Note: The Office of Management and Budget (OMB) is expected to release a compliance supplement addendum before the end of the year, which will outline audit requirements for many new programs. We’ll be updating this FAQ with additional information after its release.
2020 presented organizations with a wide range of challenges that threaten their survival, from COVID-19 to the ensuing economic recession. While financial challenges have been particularly difficult for many entities, increases in government funding have helped organizations weather this particular storm. However, federal aid comes with challenges of its own—this year, many organizations, including both nonprofits and for-profits, will find themselves subject to a Single Audit for the first time.
Whether it’s your first time preparing for a Single Audit or you’ve had extensive experience, the process can appear overwhelming and confusing. To help you find your feet, we’ve put together a FAQ that will put you on the road to understanding your Single Audit requirements and what you need to do to prepare.
What is the Single Audit?
The Single Audit is a strict and comprehensive financial statement and federal awards audit which must be completed by any entity or organization that expends $750,000 or more in federal funds in one year. The Single Audit, typically performed annually, is intended to ensure an organization is using its federal funds correctly and is in compliance with all applicable compliance requirements and regulations.
A Single Audit covers the operations of the entire entity. There are two parts to a Single Audit: the financial statement audit and the compliance audit. The financial statement audit goes beyond the standard audit (which is performed in accordance with only generally accepted accounting standards (GAAS)) and is performed in accordance with Government Auditing Standards (GAS) as well. These standards include a requirement to report on internal controls over financial reporting and on compliance with provisions of laws, regulations, contracts and grant agreements.
The compliance audit focuses on whether the entity is following the requirements of federal statutes, regulations and the terms and conditions of their federal awards. Based on the requirements outlined by the Federal agency who awarded the funds and the type of entity you are, you may only be subject to an audit in compliance with GAS, which is less complex than the full compliance audit.
Which entities and organizations need to complete a Single Audit?
The short answer: if you spent $750,000 or more in federal funds in your fiscal year, you’ll need to complete a Single Audit.
The long answer: whether or not you need to complete a Single Audit depends on the requirements established by the Federal agency. The financial assistance listings available on beta.sam.gov can assist in making this determination.
As such, if you received any federal assistance this year, you should get a professional opinion to determine whether or not you are subject to a Single Audit.
Please note that even if you are not subject to a Single Audit, if your entity or organization received federal funding you are still required to comply with all of the federal compliance requirements and maintain relevant documentation. Even if you are not subject to a Single Audit, a federal agency may request documentation or perform an internal review.
What programs are subject to the compliance portion of the Single Audit?
The programs identified as “major programs” utilizing the guidelines in the Office of Management and Budget’s (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) are determined by the independent auditor. This is a complex determination that utilizes the specific requirements in the guidance. Once identified, these programs are the ones that are subject to the compliance portion of the Single Audit.
As a result of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, Congress allocated hundred of billions of dollars or aid through various programs that may be subject to the Single Audit requirement. However, funds distributed through the Paycheck Protection Program (PPP) are not subject to Single Audit requirements, but do have their own compliance guidelines recipients must follow.
When is the Single Audit due?
For nonprofits, typically the Single Audit reporting package must be submitted to the Federal Audit Clearinghouse (FAC) utilizing the Data Collection Form (DCF) either within 30 calendar days after receiving the auditor’s report or nine months after your fiscal year end, whichever comes first.
Currently, for-profit entities only have to supply the results of the audit directly to the federal agency or pass-through entity requiring the Single Audit.
Are the results of the Single Audit made public?
For nonprofit entities, the results are typically made public. The notable exception to this rule is Native American tribal governments, which are not required to release their audit reports publicly.
Currently, for-profit entities that must have a Single Audit are not required to complete the DCF and submit this to the FAC, so their reporting package is not public information. However, this could change.
Who can perform the Single Audit?
Single Audits are performed by independent auditors, usually certified public accountants (CPAs). In effect, you can’t have someone within your organization perform your Single Audit. Independent auditors who perform Single Audits must regularly complete specific continuing education courses as required by GAS, given the specialized nature of this work.
What are the risks if you miss the deadline or mess up your Single Audit?
The consequences of missing your Single Audit deadline or being found noncompliant can be costly and time-consuming. If you are found noncompliant, the federal government may withhold funds until the deficiency is remedied, completely suspend or terminate the award, initiate suspension or debarment proceedings or withhold further federal awards for the program. The government may also pursue other available legal actions.
How do you prepare?
Single Audits are tricky, composed of extremely strict and specific requirements and cannot be performed in-house. However, there are ways an entity or organization can prepare so that the process is as smooth as possible.
- Understand your requirements. There are plenty of resources available online to help you understand what requirements your entity or organization will need to fulfill for the Single Audit. The OMB’s 2020 Compliance Supplement explains the compliance requirements auditors will be testing and that entities receiving federal funds must comply with even if they are not subject to a Single Audit. The OMB Uniform Guidance gives a comprehensive set of guidance for federal grant management and compliance. The 2018 Government Auditing Standards outlines the requirements that must be followed with regard to performing the financial statement audit. The American Institute of CPAs (AICPA) also has a number of Single Audit tools on its website. Review the information and tools at your disposal carefully to get an idea of your requirements during the Single Audit process.
- Gather all your documentation. You will need to provide financial statements and any documents and information you may have that pertain to the federal assistance, including receipts, grantor number (where applicable), and Catalog of Federal Domestic Assistance (CFDA) number. You should keep your documentation neatly organized and accessible at all times.
- Identify and resolve problems proactively. During the course of your fiscal year, keep an eye out for any problems that may arise regarding your federal assistance and resolve them immediately. Don’t try to conceal problems or difficulties. Proactive problem resolution shows your auditor that you are working to remain in compliance even through challenges. In addition, full understanding of the problems you’ve encountered helps ensure there are no unpleasant surprises in the Single Audit process.
- Train your staff. Targeted training can help your staff understand whether an expenditure is in compliance with the relevant federal aid requirements, allowing you and your team to head off problems before they occur.
- Get professional help. Single Audit preparation should be done by trained professionals with years of experience and the necessary resources to facilitate the process. Consider partnering with a firm that has extensive Single Audit experience.