Single Audit Requirements: What Leaders Need to Know

Your organization just received a substantial federal grant that will significantly boost your community service work. As the celebration winds down, your finance team asks, “Will we need a single audit now?” This question comes up frequently when organizations receive federal funding, yet many leaders find themselves unprepared for what follows.

Single audits are one of the most significant compliance requirements organizations face when receiving federal funds. For nonprofit executives, government agency leaders and business owners working with federal dollars, understanding these requirements protects your mission and ensures continued access to vital funding.

The reality is that proper preparation makes all the difference between a smooth audit experience and a challenging ordeal. Here’s what you need to know about single audit requirements, recent threshold changes and practical steps to ensure your organization remains compliant.

Understanding Single Audit Basics

The single audit originated with the Single Audit Act of 1984 (later amended in 1996) to ensure organizations receiving federal funds use them appropriately. A single audit goes beyond a standard financial audit by examining both your financial statements and your compliance with federal program requirements.

Compliance issues related to internal controls and documentation are common audit findings, affecting a significant portion of organizations during their first single audit. This highlights the importance of thorough preparation, particularly for organizations new to federal funding. Proper preparation is crucial for audit success.

The most significant update for 2025 is the increased threshold for single audit requirements. For fiscal years beginning on or after Oct. 1, 2024, the Office of Management and Budget (OMB) has raised the threshold from $750,000 to $1,000,000 in federal expenditures. This 33% increase marks the first adjustment since 1997 and will benefit many smaller organizations. However, it creates a transition period since the threshold depends on when grant agreements were executed, potentially meaning your organization could operate under different thresholds simultaneously. These changes affect thousands of organizations across the country.

A single audit applies to non-federal entities that expend federal funds at or above the threshold during their fiscal year, including:

• State and local governments
• Nonprofit organizations
• Educational institutions
• Indian tribal governments

The threshold refers to expenditures, not awards received. The timing of when you spend the funds determines whether you’ll need a single audit in a given year. Additionally, the threshold includes all federal funds expended, whether received directly from federal agencies or indirectly through state governments or other pass-through entities.

For fiscal years beginning before Oct. 1, 2024, the single audit threshold remains at $750,000 in federal expenditures. This distinction matters for organizations with fiscal years spanning the transition period.

Organizations approaching these thresholds should establish systems to track federal expenditures monthly rather than waiting until year-end. This proactive approach provides time to prepare for potential audit requirements.

Key Single Audit Thresholds and Requirements

Understanding which federal programs require testing is a critical aspect of single audit preparation. Not every federal program your organization receives funding from will undergo detailed testing. Auditors determine which programs qualify as “major programs” based on a risk assessment process outlined in the Uniform Guidance.

The risk assessment considers factors such as the dollar amount of the program, prior audit findings, program complexity and whether the program is new to your organization. Programs identified as high risk will often undergo detailed compliance testing if they are determined to be a major program.

For each major program, auditors will test specific compliance requirements applicable to that program. These requirements vary by program but commonly include:

• Allowable activities and costs
• Cash management
• Eligibility determination
• Equipment and property management
• Matching, level of effort and earmarking
• Period of performance
• Procurement and suspension/debarment
• Program income
• Reporting
• Subrecipient monitoring

Each single audit program included in the OMB Compliance Supplement is limited to a ”pick six,” meaning that no more than six compliance requirements are designated as applicable for testing under that program each year. Auditors will evaluate your internal controls over compliance with these requirements. Strong internal controls demonstrate your ability to manage federal funds appropriately and reduce the risk of non-compliance.

Common Single Audit Findings and How to Avoid Them

Single audit findings often fall into predictable categories. The most frequent findings relate to:

• Inadequate documentation of expenses and activities
• Insufficient internal controls
• Non-compliance with reporting requirements
• Issues with subrecipient monitoring
• Problems with cost allocation methodologies

Organizations can mitigate these risks by implementing documentation systems for all federally funded activities. Every expense should have appropriate supporting documentation showing how it relates to program objectives and meets allowability criteria.

Developing comprehensive written policies and procedures addressing federal grant management helps establish consistent practices across your organization. These policies should cover procurement, time and effort reporting, cost allocation and other critical compliance areas.

Prepare for a Successful Single Audit

Preparation for a single audit should begin long before your auditor arrives. Start by identifying all federal awards received during the fiscal year, including the Assistance Listing (formerly CFDA) number, funding agency and program name. This information forms the foundation of your Schedule of Expenditures of Federal Awards (SEFA), a key document required for the single audit.

Track expenditures by federal program throughout the year, distinguishing between direct and indirect costs. This ongoing monitoring helps ensure you stay compliant with program-specific requirements and budget limitations.

Maintain organized documentation for all federal grant activities, including:

• Grant agreements and amendments
• Approved budgets
• Financial reports submitted to funding agencies
• Time and effort documentation for personnel costs
• Procurement documentation
• Evidence of required matching contributions
• Program performance reports

Review compliance requirements for each major program, and conduct periodic self-assessments to identify and address potential issues before the audit. The OMB Compliance Supplement provides detailed guidance on program-specific requirements.

The Impact of Recent Regulatory Changes

Beyond the threshold increase, other significant changes to the Uniform Guidance affect federal grant management. The threshold for capital expenditures has increased from $5,000 to $10,000, allowing greater flexibility in managing capital assets. Changes to procurement standards also aim to streamline processes.

For nonprofits, these federal changes occur alongside varying state audit requirements. Many states have laws requiring charitable nonprofits to conduct independent audits based on total revenue or contributions. This creates a complex compliance matrix for organizations operating across multiple jurisdictions.

Set Your Organization Up for Single Audit Success

Successful single audit management requires ongoing attention to compliance throughout the year. By understanding the requirements, maintaining thorough documentation and implementing strong internal controls, organizations can navigate the audit process effectively.

For those new to federal funding or approaching the single audit threshold for the first time, consulting with professionals experienced in federal grant compliance provides valuable guidance. With proper preparation, a single audit becomes not just a regulatory requirement but an opportunity to strengthen your organization’s financial management practices.

Need help preparing for your single audit? Contact our experienced team today to ensure your organization meets all compliance requirements and is ready for a successful audit experience.

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