The Department of Health and Human Services (HHS) has signaled a meaningful shift in how it intends to oversee audit compliance across federally funded programs. Through its new Audit Enforcement and Risk Oversight (AERO) initiative, HHS is using AI-enabled analytical tools to review at least five years of Single Audit history, identify chronic noncompliance, and spotlight unresolved findings and delinquent audit submissions.
For grantees, this development is significant. Under the Uniform Guidance, non-federal entities that expend $1 million or more in federal awards during their fiscal year are generally required to undergo a Single Audit or, in limited circumstances, a program-specific audit. Federal agencies are also responsible for ensuring those audits are completed on time and for following up on corrective action when findings are identified.
A More Aggressive Compliance Environment
The audit requirement itself is not new. What appears to be changing is the level of scrutiny and enforcement around long-standing compliance issues. According to HHS, the agency’s review identified repeat findings, unresolved internal control deficiencies and late audit submissions affecting HHS-funded programs, with some entities reportedly years behind in required filings.
HHS has also emphasized that it may use the remedies already available under the Uniform Guidance to address noncompliance. Those remedies can include withholding payments, disallowing costs, suspending or terminating awards, withholding future funding, and potentially initiating suspension or debarment proceedings.
The takeaway for grantees is this: Single Audit compliance is evolving from a year-end reporting exercise to a continuous risk management issue tied directly to funding stability, operational credibility and internal control maturity.
Why AI Changes the Conversation
AI does not create new audit requirements, but it can dramatically increase HHS’s ability to analyze historic audit data, detect patterns and elevate issues that may have previously received less attention. AERO is using next-generation AI analytical tools to evaluate years of Single Audit information and identify repeat deficiencies and missed submissions on a broader scale.
That matters because scale changes enforcement. If agencies can review more data, connect more patterns and surface repeat issues faster, grantees should expect more proactive oversight and potentially faster escalation of unresolved compliance gaps. HHS’s broader AI strategy also reinforces that the agency sees AI as part of its administrative and oversight future, not merely as a one-off experiment.
At the same time, some stakeholders have raised questions about transparency, methodology and procedural fairness in the rollout of the AERO initiative. Even so, from a practical standpoint, grantees should focus less on debating the tool itself and more on preparing for a compliance environment that is becoming increasingly data-driven.
What Grantees Should Be Doing Now
For organizations receiving federal funding, now is the time to revisit the fundamentals of audit readiness. Several proactive steps can help reduce risk, and those recommendations align with broader best practices for grantee compliance programs.
Grantees should consider taking the following actions:
- Review prior audit findings and corrective action plans to confirm issues were not only identified but fully remediated and documented, as repeat findings are likely to receive heightened attention.
- Confirm audit submission timeliness and assess whether there are any filing gaps, delays, or incomplete supporting records that could create avoidable exposure.
- Evaluate internal controls over grant spending, procurement, reporting, and closeout to ensure they remain aligned with the size and complexity of the organization’s funding portfolio.
- Coordinate with external auditors and internal stakeholders so that everyone understands roles, responsibilities, and how the organization would respond to agency questions or enforcement inquiries.
- Organize documentation related to remediation, monitoring, and agency communications so the organization can clearly demonstrate what actions were taken and when.
Grantees should ask risk-based questions internally, such as:
- Is responsibility for compliance clearly assigned?
- Are policies and procedures current?
- Is spending monitored against award requirements?
- Are records complete and supported?
- Is the accounting system reliable?
- Are deadlines tracked and escalated?
These may seem basic, but in a more analytical enforcement environment, basic disciplines often determine whether an organization looks audit-ready — or exposed.
Where Outsourced Accounting Can Add Real Value
For many grantees, audit challenges do not stem from a lack of effort — they stem from limited capacity, decentralized processes, inconsistent documentation, or accounting teams that are stretched too thin to maintain strong grant compliance routines throughout the year. This is where outsourced accounting can play an important role. While outsourced accounting does not replace management responsibility for compliance, it can materially strengthen the infrastructure that supports audit readiness.
A well-structured outsourced accounting model can help grantees improve the quality and timeliness of financial reporting, maintain cleaner documentation, establish more consistent month-end close procedures, strengthen grant and cost tracking and create better visibility into issues before they become audit findings. It can also help management implement repeatable processes around reconciliations, supporting schedules, corrective action tracking and communication with auditors — all of which contribute to a stronger control environment. These are precisely the types of disciplines that help reduce compliance risk when agencies increase scrutiny.
In short, outsourced accounting can improve audit readiness by helping grantees move from a reactive posture to a more controlled, organized and sustainable operating model. For organizations managing multiple awards, growing funding complexity, or turnover in finance leadership, that support can be especially valuable.
Your Guide Forward
HHS’s AERO initiative is another sign that federal oversight is becoming more proactive, more data-driven and more willing to act on unresolved audit issues. For grantees, the best response is not to wait for a letter or inquiry — it is to strengthen audit readiness now through better controls, stronger documentation and greater financial discipline across the grant lifecycle.
Organizations that invest in those capabilities today will be better positioned to reduce risk, respond to inquiries and protect future funding tomorrow. And for grantees that need additional bandwidth or a more scalable compliance infrastructure, outsourced accounting can be a practical and effective way to improve readiness before scrutiny intensifies.
To strengthen your readiness and compliance approach, connect with Cherry Bekaert’s government contracting advisors.
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