Preparing For Your Not-For-Profit’s First Single Audit

By Corey Arvizu, CPA

Early preparation and an awareness of the additional requirements is key to ensuring your first single audit is successful.

Many not-for-profit organizations have received new or additional federal funding in response to the pandemic. In some situations, these funds were received as part of federal programs designed specifically to respond to the pandemic, such as the Coronavirus Relief Fund. In other situations, the additional funds may have been imbedded in existing federal funding sources the organization has historically received. Along with this additional funding, not-for-profit organizations are finding themselves subject to the additional audit requirements of the single audit for the very first time. If your organization expended more than $750,000 of federal funds in a fiscal year, you will need a single audit. A single audit significantly changes the type of audit procedures that are performed in comparison to those of a financial statement audit. Early preparation and an awareness of the additional requirements is key to ensuring your first single audit is successful.

Identification of Federal Funding Sources

Identification of the federal funding sources received by the organization is the first and most important step in preparation of your single audit. Federal funding is often received from different sources and may take different forms. Federal funding may come directly from federal agencies, such as the United States Department of Health and Human Services. However, federal funding is often passed through local governments such as cities or counties and, in some instances, from other not-forprofit organizations. The common form of federal funding received by a not-for-profit organization is grants, either received prior to expenditure or on a cost-reimbursement basis. Other forms of federal funding include loans and loan guarantees, interest subsidies, food commodities and even donated property, which was common for pandemic-related programs in the form of personal protective equipment. Ideally, the grants or contracts from the awarding agency specify the source of the federal funding and relevant compliance requirements. However, as noted, the federal funding is often received from different awarding agencies, which can utilize different types of grants or contracts. Therefore, it is important as a recipient to closely review these agreements and to review them early, in case clarification is needed from the awarding agency.

One item to note is that funds received under the Paycheck Protection Program (PPP) are not subject to single audit requirements. However, other compliance and document retention requirements are applicable to this federal program.

Preparation of the SEFA

Once all of your organization’s federal funding sources have been identified, the information is then utilized to prepare the schedule of expenditures of federal awards, commonly referred to as the SEFA. The SEFA determines if a single audit is required, and if so, the individual federal programs that will be audited for the single audit. Not all of the organization’s federal programs are audited in a single audit. The auditor utilizes a risk assessment process specified in audit guidance to determine which programs will be audited.

The following are some of the more important informational elements that are required to be included on the SEFA:

• Title of federal program

• Assistance listing number (formerly known as CFDA number)

• Program expenditures

• Federal awarding agency

• Name of pass-through entity, if applicable

• Amount provided to subrecipients, if applicable

The accurate and complete preparation of the SEFA is critical. Without it, auditors cannot determine if a single audit is required, and if so, which federal programs are to be audited. An inaccurate or incomplete SEFA can lead to audit delays, as well as potential audit findings.

Testing of Federal Programs

Once the auditor has determined which federal programs will be audited, the process of reviewing the programs and the testing of certain compliance requirements begins. Auditors use a document titled the Compliance Supplement to determine the audit procedures to be performed on the selected federal programs. Most all federal programs are included in this document, and it includes guidance on the 12 compliance requirements that may be applicable to a federal program, such as activities allowed or unallowed, eligibility, provisions and reporting and special test. Although many of the 12 requirements may be applicable to the grant, federal agencies specify six that auditors are required to perform audit procedures on. In some cases, even though the requirement is specified for testing, the auditor may determine it is not significant enough to the particular organization to warrant testing. For example, procurement may be identified as a requirement to be tested; however, if the organization used most of the grant funds for payroll expenditures, this requirement may not be tested. The Compliance Supplement is often called an “open book test” as it is a public document which all organizations receiving a single audit may access. Grant administrators and other program personnel that will be working with the auditors for the federal programs to be audited are encouraged to review this document when preparing for the single audit to become familiar with what the auditors will be requesting and reviewing.

If you determine your not-forprofit organization may be subject to a single audit, contact your current auditor early in the process. Performing single audits is a specialized area, and not all auditors perform single audits, so you will want to discuss if they are able to provide this service. In addition, due to the additional time required to perform a single audit, there will most likely be additional audit fees. Your auditor will need to assess your federal programs and the complexity of the additional testing required in order to provide an estimate of the additional fees.

This article provides some of the more fundamental items to be aware of during your first single audit. Additional items that you will want to have an awareness of include terminology, acronyms, specifics of the applicable compliance requirements, reporting of audit findings, corrective action plan and the data collection form. Fortunately, there are resources available to assist you and your staff throughout the process. Your auditors will be a great resource to answer questions and provide guidance throughout the preparation for your single audit. In addition, there are numerous trainings on single audits available online and through conferences, some developed specifically for first-time single audits. With some preparation, consultation and research, your first single audit, although challenging, will be a success. l Corey Arvizu, CPA is a partner at Heinfeld, Meech & Co. Arvizu will speak during his session “Welcome to Your First Single Audit” at the ASCPA Not-For-Profit Conference on June 24, 2022. Register for the conference at ascpa.com/npc