With the significant uptick in federal dollars authorized to be passed out over the last 18 months, many organizations will likely experience their first single audit.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Coronavirus Response and Relief Supplemental Appropriations (CRRSAA) Act and the American Rescue Plan (ARP) Act added a significant amount of COVID-19 federal funding to new and existing federal programs. Significant funding for the Education Stabilization Fund and Shuttered Venue Operators Grants Program will impact many recipients, including governments and not-for-profits, and may trigger the single audit requirement. A single audit is a type of audit that occurs when a non-federal entity expends more than $750,000 of federal dollars during its fiscal year. These federal expenditures can be awards from grants, cost reimbursements or pass-through dollars, among others. For entities that have never experienced a single audit before, the process can be daunting, so here are a few things to expect when you are expecting a single audit.
The first thing that an entity should do is prepare a schedule of expenditures of federal awards, otherwise known as a SEFA. The process of preparing a SEFA involves categorizing and tabulating all federal dollars expended by their respective assistance listing number (AL number), previously called catalog of federal domestic assistance (CFDA) number. This will ensure that you are able to determine if a single audit is required, and it will allow your independent auditor to determine the major program the auditor must test. The major program is determined by a process outlined by Uniform Guidance, the authoritative guidance for single audits. The auditors will determine the major program(s) and then will identify the areas of compliance and internal controls required for testing. Once your auditors determine the compliance areas and internal controls to test, they will provide a sample to test your compliance under Uniform Guidance. The Compliance Supplement, which is a document that lists the audit requirements for all AL numbers, is the primary reference point for the auditors in determining their procedures. Also, entities should carefully review the Compliance Supplement annually for programmatic and agency requirements and changes along with the award agreement for any specific provisions and requirements to ensure those are met. After the provision of the samples and the testing of such requirements, the auditors and the entity will work jointly to create the single audit reporting package. This reporting package consists of the entity’s financial statements and SEFA, an opinion on the financial statements, as well as the SEFA, an opinion under governmental auditing standards, single audit compliance opinion, a schedule of findings and questioned costs, a summary schedule of prior audit findings, and a corrective action plan.
Entities should pay special attention to the completeness and timing of the SEFA expenditures this year with the influx of COVID-19 federal funding related to the new federal programs. Challenges can arise when the AL number is not provided by the grantor and the entity needs to reach out to the agencies or pass-through entities to obtain the AL number. As a general rule, expenditures should be included on the SEFA when the underlying activity occurs and there is an award or terms of condition in place. Entities are encouraged to follow the developments related to the COVID-19 federal programs on the timing of the SEFA expenditures.
To ensure that your audit goes smoothly and efficiently, have your SEFA ready before the audit is scheduled. Also, stay in constant contact with your auditors and have any and all necessary records available at the start of the audit. If there are areas that are problematic, communicate those areas to your auditors in a timely manner and work together to resolve those issues. While the process can be cumbersome, the federal dollars are worth it! Please contact us with any questions on the single audit process or any federal funding questions.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.