Act or other pandemic-related legislation could tip you over that single audit funding threshold.

To make matters more complicated, many states may also require a separate state single audit for funds expended with state funding. Thresholds and compliance requirements may differ between federal and state single audits (not to mention from state to state).

Regardless of what type of single audit you face, preparation is critical to a successful outcome for both auditee and auditor. Whether this is your first single audit or if you’ve had one previously, here’s how to prepare.

Gather and summarize grant information

Copies of all grant agreements should be provided to the audit team at the start of the audit. So before the audit begins, get that paperwork ready. When reviewing thee agreements, be sure to identify the funding source. If the source is from a federal grantor, it will include an Assistance Listing number (formerly known as a Catalog of Federal Domestic Assistance (CFDA) number). State funding may also include a specific funding identifier. This information will be necessary for auditor risk assessment, program analysis and testing and the preparation of the SEFA.

You will also review each grant agreement for any specific compliance requirements. These may include but are not limited to:

  • Reporting requirements
  • Cash management
  • Thresholds on administrative expenses
  • Eligibility requirements
  • Monitoring of subrecipients
  • Allowable costs
  • Allowable activities of how funding is to be spent.

If you’re uncertain about any requirements, communicate with grantors early on for clarification. The audit team will also review the grant agreements and the OMB Compliance Supplement to identify the requirements that will be tested as part of the Single Audit.

Review policies and procedures.

Next you should review your written policies and procedures to ensure they address all single audit compliance requirements. You’ll also need to identify internal controls over those compliance requirements in the procedures. You can review Part 6 (page 1,669) of the 2021 OMB Compliance Supplement as a helpful tool for identifying and developing controls over federal/state funding programs.

Communication of the compliance requirements and applicable policies and procedures to all staff involved in the process will aid in compliance with those controls. Be aware of changes in requirements during the period, and communicate them to your team in a timely manner. You might want to perform self-checks of specific processes throughout the year to verify controls are correctly implemented and documentation is complete and accurate. The audit team will review and test the identified controls for the compliance requirements selected as part of the single audit.

Finally, ensure your accounting system is set up to identify the federal/state expenditures to allow for proper report preparation. The audit team will request a listing of expenses for specific programs selected as part of the single audit. So your system must be able to provide this information. Consider using class codes or otherwise modifying your account coding structure to allow for simplified reporting.

Communicate with the audit team.

Make sure your audit team is aware of key dates and timelines (board meetings to approve the audit, date the audit is due to funding agency, etc.). In addition, inform them about any new programs, procedures or accounting systems that can impact the audit. We encourage communication to occur during the course of the year, not just at year end!

The right preparation will be key to reducing stress and ensuring a smooth and successful audit. By following these steps and working with a nonprofit CPA firm, you’ll be ready when the time comes.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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