For Nonprofits, It’s the Year of the Single Audit. Here’s What You Need to Know.
The Single Audit: what it is, how it works, and what you can do to prepare
Facing a Single Audit for the first time? You’re not alone.
This year, there is a greater chance that nonprofits will be required to perform a Single Audit—which differs from a standard financial audit—even if they have never been required to do so before. That’s because, due to COVID-19 relief, many organizations have received more funding from the federal government than in past years, pushing them beyond a certain threshold ($750,000 in qualifying federal funds) and triggering this type of audit.
Single Audits are different, and so is the way organizations should prepare for them. In this short article, we’ll explain what a Single Audit is and how it differs from a standard audit; help you determine whether or not your organization requires a Single Audit; and outline steps you can take to make the process relatively quick and easy.
But first, take a deep breath. Thousands of organizations receive Single Audits every year without a hiccup. With the right planning and a little help, yours can go just as smoothly. Chances are, as long as you have good internal controls, your organization is already doing many of the things required for this type of audit. If not, you still have time to make adjustments.
Now, let’s take a closer look.
What Makes a Single Audit Different?
Has your organization spent federal funds in compliance with the programs that awarded it?
The purpose of a Single Audit is to answer that question.
A Single Audit starts just like a standard financial audit: The auditors review your entire organization, ensuring that the proper controls are in place and that your financial statements are accurate. But then the auditors go further by assessing your organization’s control and compliance with the programs that awarded your federal funding.
Each grant or award your organization received came with specific guidelines as to how it should be expended and what controls must be put in place. A single audit makes sure this funding was handled according to these guidelines.
When reviewing your organization, auditors use Uniform Guidance—a framework overseen by the Office of Management and Budget. Simply put, this is a list of rules outlining how a Single Audit will be conducted and what aspects of your organization auditors will review.
Will you need a Single Audit this year?
It seems pretty simple: If your organization expends more than $750,000 in federal awards and grants in a single fiscal year, it will trigger a Single Audit.
But determining whether you’ve crossed that threshold is a little more complicated than it appears.
For one thing, not all funding counts: Grants/loans from last year’s Paycheck Protection Program (PPP) are from the federal government, but they don’t count toward the $750,000 threshold.
Funding from the Economic Injury Disaster Loan (EIDL) program, on the other hand, does count.
It’s also important (and occasionally difficult) to determine whether or not the funding you received is from the federal government. It’s likely that at least some of the grants and awards you received from foundations or local/state governments actually originated from federal programs. This is considered a “pass-through” of federal dollars, and it counts toward the $750,000.
And it’s not always clear cut. Often, the funding your organization receives from a program contains a mix of federal and local dollars. Let’s say a nonprofit receives a grant of $1 million from the State of Illinois Department of Human Services. That $1 million appears to come entirely from the state, right? In fact, it was composed of $200,000 from the state and $800,000 from CARES funding from the federal government. In that case, the nonprofit’s expenditures would trigger a Single Audit.
It’s also important to note that any spending of federal funds – whether it’s a direct expenditure or a pass-through to another entity – counts toward the $750,000 (excluding PPP, which is never counted).
Federal funding rarely travels in a straight line from the federal government to the organization that will directly spend it. Often, it trickles through states, counties, cities and foundations first. Knowing this, it’s important to identify what funding you have received from the federal government and what portion counts toward that $750,000 threshold. The entities awarding the funds are required to disclose this at the time of the award.
Due to last year’s CARES programs, it’s more likely that you crossed that threshold, in which case you’ll need to prepare for a Single Audit.
4 Ways to Prepare
As we explained above, a Single Audit is just like a standard financial audit—in which an auditor assesses your internal controls, ensures compliance and reviews your financial statements for accuracy—with one key difference. In a Single Audit, there is a greater focus on how you expended federal funding from specific programs.
If your organization qualifies for a Single Audit (see above), there are several steps you should take to prepare. Much of the prep work is related to reading, organizing and understanding the compliance standards of the various programs through which you received grants, then providing evidence that you expended the funds properly.
#1: Get organized. Gather all of your financial records, including your expenditure justification and relevant financial and performance reports, and organize them. Also, gather all grant-award documentation, including the CFDA number for each federal grant (a five-digit number assigned in the awarding document). Having this information on-hand always makes the process quicker and easier.
#2: Review your grant documents. Make sure you are familiar with the terms of the grants your organization has received.
#3: Review your procedures and policies, then compare them to the compliance requirements of the specific grant programs. Focus on cash management, procurement, eligibility, sub-recipient monitoring policies, and allowability of costs. You can (and should) address any discrepancies before the Single Audit.
This is the time to identify errors: Make sure that none of your expenditures are reimbursed by more than one funding source, verify that credits are netted against expenditures, and double-check your work.
#4. Draft your SEFA. The SEFA, required in accordance with Uniform Guidance, is the document in which your organization reports its expenditures of federal funds during the fiscal year. If your qualifying federal expenditures exceed $750,000, this is the document that triggers the Single Audit.
It’s important that your SEFA is thorough and accurate. Otherwise, you risk neglecting a Single Audit when one is required.
We make it easy.
Since 1974, our trusted advisors have partnered with nonprofit organizations to navigate every step of the financial journey, including Single Audits. We help you get organized, get the necessary information together, improve your internal controls when necessary, and address compliance requirements. Whether this is your first experience with a Single Audit or your 20th, we help you ensure it’s done right—and we make the process as quick and easy as possible.