CARES Act Funding May Subject Recipients to Single Audit Requirement
How Local Government Entities and Nonprofits Can Prepare
Government entities and nonprofit organizations that received federal relief funds in 2020 to help manage the impact of COVID-19 may find they are obligated to have a Single Audit for the first time. Like all audits, a Single Audit requires preparation and an understanding of the audit’s purpose.
The $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted in March 2020, provided funding to nonprofit organizations and government entities – including state, local, and tribal agencies. Depending on the amounts received, these entities may now be subject to the requirements of the Single Audit Act of 1984.
What is a Single Audit?
The Single Audit Act was enacted to ensure that entities receiving more than a specified amount of federal funds engage an outside auditor to test internal controls and compliance in order to provide an opinion on the entity’s compliance with the requirements surrounding its federal awards. The Single Audit requirements are laid out in OMB 2 CFR 200 subpart F – Audit Requirements.
Over the years, the funding benchmark that triggers the requirement for a Single Audit has changed. Currently, if an entity expends more than $750,000 in federal funding in a given fiscal year, it is required to have a Single Audit. As part of the Single Audit, auditors will issue a separate report from that of the financial statements. This report will disclose any reportable findings or questioned costs identified by the auditors. A Single Audit can be conducted in conjunction with a financial statement audit or as a separate, stand-alone engagement.
How can an Auditee Prepare for a Single Audit?
To determine if a Single Audit is required, an entity will need to know the total amount of federal awards that it has expended in its current fiscal year. As part of a Single Audit, auditors will review the entity’s Schedule of Expenditures of Federal Awards (SEFA). An entity will need to gather and summarize all federal grant information (including financial data) in order to draft the SEFA.
Information required to be disclosed on the SEFA includes the name of the federal grant and the Federal Assistance Listing Number (formerly known as the Catalog of Federal Domestic Assistance (CFDA) number), which should be provided by the grant administering agency; the names of any pass-through entities from whom funds were received (or the name of any entity to whom funds were passed through as a subrecipient of the entity); and federal expenditures by grant. In the next section, we will discuss in further detail how to determine an expenditure for SEFA purposes.
Upon receiving federal funds, entities need to be aware of the compliance requirements to which they will need to adhere. In addition, management should review the written policies and procedures to ensure that internal controls over compliance are sufficient to prevent or detect instances of noncompliance. Certain additional policies may be required to comply with the requirements of Uniform Guidance including a conflict of interest policy, a record retention policy, and a procurement policy.
There are several resources available to auditees including the following: grant award documents and any other guidance provided by the federal awarding agency, Uniform Guidance, and bet.SAM.gov. Additionally, auditees can look at the OMB Compliance Supplement, which auditors use in determining their audit procedures.
What is an expenditure under Uniform Guidance?
There are a variety of different types of federal awards that an entity can receive that are subject to Uniform Guidance. Uniform Guidance (§200.34) defines an expenditure as a charge made by a non-Federal entity to a project or program for which a Federal award was received. Expenditures may be reported on a cash or accrual basis so long as the methodology is disclosed and consistently applied.
Depending on which approach is used, there are a variety of expenditures that should be considered:
- cash disbursements for direct charges for property and services
- indirect expenses charged or incurred under the grant
- third-party in-kind contributions applied to the grant
- cash advance payments and payments made to subrecipients (for cash basis)
- additional accrued expenses (for accrual basis).
Tips for Preparing for a Single Audit
- Retain evidence such as invoices for expenditures paid.
- Gather grant award documentation to be utilized in preparing the SEFA.
- Apply only actual time spent working on the federal program to the applicable grant’s payroll costs.
- Set up a separate GL account (or fund) to track various grant revenues and expenditures.
- Ensure procurement policies are in place and properly applied.
- Make sure there is evidence of internal controls being followed such as dates and initials for approval of invoices.
If your organization or government entity is subject to a Single Audit for the first time, reach out to the Adams Brown Audit & Attestation team for additional guidance.