Essentials of a Single Audit
Organizations that receive federal funding are held to a high standard of accountability. To meet this standard, many must undergo what is known as a Single Audit. The requirement was introduced several decades ago to replace several program-specific audits with one comprehensive review. Since then, the rules have changed, including periodic increases to the dollar threshold that determines who must have the audit. The most recent change raised the requirement from $750,000 to $1,000,000 in federal awards spent during a fiscal year, effective for fiscal years beginning on or after October 1, 2024.
For nonprofits, state and local governments, and some educational institutions, understanding this process is important. A Single Audit is required for compliance, but it is an opportunity to confirm that federal funds are being used as intended. To help clients, prospects, and others, Klatzkin has summarized the key details below.
What Is a Single Audit?
A Single Audit is a comprehensive, organization-wide review designed to ensure accountability for federal funding. It serves two purposes. First, it evaluates the financial statements from the organization. Second, it tests whether the organization has complied with the specific requirements tied to its federal grants or awards.
The process is governed by the federal Office of Management and Budget’s (OMB) Uniform Guidance. Auditors typically begin with planning and risk assessment, followed by testing internal controls, substantive testing, and testing program compliance. They also review the organization’s financial statements to form an opinion on whether or not the statements are free from material misstatement. For example, if a nonprofit uses federal grant money to pay for salaries, auditors will test whether the payroll costs were allowable under the grant agreement and whether timekeeping records support the charges.
At the end of the process, auditors issue several reports. These include the auditor’s opinion on the financial statements and reports on compliance and internal controls. Any findings are listed with recommendations for corrective action.
Who Needs a Single Audit?
A Single Audit is required when a non-federal entity spends $1,000,000 or more in federal awards during a fiscal year. This applies to nonprofits, state and local governments, and educational institutions. In limited cases, an organization may elect to have a program-specific audit if it meets the criteria outlined in regulations, but most fall under the Single Audit requirement.
Programs that often push organizations over the threshold include Medicaid reimbursements for health services, housing and urban development grants, and federal transportation funding. Universities frequently exceed the threshold through federal research grants, and nonprofits that support research and development efforts with federal awards may also find themselves subject to the requirement. It is not unusual for organizations to receive multiple grants, and it is the combined total of federal expenditures that determines whether an audit is required.
The new $1,000,000 threshold reduces the burden on smaller organizations, particularly nonprofits that may have previously been required to conduct a Single Audit under the lower threshold. For organizations near or above the threshold, tracking expenditures throughout the year is the only way to know whether a Single Audit will be necessary.
How to Prepare
Being prepared is the best way to reduce stress and avoid surprises. The first step is to identify and track every source of federal funding. Expenditures should be documented in detail, with records kept current throughout the year. Strong internal controls are critical, both to prevent error and fraud and to show that funds are being used properly.
Organizations should also review prior audit findings and correct issues before the next review. Finance staff, program managers, and auditors need to work together so that information is accurate and accessible. Assigning a Single Audit point person to coordinate this work helps keep communication clear and responsibilities defined. A pre-audit readiness check can be valuable to confirm that systems and documentation meet requirements before the audit begins.
The most common problems in a Single Audit are incomplete timekeeping records, late submission of the SEFA, and weak monitoring of subrecipients. A subrecipient is another organization that receives federal funds through the primary recipient to carry out part of a federal program. For example, a university may pass part of a federal research grant to a nonprofit partner to perform specific work under the award. These issues are often avoidable with the right guidance.
Contact Us
From now on, organizations that spend more than $1,000,000 in federal awards must now meet the Single Audit requirement. Working with a qualified provider is recommended to understand how the new threshold applies and to ensure compliance. If you have questions about the information outlined above or need assistance with another tax or accounting matter, Klatzkin can help. For additional information call 609-890-9189 or click here to contact us. We look forward to speaking with you soon.