Federal awards can provide significant financial resources for commercial entities — not just nonprofits — enabling them to undertake projects and initiatives that align with federal objectives. At the same time, accepting and expending these funds comes with stringent compliance and reporting obligations, especially those involving an audit.
Uniform Guidance (2 CFR 200) provides the administration, cost and audit requirements, including those of a Single Audit. However, for many chief financial officers (CFOs) and finance departments, navigating the labyrinth of compliance requirements can still be daunting.
This guide aims to simplify the Single Audit process for CFOs of for-profit organizations. It describes the types of federal awards available, highlights key compliance areas and requirements, and provides Single Audit preparation strategies to support organizational accountability and efficiency.
What Is a Single Audit?
A Single Audit, also known as a Uniform Guidance Audit, is a financial reporting and compliance audit focused on entities that expend $1 million or more in federal awards in a fiscal year beginning after October 1, 2024. This is an increase from the $750,000 Single Audit threshold.
Single Audits are designed to ensure that federal funds are managed properly and in compliance with federal regulations. A Single Audit includes reporting on the presentation of a company’s Schedule of Expenditure of Federal Awards (SEFA) as well as testing to ensure compliance with requirements outlined in the Compliance Supplement by the Office of Management and Budget (OMB).
What Types of Federal Awards Are Subject to a Single Audit?
Funds subject to a single audit can either be awarded directly (from the federal government) or indirectly (from another non-federal entity) in the form of a grant, cooperative agreement or contract.
While federal funding is most often received by state and local governments, educational institutions, public housing organizations and other nonprofit organizations for projects that serve a public purpose, commercial and for-profit organizations may also be eligible to apply for and receive funds for:
- Small Business Innovation Research (SBIR): A program that encourages small businesses to engage in federal research and development (R&D) with potential for commercialization.
- Small Business Technology Transfer (STTR): A program that focuses on technology transfer from research institutions to small businesses.
- Department of Agriculture (USDA) Rural Development: Which provides grants to for-profit companies for rural development initiatives.
CFOs should have a comprehensive understanding of the terms and conditions for each federal award and program to properly adhere to the specific compliance obligations, including allowable costs (both direct and indirect) and performance measures. This includes staying updated on any changes to the Uniform Guidance and specific program requirements.
Certain federal awards, as well as the awarding agencies and federal departments, may have additional rules and regulations.
What Areas Do Auditors Focus on During a Single Audit?
Independent auditors play a central role in the Single Audit process, focusing on several essential areas to ensure compliance and accountability:
1. Internal Controls
Auditors evaluate the entity’s internal control systems to ensure they are adequate for managing federal awards. This includes processes for authorization, record-keeping and monitoring of expenditures.
Effective internal controls help prevent misuse of funds and ensure compliance with federal requirements.
2. Compliance Testing
Auditors test transactions to gather sufficient audit evidence to support an opinion on compliance with federal program requirements. This includes verifying that expenditures are allowable, allocated correctly and within the applicable period of performance.
Compliance testing helps identify any areas of non-compliance or potential issues.
3. Risk Assessment
The audit involves assessing the risk associated with the entity’s federal programs. Higher-risk programs may receive more scrutiny and detailed testing.
Risk assessment helps prioritize audit efforts and focus on areas that may pose significant compliance challenges.
4. Reporting and Submission
The comprehensive reporting package includes the SEFA, audit reports, a summary of prior year findings and a corrective action plan.
The auditor’s report includes an opinion on the schedule, a report on internal controls, and a schedule of findings and questioned costs. The schedule of findings and questioned costs details audit findings, including any issues identified and recommendations for corrective actions.
Entities provide responses to audit findings, outlining actions they plan to take to address any deficiencies in the form of a corrective action plan. A corrective action plan includes those responsible, the corrective action to be taken and the anticipated completion date.
Following issuance of the Single Audit Reports, the entity must submit the reports and data collection form in accordance with the requirements of the respective agency.
How Can CFOs Meet Single Audit Requirements?
Commercial entities must review the annual Compliance Statement to understand specific federal compliance standards for their federal awards and how they will be tested during the Single Audit process. To further support compliance efforts, CFOs should focus on several key practices outlined below.
