Federal funding rules changed recently. The Office of Management and Budget updated the Uniform Guidance. This update increased the Single Audit threshold from $750,000 to $1,000,000. This change applies to fiscal years beginning on or after October 1, 2024. Your organization must pay attention if your federal spending hits this new mark. Crossing this line brings more oversight. Prepare now to avoid stress later.
Why the $1 Million Mark Matters
Crossing the $1 million threshold triggers a Single Audit. This audit provides a comprehensive look at your financial health and compliance. The process ensures you spend federal awards according to specific regulations. A Single Audit is more rigorous than a standard financial statement audit. The auditor examines your internal controls over federal programs. They check if you follow the rules for each specific grant.
Preparing for a Single Audit takes time. Many organizations wait until the end of the year to start. This delay leads to mistakes. Starting early ensures your documentation is ready when the auditor arrives.
Understand the Single Audit Process
The Single Audit combines two different reviews. First, the auditor performs a standard financial statement audit. Second, the auditor performs a compliance audit. This second part focuses on your federal programs. The auditor selects major programs based on spending and risk. They test your adherence to the 12 compliance requirements found in the OMB Compliance Supplement.
The compliance requirements include things like allowable costs, procurement, and reporting. Your goal is to show the auditor you followed every rule. You need a paper trail for every dollar spent.
Step 1 Create Your SEFA
The Schedule of Expenditures of Federal Awards is the most important document for your audit. People call this the SEFA. The SEFA lists every federal grant your organization spent money on during the fiscal year.
A complete SEFA includes several details for each grant:
- The name of the federal agency.
- The name of the pass-through entity if applicable.
- The Assistance Listing Number previously known as the CFDA number.
- The identifying number assigned by the pass-through entity.
- The total amount of federal awards spent.
Auditors use the SEFA to determine which programs they must test. Accuracy is vital. If your SEFA is wrong, the entire audit starts on the wrong foot. Review your grant agreements to identify the Assistance Listing Number for every award. Match your SEFA totals to your general ledger.
Step 2 Review Your Procurement Policies
Procurement is a common area for audit findings. Federal rules require a fair and open competition for purchases made with grant funds. Your organization must have written procurement policies. These policies must follow the standards in the Uniform Guidance.
Keep records for every purchase. If you buy equipment or services, document the bidding process. If you choose a vendor without a low bid, document the reason. For small purchases, you should still compare prices from multiple sources. For large purchases, you need formal bids or proposals.
Many organizations fail to check for debarred or suspended vendors. You cannot use federal funds to pay a vendor excluded from federal contracts. Check the System for Award Management website for every vendor. Print a copy of the search result for your files.
Step 3 Strengthen Time and Effort Reporting
Personnel costs often represent the largest portion of federal spending. Federal agencies require proof of time worked on specific programs. Simple budget estimates are not enough. You need records based on actual hours worked.
If an employee works on multiple programs, their time sheet must reflect the hours spent on each task. If an employee works 100 percent on one federal program, a periodic certification might suffice. However, many auditors prefer monthly time sheets for everyone. Ensure your payroll records match these time sheets exactly. Discrepancies here often lead to questioned costs.
Step 4 Monitor Your Subrecipients
If your organization passes federal funds to other groups, you are a pass-through entity. This role brings extra responsibilities. You must monitor your subrecipients to ensure they use the money correctly.
Before awarding funds, perform a risk assessment of the subrecipient. Check their past audit history. Review their financial systems. Once you award the funds, monitor their spending. Review their financial reports. Conduct site visits if necessary. Your auditor will check your monitoring process. If a subrecipient mismanages funds, your organization might be liable.
Step 5 Document Your Internal Controls
The federal government requires written internal control policies. Many organizations have informal processes. Informal processes do not satisfy federal requirements. You must put your controls in writing.
The GAO Green Book and the COSO framework provide guidance on internal controls. Your policies should cover:
- Control Environment.
- Risk Assessment.
- Control Activities.
- Information and Communication.
- Monitoring Activities.
Write down who approves invoices. Document how you prevent one person from handling all parts of a transaction. This separation of duties protects your organization from fraud and errors.
Prepare for Common Audit Findings
First-time Single Audits often uncover similar issues. Knowing these common findings helps you avoid them.
- Lack of Written Policies. You might do the right thing, but without a written policy, you fail the compliance test.
- Missing Documentation. If the auditor asks for a receipt and you cannot find it, they will mark it as a finding.
- Ineligible Costs. Spending grant money on items not allowed by the grant agreement results in questioned costs.
- Late Reporting. Many grants require quarterly or annual reports. Filing these late is a compliance violation.
Candis S. Massey often says, "Documentation is your best friend during an audit." If you did not document the action, the auditor assumes the action never happened.
Engage an Expert Early
A Single Audit is complex. Partnering with an experienced CPA firm makes the process smoother. Look for a firm with deep knowledge of the Uniform Guidance. An expert auditor helps you identify weaknesses before the formal audit begins.
Your auditor should provide a clear list of required documents well in advance. This list helps you organize your files. A well-organized audit takes less time and costs less money.
For more tips on managing your business finances, check out our blog.
Your Action Plan
Crossing the $1 million threshold is a milestone for your organization. It shows growth and impact. Do not let the audit requirement dampen your success. Follow these steps to prepare:
- Confirm your total federal expenditures for the year.
- Draft or update your SEFA.
- Review your written policies for procurement and personnel.
- Gather documentation for every federal dollar spent.
- Hire an auditor with Single Audit expertise.
Taking these steps now ensures a clean audit report later. A clean audit report builds trust with federal agencies and donors. This trust leads to more funding and more opportunities for your mission.
Reach Out for Support
If you feel overwhelmed by these requirements, you are not alone. Many organizations struggle with the transition to a Single Audit. At Maven cpa, we specialize in helping businesses and nonprofits manage their accounting and compliance needs. We offer expert accounting services and business advisory to guide you through the process.
Visit our contact page to schedule a consultation. We help you build the systems needed for a successful audit. Let us handle the technical details so you can focus on your goals.
Preparing for your first Single Audit is a big task. Start today by reviewing your federal spending. Your future self will thank you for the preparation. Managing your federal awards correctly ensures your organization continues to grow and serve your community. Confidence in your compliance is the best way to move forward. Reach out to Maven cpa to secure your financial future.