More Nonprofits May Need a Single Audit

Federal grants allow Atlanta not-for-profits to maintain or expand vital services, conduct research, offer valuable programs, serve the community, and sometimes even keep the lights on. According to the 2019 Grantseeking Report, the federal government is responsible for as much as 40 percent of all government funding – and usually, federal grants are the largest single awards received by an organization. Clearly, many not-for-profits – from community service to healthcare organizations and everything in between – rely on federal funding.

What many not-for-profits may not be aware of is that accepting federal funds may trigger the need to comply with single audit requirements. Or, that some state funds may instead originate from the federal government, thus triggering the single audit. Especially with trillions in COVID-related funding having been distributed, not-for-profit executives and Board members may need to brush up on their knowledge of single audits – and what to do if the organization is subject to one. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

What is a Single Audit?

Single audits are also known as compliance audits and are required when an organization spends more than $750,000 per year in federal funds. Called the Schedule of Expenditures of Federal Awards (SEFA), they are in addition to organizational financial statement audits and often have specific reporting requirements according to program details.

Single audits report on whether the organization has spent the funds according to the established purpose. And though the $750,000 threshold is typical of either a single or combined grants, some come with lower reporting requirements, so it’s important to check. Single audits are managed through Uniform Guidance (UG), which stipulates how funds should be used and what reporting requirements look like across different funds.

Due dates for single audits vary according to the organization’s year-end.

• June 30 year-end: single audit due March 31
• December 31 year-end: single audit due September 30

Schedule of Expenditures of Federal Awards

The SEFA, which summarizes how funds were spent, should include the total amount of federal awards spent during the reporting period as well as individual federal programs (by agency) and, if applicable, total awards for each federal program. Relevant notes regarding accounting policies used to prepare the SEFA should be indicated.

In addition, program numbers must be included to properly identify funds. Sometimes, an organization will spend a cluster of federal funds within the same program. In that case, the SEFA should indicate the cluster name, separate federal programs, agency name(s), and total federal dollars for the cluster. 

How to Tell What’s Subject to a Single Audit

Throughout COVID-19, not-for-profit organizations may have been eligible to receive federal funds from many different sources. The Economic Injury Disaster Loan (EIDL) program, certain funds from federal agencies – like Provider Relief Funds from the Department of Health and Human Services – and from legislation like the CARES Act and the American Rescue Plan Act are just a few prominent examples of large sums of federal money that could trigger single audit requirements.

Not all federal dollars require single audits, however; Paycheck Protection Program loans and other tax credits (like the Employee Retention Tax Credit) are some examples that don’t count.  

Still, it can be hard to discern where funding comes from, especially if a state or local agency distributes it. Organizations need to clearly understand where funds originated from and whether they’re directly responsible for compliance – or simply a vendor or contractor. Some can have both state and federal components, especially during COVID-19.

Using Federal Funds 

Beyond finding the funding originator, it’s helpful to also understand what kind of spending is likely to trigger a single audit. Spending types include:

• Direct costs of a federal government contract, grant, cooperative agreement, and direct appropriations
• Receiving or using program income or federal property
• Noncash assistance, like food, vaccines, or supplies
• Disbursing grant funds to sub-recipients
• Insurance contracts

For the full definition, organizations can look to Title 2 CFR sections 200.1 and 200.502.

Deadline to File Single Audits Extended

Though the typical due dates for single audits are either March 31 or September 30, many federal fund recipients were afforded a six-month extension during COVID-19. For December 31, 2020, year-end organizations, the deadline that should have been September 30, 2021, has been extended to March 31, 2022. For June 30, 2021, year-end organizations, the deadline is extended to September 30, 2022.

Extensions are automatic but organizations still need to document why they took it. And, if organizations can file the single audit sooner, they are encouraged to do so.

Preparing for Your Single Audit

The best preparation occurs before and during fund expenditures. Thorough, accurate documentation is critical. Organizations should keep records of all federal funds and identify numbers for each award.

Make sure specific program rules are closely followed, and track expenses according to written accounting policies and procedures. Ensure these policies are compliant with Uniform Guidance.

Finally, assemble a draft SEFA prior to the audit and do a compliance self-check – especially for federal funds from more than one program or agency.

During and after COVID-19, many organizations are preparing single audits for the first time. The reporting requirements can be cumbersome and time-consuming, so it’s important to stay on top of all documentation throughout the reporting period.

Contact Us

For many Atlanta not-for-profits that received federal COVID-19 funding, it is important to carefully review your situation to determine if a single audit is required. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.