Preparing for Your First Single Audit: Schedule of Expenditures of Federal Awards (SEFA) is Key

ThinkstockPhotos-505371495 - resized

Tips and Tricks for Preparing Your SEFA

By Alexis Crispin, CPA

The CARES Act established many new sources of federal funding, and a significant amount of that funding is subject to single audit requirements. As a result, many entities are facing the prospect of their first single audit.

One of the most important things that an entity will prepare for a single audit is its Schedule of Expenditures of Federal Awards (SEFA). A SEFA is a schedule that lists an entity’s use of federal awards for the fiscal year by federal agency, program, and amount of expenditures. Creating an accurate and complete SEFA is crucial, as it informs auditors which awards need to be evaluated during the audit process. If you’ve never prepared a SEFA before, or if you just want to brush up on your skills, here are some tips and tricks.

The first step is to assemble documentation of all awards. This includes award letters, agreements, and other communications with the awarding agency. Within these documents, you should be able to find the majority of the information that will be input onto the SEFA. Once you’ve gathered the necessary documents, you’ll want to look at each award and determine if it was federally funded.

Federally funded programs will need to be included on the SEFA with the following information:

  • Awarding agency
    • If you didn’t receive the funds directly from a federal agency, then you’ll also need to include the name of the pass-through entity (for example, Kansas Department of Aging and Disability Services vs U.S. Department of Treasury).
  • Assistance listing number (formerly known as the CFDA number)
    • Assistance listing numbers are always five digits in the following arrangement ##.###.
  • Program name
    • This can be found by searching for the assistance listing number at betasam.gov.
  • Program Clusters
    • Clusters can be found by searching the Compliance Supplement for the assistance listing number or program name. If a program is a part of a cluster, it will be listed with the other programs in the cluster in the Matrix of Compliance Requirements and in Part 4.
    • Pass-through number (if applicable)
    • Award number
    • An indication of any funds that were related to COVID-19
      • Some programs, such as the Coronavirus Relief Funds program, are entirely funded by the CARES Act. Other programs might have received additional funding from the CARES Act, and you’ll need to designate what portion of the program was from the original award and what portion was from the CARES Act.
    • Amount passed to subrecipients (if applicable). Subrecipients are other entities that you passed the Federal Funding to use for the program.
    • Amount expended

The SEFA should be prepared on the same basis of accounting as the financial statements – if your financial statements are prepared on the accrual basis, then your SEFA should be, as well.

For most programs, the expenditure amount is based on when the underlying activity occurs. However, there are a few exceptions:

  • Disbursements to subrecipients
    • The funds are considered expended when they are obligated to the subrecipient, which is typically when payment is made to the subrecipient.
  • Loans and loan guarantees
    • Any money received during the year from federally funded loans or loan guarantees will be included in the expenditure amount, along with the beginning balance of any outstanding loans from prior periods. One thing to note: if the only requirement associated with an outstanding federal loan or loan guarantee is to repay it, then that balance should not be included. However, if you must maintain certain compliance requirements, such as determining the eligibility of tenants in the case of HUD audits, then that balance will be included.
  • Noncash assistance
    • The most common items in this category are donated property and food commodities. However, insurance, free rent, endowments, food stamps, and federal surplus property can also fall under noncash assistance. If the agency providing the noncash assistance does not tell you the assessed value, then you must determine the fair market value at the time of receipt. Noncash assistance is considered expended when it is received, so that value will be included on the SEFA during the period in which it was received.

Expenditures that do not fall under an exception will typically be recorded in the period when the actual expense occurs. The timing of the receipt of the award will not affect the period in which the funds are recorded as expenditures on the SEFA.

For example, consider the following situation:

You are an accrual basis, calendar year entity that receives cash for an award in FY1, and you purchase goods for the program in December of FY2. However, you don’t pay for the goods until February FY3. Which period’s SEFA should include the award expenditure?

The expenditure should be included on FY2’s SEFA since that is when the underlying activity (the expense) occurred.

The trickiest part of preparing a SEFA will likely be determining the correct amount of expenditures to include. To ensure that the expenditure amount you report is correct, you should consider the amount of the total award. If the award period matches up with your fiscal year, and if you spent the entire award, then that is the amount that will go on your SEFA. If you did not spend the entire award amount, then you’ll only include what was spent. Finally, if the award period does not line up with your fiscal year, then you’ll need to assess what amount was expended in the first fiscal year that the award was active and what amount remained to be spent in the following fiscal years. If contracts and award documents are unclear on whether the funding is Federal, or which assistance listing number is applicable, the awarding agency will need to provide the information to you. Make sure to keep their communication on the funding in your records.

If your organization or government entity is subject to a Single Audit for the first time, reach out to the Adams Brown Audit and Attestation team for additional guidance.