Single Audit Series: How to Prepare for a Single Audit

If an organization expends more than $750,000 of federal funding in its regular fiscal year, a single audit requirement is triggered. These audits, while they may be required, also provide assurances that your organization is in compliance with the terms and conditions mandated by the federal government.

If your organization has crossed this threshold or expects to cross it in its current fiscal year, it’s important to start preparing for a single audit. In this overview, the second article in our five-part series on the single audit process, we’ll highlight the steps that organizations should take to prepare for a smooth single audit process.

This article is the second in our five-part series on the single audit series. Learn more about the single audit process by reading our other articles:

• Single Audits: When Does an Organization Need One, And Can It Use Their Current Auditors?

Steps to Take to Prepare for a Single Audit

Many organizations undergo a single audit each year, whereas others might be facing this requirement for the first time as they expand the reach of their programs and secure new federal funding as a revenue source.

Regardless of the situation, it’s vital your organization is well-prepared for the single audit process. By following the steps outlined below, you can ensure that your organization is well-placed for a successful single audit process.

Prepare a Draft Schedule of Expenditures of Federal Awards (SEFA)

An organization’s first step is to prepare a draft Schedule of Expenditures of Federal Awards (“SEFA”). This schedule should contain specific information outlining your organization’s federal awards and expenditures and should include a reconciliation to the trial balance. As a part of the single audit process, auditors will audit this schedule.

Management is responsible for preparing the schedule and making sure it reconciles to the trial balance and underlying records. At the conclusion of the audit, Management will ultimately take responsibility for this schedule and is required to assert their acceptance of this responsibility in writing before the audit can be finalized.

The SEFA serves as the foundation of the single audit process, and acts as a roadmap for auditors to determine the programs and procedures that must be tested. Errors in the SEFA can lead to issues in the application of federal programs (including compliance findings) and can also result in duplicative work by the Organization and even bring rise to additional audit costs.

As your organization prepares the SEFA, it should also gather and assess all grant documentation and agreements to ensure that applicable compliance requirements have been met. Every grant has unique requirements: some are relatively easy to follow, but others are much more complex. Understanding and abiding by these requirements is the key to obtaining a clean single audit conclusion.

Gather Policies and Procedures

During the single audit, the auditor will gain an understanding of your organization’s internal controls, policies, and procedures – particularly those that relate directly to the administration of federal awards. Key controls related to the application of the grant will be tested, enabling the auditor to issue an opinion on your organization’s compliance with the requirements of the federal program under audit.

Assembling all relevant written policies and procedures in advance of the audit beginning ensures your organization is well-equipped to explain processes and procedures to auditors, walk through key processes, and demonstrate its compliance with federal grant awards.

As a general note, there is often some crossover between grant-specific policies and procedures and organization-wide internal controls, although this will vary depending on the requirements of individual grants. While some organization-wide policies and controls may be able to be utilized, additional processes and procedures related to ensuring grant compliance may need to be outlined, and it is important to have those steps outlined in narrative format.

Aggregate Clean and Complete Records

A clean, well-organized accounting environment makes for a far more efficient single audit process. It is recommended that organizations aggregate and reconcile their accounting records, documentation associated with federal grants, and relevant internal policies and procedures.

Your accounting records should contain a clear audit trail and should reconcile to the trial balance. For example, the auditor may review individual expenses and verify proof of invoicing, approval, and posting processes associated with federal program activities. Access to clean and complete accounting records allows the single audit to be conducted through reperformance and walkthrough of transactions and controls on a sample basis to ensure compliance is being maintained over the program.

Identify Potential Issues

Before the single audit begins, organizations should make their auditors aware of any concerns they have about their compliance with federal programs. If there is concern of an error or known instances of general noncompliance, it is best to begin addressing these issues right away, as unresolved errors or prolonged noncompliance can put the Organization in danger of losing the possibility of future federal funding, permanently. 

Additionally, if an organization had a single audit in a previous fiscal year, it is important to review any issues flagged during the prior audit and ensure they have been remediated, highlighting steps that have been taken to address issues. 

Lastly, special attention should be given when the Organization has significant employee turnover in accounting or grant administration departments. Routine grant management responsibilities may have been neglected as a result of the turnover, and noncompliance may be happening without awareness. By communicating these occurrences or potential concerns to the auditors, organizations can ensure a comprehensive single audit process that helps improve or continue federal grant compliance.

Smith + Howard: Experienced Single Audit Professionals

Ensuring your organization is well-prepared for a single audit is key to demonstrating your organization’s compliance with all applicable rules and regulations associated with the federal awards.

By fulfilling your obligations as an auditee, your organization lays the groundwork for an efficient, cost-effective single audit process that allows you to get back to what you do best: investing in programs that support its mission.

Single audits are a relatively niche offering and the audit firm your organization currently works with may not be equipped to provide these services correctly. Every individual who works on a single audit must have met certain Continuing Professional Education (CPE) “Yellow Book” requirements. Given the specialized nature of single audits, it’s important to work with an audit firm experienced in this space.

At Smith + Howard, our team brings significant experience conducting single audits across a rich variety of organizations and federal programs and combines a passion for serving the nonprofit community with an intimate understanding of the single audit process.

To learn more about Smith + Howard’s single audit services, contact an advisor today.