Updates to the Single Audit Threshold

Your nonprofit just closed out another fiscal year with $1.2 million in federal grant funding. You’ve grown steadily over the past few years, and your federal awards keep climbing. But here’s what catches many organizations off guard: crossing the single audit threshold means you’re playing by a whole new set of rules, and the compliance requirements are significantly more demanding than your standard financial audit.

What Changed with the Single Audit Threshold

The single audit threshold sits at $1 million in federal expenditures during your fiscal year. If your nonprofit expends that amount or more in federal awards, you’re required to undergo a single audit (also called a Uniform Guidance audit). This isn’t a new threshold, but what surprises many organizations is how quickly they hit it.

Federal expenditures include more than just direct grant payments. They encompass pass-through funding, federal contracts, loan guarantees and even some forms of federal assistance that don’t look like traditional grants. We’ve seen nonprofits mistakenly believe they’re safely under the threshold, only to discover during year-end that certain programs pushed them over the line.

The Uniform Guidance regulations under 2 CFR 200 spell out exactly what counts toward your federal expenditures. Getting familiar with these definitions early prevents unpleasant surprises come audit time.

Why the Single Audit Threshold Matters More Than You Think

Crossing into single audit territory changes your entire compliance landscape. A financial statement audit reviews your overall financial position and practices. A single audit goes deeper, examining your internal controls over federal programs, testing compliance with specific grant requirements and assessing whether you’re following federal compliance regulations for everything from procurement to time and effort reporting.

The cost difference is real too. Single audits typically run more than standard financial audits because of the additional testing and documentation requirements. But the bigger risk is non-compliance. Federal agencies take single audit findings seriously, and material weaknesses can jeopardize future funding or trigger additional monitoring.

Here’s something many nonprofits don’t realize: even if you dip below $1 million the following year, you can’t simply skip the single audit if you were required to have one for the prior year. The compliance mindset needs to stick. Federal agencies expect consistent internal controls regardless of whether you’re subject to a single audit in any given year.

Get Ready Before You Cross the Threshold

Smart nonprofits start preparing for single audit requirements before they hit $1 million. Waiting until you’ve crossed the threshold means scrambling to implement controls and documentation practices retroactively, which rarely goes smoothly.

Start with your grant management processes. Do you have clear documentation showing how you track federal versus non-federal expenditures? Can you easily demonstrate that federal funds were spent on allowable costs according to each grant’s terms? Do you have a cost allocation plan in write that illustrates the cost breakout between funding sources? These questions become the foundation of single audit testing.

Time and effort reporting often trips up first-time single audit clients. If you have employees whose salaries are charged to federal grants, you need contemporaneous records showing how they allocated their time. Reconstructing these records months later doesn’t meet federal standards.

Procurement policies matter too. The federal procurement standards require specific documentation and processes when you’re spending federal dollars. Your existing purchasing practices might need upgrades to meet these requirements.

Plan Your Federal Award Strategy

Some nonprofits intentionally manage their federal funding to stay below the single audit threshold, at least temporarily. There’s nothing wrong with strategic planning around this boundary, but make sure you’re not limiting your mission impact just to avoid an audit requirement.

Other organizations embrace federal funding growth and build the necessary infrastructure to support it. This means investing in accounting systems that can track federal expenditures separately, training staff on compliance requirements and potentially hiring grant management specialists.

The key is making an informed choice rather than stumbling into single audit requirements unprepared. Look at your funding pipeline for the next two to three years. If federal awards are growing, start building your compliance framework now.

Don’t forget about subrecipient monitoring if you pass federal funds through to other organizations. Once you’re subject to single audit requirements, you have oversight responsibilities for those downstream recipients too.

If you’re approaching the single audit threshold or recently crossed it, our team can walk you through what to expect and help you build the internal controls that’ll make the audit process smoother. We work with nonprofits that are managing this transition, and we understand how to balance compliance requirements with operational realities. Contact a James Moore professional today to discuss how we can support your organization’s financial health and compliance needs.

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.