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MNCPA PERSPECTIVES

Is a single audit in your future? It might be closer than you think

May 3, 2021  |  Faye Hayhurst, CPA

Is a single audit in your future? It might be closer than you think Many organizations have historically received some amount of funding that originated with the federal government, but they — and their CPA auditors — have been able to largely ignore the term “single audit” because it didn’t apply. After all, since 2015, only entities that expended $750,000 or more in federal funds in a given fiscal year were required to obtain a single audit. That exempted numerous organizations.

But, given the amount of federal grants available for pandemic relief in the past year, entities may find themselves in single audit territory for the first time.

The need for a single audit

What is a single audit, and why does anyone care whether an organization is subject to it? According to the federal Office of Management and Budget (OMB), “a single audit is intended to provide a cost-effective audit for non-federal entities in that one audit is conducted in lieu of multiple audits of individual programs.” This type of audit is governed by OMB through the Uniform Administrative Requirements, Cost Principles, and Audit Requirements, a set of rules known as “Uniform Guidance.”

Single audits under the Uniform Guidance cover an organization’s entire financial operations and are substantially more detailed than a regular independent audit. High levels of testing are required to establish that:
  • The financial statements are not only presented fairly and accurately, but that they are in accordance with federal cost principles.
  • The organization has an adequate internal control structure.
  • The organization is in compliance with any special government regulations/laws that apply to the specific federal funding stream.

What changed

Then came the pandemic. The federal government passed multiple aid packages to assist organizations harmed by the impact of COVID-19, and more entities than ever before received federal funds. Fairly early on, the Small Business Administration made clear that PPP loans are not subject to single audit requirements. While that was cause for a sigh of relief, it wasn’t the whole story.

Aid received under various other pandemic relief programs is subject to the Uniform Guidance. Examples include the Coronavirus Relief Fund (CRF), Education Stabilization Fund (ESF) and the Provider Relief Fund (PRF). Loans under the Economic Injury Disaster Loan (EIDL) program are also considered federal financial assistance subject to single audit requirements. And funds received by an entity from a state/county/local government or agency, or even from another nonprofit, may be a passthrough of federal funds and included in calculating whether the threshold has been met.

More federal funding means an increased likelihood that the $750,000 could be crossed. It’s anticipated that many entities will require a single audit for the first time as a result of pandemic relief aid.

Do you work for an organization that receives funding from the government or nonprofit organizations?
Make sure you understand all the sources for the funding received, which may require dialogue with passthrough entities. Get a handle on the dollar amount spent. Talk to your audit firm about whether the threshold for a single audit has been crossed.

If you’re in need of a firm that specializes in these types of audits, I encourage you to review the MNCPA’s Government Auditor Directory. As you consider your options, be sure to ask the following questions of a potential auditor:
  1. How long have you been providing government auditing services?
  2. In what area(s) do you specialize?
  3. How often do you perform single audit services?
  4. How is the firm staying up to date on recent changes in government audits?
  5. Can you provide client referrals I may contact?
Don’t be caught by surprise! Do the investigation and analysis necessary to confirm whether the single audit threshold is met or not. After all, it might be closer than you think.
 

Topics: Accounting & Auditing, Business & Industry, Government, Not-for-Profit, Taxation-Business

Faye Hayhurst, CPA

Faye Hayhurst is the MNCPA director of finance and administration. She is committed to using numbers to tell relevant stories, although she also employs words, charts and occasionally clothing to communicate a message. While some have questioned her about the pressures of being the CPA for the MNCPA, Faye considers presenting financial information to fellow CPAs a dream job. Outside of storytelling with numbers, Faye enjoys directing her church's handbell choir, visiting national parks and other scenic places, and checking out the chocolate products at Trader Joe's. Faye can be reached at 952-885-5540 or fhayhurst@mncpa.org.

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