A Single Audit is a critical process for organizations that receive federal awards. By undergoing a Single Audit, organizations can strengthen their financial management practices, enhance transparency, and maintain the trust of funding agencies and stakeholders.
This article will cover the following:
A Single Audit, also known as a Uniform Guidance audit, is a comprehensive examination of an organization's financial statements and compliance with federal award requirements. Single Audits are conducted to ensure organizations expending federal awards meet the necessary regulations and are accountable for the funds they receive.
A Single Audit includes an audit of both your organization’s financial statements and compliance with federal award requirements for those programs identified as major programs—based on application of the risk-based approach and criteria outlined in Title 2 Code of Federal Regulations (CFR) Section 200.518 and .519—for the audit.
Through the audit process, the auditors determine whether your organization’s financial statements fairly present the financial position of the organization and whether they’re presented in accordance with Generally Accepted Accounting Principles (GAAP) or another comprehensive basis of accounting.
Both the financial statement audit and the compliance audit provide information on the internal controls design appropriateness and operating effectiveness, which enables management to identify systematic weaknesses in a timely manner.
The standard-setting body that governs Single Audits in the United States is the Office of Management and Budget (OMB). The OMB issues the Compliance Supplement that auditors use to conduct Single Audits. Single Audits are required for non-federal entities (NFEs) that expend more than $750,000 of federal dollars within their fiscal year. An NFE means a state, local government, Indian Tribe, Institution of Higher Education (IHE), or not-for-profit organization that carries out a federal award as a recipient or subrecipient. Recently, OMB proposed revisions to the Uniform Guidance, most notably to raise the Single Audit threshold from $750,000 in federal awards expended within a fiscal year to $1 million, the first increase in the Single Audit threshold since 2013.
Audit findings can be categorized as a Financial Statement finding or a Compliance finding:
A financial statement finding relates to accounting controls or the accounting assumptions used to prepare the accounting records. These findings represent departures from GAAP or deficiencies in the internal controls designed to ensure the financial statements fairly present your organization’s financial condition.
A compliance finding is related to noncompliance with federal laws, statutes, regulations, and program terms and conditions, or deficiencies in the internal control over compliance designed to ensure the organization complies with such provisions. This type of finding is specific to an individual compliance issue for a major program.
Financial statement and compliance concerns must be evaluated and categorized into one of three categories: a control deficiency, significant deficiency, or material weakness.
The design or operation of a control over financial reporting or compliance doesn’t allow management or employees to prevent, or detect and correct, misstatements or noncompliance on a timely basis. A control deficiency is less severe than a significant deficiency.
A deficiency, or combination of deficiencies, that is less severe than a material weakness, yet important enough to merit attention by management.
A deficiency, or a combination of deficiencies, exists in internal control for either financial reporting or compliance, such that there’s a reasonable possibility that a material misstatement of the entity’s financial statements or material noncompliance won’t be prevented, or detected and corrected, on a timely basis.
Material weaknesses and significant deficiencies in internal control over financial reporting or over compliance must be reported as part of the financial statements or Single Audit report. Internal control or noncompliance concerns not categorized as a material weakness or significant deficiency can be communicated in a separate management letter to the auditee.
Each Single Audit is different, so it’s important to discuss with the auditor what to expect, what should occur, your responsibilities, and the specific duties of the auditor. Cover this in your engagement letter.
Factors that influence what occurs during the audit include the complexity of your organization and the availability and completeness of the documentation supporting the internal control system, financial statements, and program activities and expenditures.
Generally, auditors will perform audit steps to:
Auditors won’t provide any opinion on your internal controls. If they identify something they see as an issue, they’ll report it as a finding, but won’t offer opinions as they would on the material accuracy of your financial statements or compliance.
If a finding related to internal controls is identified, and corrective actions are taken, an internal audit specific to those controls and processes may be an effective way to prevent the finding in subsequent years.
The most common pitfalls in grant compliance are found in the following areas:
Prior to the audit, there are actions your organization needs to take. Below are some steps auditees can take to help your Single Audit go smoothly.
To learn more about the Single Audit process, contact your Moss Adams professional.