Government grants can be a great source of funding for nonprofits. These grants boost the credibility of the organization, provide funding for the organization’s programs and are not expected to be repaid. However, government grants may also require the organization to adhere to rigorous reporting and compliance requirements. One such requirement is the single audit.
Because of the COVID-19 pandemic, many organizations (nonprofits as well as for-profit businesses) have received federal funding through the CARES Act and other legislation and now find themselves subject to the single audit for the first time. If your organization is in this situation, these FAQs can help you prepare for your single audit.
You will need a single audit if your organization expends $750,000 or more in federal funds during the fiscal year. The basis for determining when federal funds are expended is based on the type of federal award. For most awards, the funding is determined to be expended when the expenditure or expense transaction occurs. However, federal “expenditures” may also include loan programs and lost revenues as allowed by certain programs.
Determining whether an award is considered federal and subject to the single audit can be tricky. Federal financial assistance can come directly from a federal agency or be passed through the state, county, another nonprofit or other pass-through entities. If you receive funding that resembles federal assistance, you should confirm with the funding agency whether the award is considered federal.
In addition to the audit of your regular financial statements, your auditor will also perform a compliance audit in accordance with the Uniform Guidance (UG). The UG is a set of rules and regulations that define the administration of federal awards, including how federal funds can be spent and tracked within the financial records. The audit will focus on the testing of compliance and internal controls over compliance as they relate to your federal awards. Each federal award has unique compliance requirements. Also, be prepared to provide supporting documentation for costs that have been or will be reimbursed through federal awards.
Your auditor is required to test internal controls over compliance during the single audit. As such, it is important that you establish and maintain effective internal controls that provide reasonable assurance that you are managing your federal awards in compliance with federal statutes, regulations and the terms and conditions of the federal awards. Controls will need to be documented. You may also need to add layers of review and signoffs that were not previously implemented. Refer to the Compliance Supplement, Part 6, Internal Control for additional guidance on controls.
After completion of the audit, you will need to prepare your portion of the data collection form and submit the form and audited financial statements to the Federal Audit Clearinghouse within the earlier of nine months after your year-end or 30 days after you receive the audited financial statements.
Only auditors meeting certain qualifications are allowed to perform a single audit. The Government Audit Quality Center (GAQC) recommends you consider the following factors when hiring an auditor:
Planning and communication with your auditor is key to a successful single audit. Meet with your auditor early and often to discuss the single audit plan. Ask your auditor to provide an overview of the single audit and the areas of compliance that will be tested. Identify and address problem areas in advance. Also, it is important that your schedule of expenditures of federal awards (SEFA) is complete and accurate. In response to the pandemic, the government has introduced an unprecedented amount of new government assistance programs. So having a complete and accurate inventory of your federal awards is critical for the preparation of the SEFA.
We have created a high-level overview of certain elements of the Uniform Guidance. And you can obtain the full UG here. It is especially important to be familiar with Subpart E, which covers cost principles, as those will be tested in almost every single audit. You should also review the applicable sections of the Compliance Supplement, as your organization is expected to follow its requirements.
For questions or help with your single audit, don't hesitate to contact our audit experts.
