By Keiter CPAs
Preparing Your Federally Funded Nonprofit for an Audit
In response to COVID-19, we have seen historic amounts of federal funding provided including the creation of at least 20 new federal programs. Furthermore, the CARES Act provided many existing programs with additional funding. Some of the largest new programs include the Provider Relief Fund, the Coronavirus Relief Fund, and the Educational Stabilization Fund, which are all subject to single audit requirements. As a result, many organizations will be subject to the single audit rules for the first time.
Does My Nonprofit Require a Single Audit?
Single audits, previously known as the OMB Circular A-133 audit, are organization-wide financial statement and federal awards’ audits of non-federal entities and are intended to provide assurance to the Federal Government that non-federal entities have adequate controls in place and generally are in compliance with program requirements.
Here are some important tips to consider as you prepare for the fiscal 2022 audit and consider your organization’s need for a single audit:
Know when you need a single audit.
Single audits are required for organizations that expend $750,000 or more in federal funds during any fiscal year. Federal funding may come through state or other pass-through entities and may be in the form of grants, cooperative agreements, noncash contributions or donations of property, direct appropriations, food commodities and other financial assistance. Identification is the first step. Please note that Paycheck Protection Program (“PPP”) grants are not subject to single audit requirements.
Understand single audit compliance requirements.
Different awards may have different compliance requirements. To determine the compliance requirements, you should review both the grant award agreement(s) and additionally the OMB compliance supplement that is published annually. The OMB compliance supplement provides important information to both the auditee and auditor regarding how a grant should be administered and audited. It is important to establish and maintain effective internal controls that provide reasonable assurance that you are managing your federal awards in compliance with federal statutes, regulations and the terms and conditions of the federal awards.
Key Terms to Consider:
- Allowable costs – These are costs that are necessary and reasonable for the performance of the federal award. They conform to any limitations or exclusions set forth by the award, are accorded consistent treatment (direct vs. indirect), and determined in accordance with generally accepted accounting principles. Note allowable costs cannot be included as a cost or used to meet cost sharing or matching requirements for any other federally financed program. Most importantly, allowable costs must be adequately documented.
- Indirect costs – To determine indirect costs, the rate utilized can be a negotiated rate or a de minimis rate of 10% of modified total direct costs. Guidance and requirements for indirect costs and rates are further discussed in Subpart E of the Uniform Guidance.
- Compensation (personnel services) – Requirements for compensation include reasonableness as well as assignment and allocation of time to federal awards. Time and distribution records must be maintained for all employees whose salary is paid in whole or in part with federal funds and used to meet a match/cost share requirement. Compensation related costs cannot be based on budget estimates alone, but instead needs to be based on actual time.
Organizations must continuously evaluate and monitor compliance with the conditions of federal awards. In addition, it is important for organizations to safeguard protected personally identifiable information. If noncompliance is identified, organizations must take prompt action to correct.
Preparing for the Single Audit.
- Meet with your audit team to discuss the audit prior to fiscal year-end.
- Identify and address problem areas in advance of the audit and communicate areas of concerns with your audit team.
- Prepare a schedule of expenditures of federal awards (“SEFA”) that is complete and accurate. You should be able to reconcile between SEFA amounts and the financial statements and other SEFA supporting documentation.
- Have readily accessible written policies and procedures (e.g., payments, procurements – including conflicts of interest, allowability of costs, compensation of personnel and benefits, and travel costs)
- Provide the audit team with access to personnel, accounts, books, records, supporting documentation, and other information, as needed.
- Note that additional audit procedures will be performed to ensure compliance. Compliance testing must include tests of transactions to determine whether the auditee has complied with federal statutes, regulations, and the terms and conditions of federal awards that may have a direct and material effect on each of its major programs.
After the Single Audit.
- Prepare a summary schedule of prior audit findings if prior audit findings exist.
- Prepare a corrective action plan if findings exist and take corrective action on audit findings promptly.
- Prepare your portion of the data collection form and ensure your audit is submitted timely. The single audit must be filed within nine months of fiscal year end. Thus, for organizations with June 30, 2022 fiscal year-ends, the deadline is March 31, 2023.
If you have questions regarding single audit requirements or planning for a single audit, please contact your not-for-profit Keiter Opportunity Advisor. Our not-for-profit team is well versed in these and other not-for-profit accounting considerations.
About the Author
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.