With the influx of federal funding related to the CARES Act and other COVID-19 legislation, many entities will undergo their first Single Audit this year. The Single Audit can seem overwhelming even to experienced award recipients. Understanding of the sources of regulation and program requirements is the first step to ensuring compliance with your federal programs. But what is a single audit? When is a single audit required? And who sets the requirements of a single audit?
Our guide delves into the single audit report, thoroughly examining the laws and the full set of requirements that dictate its structure and implementation. Additionally, we provide an in-depth look at how a single audit is conducted, offering a comprehensive understanding of this critical financial assessment tool.
What is a Single Audit?
A nonprofit or governmental organization with federal expenditures in excess of $750,000 is required by law to have a single audit performed, which includes an audit of both the financial statements and the federal awards. According to the single audit definition, it’s a process for reviewing how you managed the grant and ensures you followed the rules for dollars associated with the grant or award. So, when comparing a single audit vs. a regular audit, the key difference is that the former is only intended for situations when public grants are a part of your operations beyond a certain threshold.
A federal single audit is often referred to as a Uniform Guidance Single Audit. That’s because the general provisions applicable to almost all federal awards are contained in Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), a portion of the federal law that contains the requirements for obtaining, operating, and auditing federal programs. The Uniform Guidance is easily accessible online and is a great reference when questions arise about compliance requirements.
Newer award recipients should take time to read through Subpart D: Post Award Requirements and Subpart E: Cost Principles. These areas detail many of the significant compliance requirements, including financial and program management standards, procurement standards, and considerations for direct and indirect costs.
How Do I Know What Single Audit Requirements Are Important?
The Uniform Guidance contains general standards for federal awards, but to understand the specific requirements for your programs, you'll need to reference your grant agreement or award letter. Review the document thoroughly, looking for special terms, conditions, and requirements. The agreement will often contain the specific reporting deadlines, allowable expenses and other requirements like matching contributions or indirect cost rates. Make sure you understand the terms in the grant agreement and check with your granting agency for any ambiguous language or unclear requirements. To understand what a single audit is, it's essential to familiarize yourself with the specific compliance procedures involved. This includes identifying the relevant documentation that you should follow to ensure adherence to the single audit requirements.
To get a better understanding of the audit requirements for your awards, you can check the Compliance Supplement, which is released each year by the Office of Management and Budget (OMB). Although the Compliance Supplement is an auditor tool, there is useful information for auditees, including background information for specific grants and suggested audit procedures.
The 2020 Compliance Supplement was recently released on August 17; however, it does not contain any procedures related to new COVID-19 related grants. This information is expected to be released in a September 2020 addendum.
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How Has the CARES Act Impacted Single Audit Requirements?
The introduction of multiple types of COVID-19 relief funding has added a new layer to single audit requirements. The majority of programs under CARES are now subject to Uniform Guidance. This opens several organizations to new compliance requirements where there were previously none. For those organizations that have never had a single audit, the audit will be required if total federal expenditures (and loans) exceed $750,000 in the fiscal year.
Paycheck Protection Program and Economic Injury Disaster Relief Loans
Paycheck Protection Program (PPP) loans will not be subject to Uniform Guidance. Therefore, organizations that received PPP funding will not have to worry about recording the loan balance (or forgiveness) on the Schedule of Expenditures of Federal Awards (SEFA).
However, organizations that received the Economic Injury Disaster Loan (EIDL) directly from the SBA will need to include the loan balance (or amounts forgiven) on the SEFA, as EIDL will be subject to Uniform Guidance.
Coronavirus Relief Fund (CRF)
The $150 billion distribution to states, large counties and cities from the U.S. Department of Treasury is subject to Uniform Guidance. In general, the use of these funds is limited to expenditures (not revenue replacement) that were incurred as a direct result of COVID-19 and were not previously budgeted. Each jurisdiction has its own authority on how to use and expend the funds. There is a broad range of allowable expenditures (in relation to COVID-19).
From a larger perspective, funding is expected to be passed through from the recipients to organizations at lower tiers (i.e., small businesses, nonprofits, small counties and cities). Since this funding is subject to Uniform Guidance, the pass-through monies are also subject to the same requirements. Organizations that receive CRF funding from their state, county or city will be required to record the expenditures on their SEFA.
Other Programs
In general, most other programs under the CARES Act are also subject to Uniform Guidance. These include the Provider Relief Funds, Education Stabilization and Relief Funds and many other individual programs. Each program has its own specific uses (allowable costs). Organizations must read the guidance published by the federal agencies for each of these programs.
What Are the Single Audit Requirements?
The single audit will involve looking at aspects of compliance with grants as well as the internal controls over compliance. Your organization may already have a good system of policies, procedures and internal controls, but they may not be sufficient to meet specific federal requirements present over areas like procurement or personnel costs.
Internal Controls over Compliance with Federal Awards
The Uniform Guidance requires grantees to establish and maintain effective internal control over compliance with federal awards. These internal controls should be developed in accordance with the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) or the Standards for Internal Control in the Federal Government (Green Book) issued by the Comptroller General of the United States. Both of these are good references for designing an effective system of internal control.
Maintaining significant policies and procedures in a written format is a best business practice, and the Uniform Guidance requires several policies and procedures to be in written form. These include policies over procurement, conflict of interest in relation to procurement, cash management, and allowability of costs including personnel and travel costs. Although your entity may have many of these policies in place already, it is important to review them to ensure they address the federal compliance aspects, making modifications as needed.
Annual Financial Reporting
With federal awards also comes annual financial reporting. The Schedule of Expenditures of Federal Awards (SEFA) is an annual financial schedule that provides information for your organization's federal awards, including identifying information and annual expenditures. The SEFA is also the starting point for your auditors in performing a Single Audit in accordance with the Uniform Guidance. Information that should be reported on the SEFA includes:
- Expenditure amounts for federal awards by Catalog of Domestic Assistance Number (CFDA)
- Identification of the pass-through entity and identifying number
- Amounts provided to subrecipients for each federal program (if applicable)
- Totals for each cluster of programs
- Other information regarding loan programs and noncash assistance, if applicable.
Additionally, this year expenditures related to COVID-19 funding are required to be separately identified on the SEFA.
Major Compliance Requirements for Federal Awards
Each program will have its own specific set of compliance requirements based on the characteristics of the award. In general, most programs have certain restrictions over the use of the awarded dollars and reporting requirements. From there, your grant may have eligibility standards for program participants, matching requirements or other specific requirements. Reviewing the Uniform Guidance and your grant agreement will help you to identify what compliance requirements are applicable to your federal program.
Understanding the Impact of Single Audit Requirement on Your Organization
Federal compliance can be tricky to navigate, especially if your organization is administering federal awards for the first time. Understanding your compliance requirements and what you need to prepare is the first step.
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