Implement Effective Internal Controls
Establishing strong internal controls is essential to prevent fraud, waste and abuse of federal funds. This includes processes for monitoring compliance, approving expenditures and safeguarding assets.
Verify Cost Principles
Ensure all costs charged to federal awards are allowable, reasonable and allocable.
- To be allowable, costs must be:
- Necessary and reasonable for the performance of the federal award.
- Allocable thereto under the applicable principles.
- A cost is allocable if it:
- Is incurred specifically for the federal award.
- Benefits both the federal award and other work of the company.
- Can be distributed in proportions that may be approximated using reasonable methods.
- Is necessary to the overall operation of the company.
- Is assignable in part to the federal award in accordance with the applicable principles.
Practice Diligent Documentation and Record-keeping
Adequate documentation is critical. CFOs should ensure that all financial records, including receipts, invoices, timesheets and contracts, are maintained and readily accessible for audit purposes. Supporting documentation over the review of such records should also be maintained and visible for review by auditors.
Provide Staff Training and Education
Regular training programs for staff involved in managing federal awards can help ensure compliance. This includes understanding the specific requirements of each federal program.
Perform Routine Monitoring and Evaluation
Continuous monitoring of compliance with federal requirements is necessary. CFOs should implement regular evaluation processes to identify areas for improvement and ensure corrective actions are taken promptly.
How To Prepare for a Single Audit
Preparation is key to a successful Single Audit. CFOs should start by conducting a pre-audit review to identify any potential issues. This involves:
- Review Compliance Requirements: Ensure policies and procedures address each of the applicable requirements. The Compliance Supplement identifies the requirements applicable to groups of awards.
- Conducting Internal Audits: Regular internal audits can help identify compliance gaps and areas for improvement.
- Review Past Audits: Analyze findings from previous audits to ensure that past issues have been resolved.
- Develop a Compliance Calendar: Create a timeline of key compliance deadlines and audit milestones to ensure timely action and avoid last-minute challenges.
- Generally, the data collection form and the reporting package must be submitted within 30 calendar days after the auditee receives the auditor's report(s) or nine months after the end of the audit period (whichever is earlier).
- Engage With Auditors Early: Establishing a good working relationship with your auditors can facilitate a smoother audit process. Provide them with all necessary information and address any queries promptly.
Single Audit FAQs
To clarify key aspects and provide guidance, especially for CFOs navigating the Single Audit process for the first time, the following information addresses common questions.
A Single Audit is more comprehensive than a regular financial audit. A regular audit is focused solely on the financial health and reporting accuracy of an organization. On the other hand, a Single Audit combines a financial audit with a compliance audit specifically for federal funds. It’s designed to promote the accountability and transparency of how federal dollars are used.
The Single Audit process is a structured review that evaluates both an organization’s financial statements and its compliance with federal program requirements. The process involves 1) planning, 2) fieldwork, 3) reporting and 4) submitting.
- Auditors identify major federal programs, assess internal controls, and coordinate with management to outline the audit’s scope and timeline.
- Auditors gather evidence through testing transactions, reviewing documentation, and verifying adherence to federal regulations and program rules.
- Auditors compile their findings into a comprehensive report, which includes an opinion on the financial statements, an assessment of compliance and recommendations for corrective actions if needed. The organization then develops a corrective action plan to address any issues identified.
- The audit report and related documents are submitted to the Federal Audit Clearinghouse (FAC), ensuring transparency and accountability in the use of federal funds.
Single Audits must be submitted no later than 30 calendar days after the auditee receives the auditor’s report(s) or nine months after the end of the audit period, whichever comes first.
This deadline, set by the OMB, applies to both the data collection form and reporting package, which must be submitted to the FAC in accordance with 2 CFR 200.515.
Your Guide Forward
For CFOs of commercial entities, understanding and complying with Single Audit requirements is essential to maintaining the trust of stakeholders and ensuring the proper use of federal funds. By implementing adequate internal controls, maintaining thorough documentation and preparing diligently for audits, CFOs can navigate the complexities of the Single Audit process with confidence.
Remember, compliance is not just about fulfilling obligations; it’s about fostering a culture of accountability and transparency within your organization.
Reach out to our team of auditors and advisors today if your organization has received federal funds and you need guidance on the compliance requirements.
