So, You Need a Single Audit… What Is It and What Should You Expect?
One of the few positives in the current economic environment is the availability of government funds. In an effort to combat the impact of COVID-19, many entities have received a substantial increase in the amount of their federal funding or have received federal funding for the very first time. As always, when dealing with the Federal Government, there may be strings attached. As a recipient of federal funding, that string may be the need for a single audit.
How is a Single Audit Different from a Regular Audit?
A single audit is made up of two components. One is an audit of an entity’s financial statements conducted under Government Auditing Standards (GAS), which requires the auditor to include a report on an entity’s internal control over its financial reporting and on its compliance with the various provisions of law, regulations, contracts and grant agreements. The second component is an audit of the entity’s compliance with requirements associated with the entity’s major federal program or programs and the corresponding internal controls over those compliance requirements. Such compliance requirements may be related to the type of expenditures allowed, eligibility and or the type of activities allowed.
How Do I Know When a Single Audit Is Required?
A single audit may be required when an entity expends over $750,000 of federal funding in one year. When an entity expends federal funds in excess of the single audit threshold, it is recommended that the entity review their funding agreement or contact the awarding agency to determine the audit requirements associated with their specific federal award. Some awards, such as those provided as part of the Paycheck Protection Program, are not subject to single audit.
What Type of Testing Will My Auditor Perform During my Single Audit?
The first step will be for the auditor to determine which award will be audited as a “Major Program.” If only one award was received, the process is simple. If multiple awards were received, the auditor will need to review the type of awards received, the amount of each award and assess the risks associated with each program funded by the award. Based on this review, the auditor will determine which program or programs need to be audited as a major program. Once this determination is made the testing can begin.
Each federal award is identified by its Catalog of Federal Domestic Assistance (CFDA) number. Every year, the Office of Management and Budget (OMB) provides a Compliance Supplement that delineates, by CFDA number, the specific compliance requirements that impact the award, the audit objective and the suggested audit procedures related to each compliance requirement. There are a number of possible compliance requirements:
- Activities Allowed or Unallowed
- Allowable Costs/Cost Principles
- Cash Management
- Equipment Real Property Management
- Level of Effort
- Period of Performance
- Procurement Suspension & Debarment
- Program Income
- Subrecipient Monitoring
- Special Tests and Provisions
The Compliance Supplement provides a matrix to assist the auditor in determining which of these compliance requirements is subject to audit for the award received. The auditor will use this supplement as a guide to develop the type of audit testing to be performed. The results of the auditor’s tests will determine whether the entity is in compliance with the requirements of the award and has sufficient internal controls in place to accurately account for and safeguard the funds.
The auditor will include any findings based on their testing in the audit report. In most cases, a copy of the audit is submitted to the Federal Government via the Federal Audit Clearinghouse which operates on behalf of the Office of Management and Budget. The purpose of the Clearinghouse is to distribute single audit reporting packages to federal agencies, provide oversight and assessment of federal award audit requirements, maintain a public database of completed audits and help auditors and auditees minimize the reporting burden of complying with single audit requirements. The submission to the Clearinghouse is due nine months after an entity’s year-end or within 30 days of the entity receiving the auditor’s report, whichever date is the earliest. Due to COVID-19, the nine-month due date has been extended by an additional six months for those entities with fiscal year-ends through June 30, 2021.
Remember, the goal of a single audit is to provide the U.S. Government and taxpayers assurance that tax dollars have been expended as intended and to help reduce the risk of fraud, defalcation and misappropriation of public funds.
Michael A. Holk
Michael A. Holk, CPA, PSA, is vice president of BKC, CPAs P.C. He is a member of the NJCPA Accounting & Auditing Standards, Nonprofit and Cannabis interest groups.