By: Kevin B. Stouffer, CPA
Member of the Firm

Has your organization received federal dollars from the CARES Act or other COVID-19 related programs? It may be overwhelming trying to determine whether you are now subject to what’s known as a single audit. This article will help you understand what a single audit is and next steps should you need one.

How is a single audit different from an audit?

Think of an audit as going to the dentist and a single audit as getting a root canal. While the two are related, a single audit goes much more in-depth and may be a bit more painful (but not an SEK single audit, of course!) When you accepted money from the federal government, you agreed to follow a litany of rules regarding the funds, including how the money is spent, tracked, and reported. Your auditor’s role is to thoroughly review your compliance with the grant agreement rules and regulations. This will include putting additional internal control processes in place to ensure compliance for all federal programs.

When is a single audit required?

A single audit is required when a governmental entity spends more than $750,000 of federal funds in a fiscal year. When determining the threshold, the entity must consider all federal programs in aggregate. This will include all federal funds, whether received directly from a federal agency or passed through a state or local agency.

Although your organization may have received more than $750,000 of federal funds in a fiscal year, the single audit requirements are based on when the funds are expended. For example, suppose you have one federal program that was awarded $1,000,000, and your organization spends those funds equally over a four-year period (i.e., $250,000 each fiscal year). In that case, your organization will not need a single audit. However, if your organization spends $1,000,000 in one fiscal year, a single audit is required. 

How will my financial statements change if a single audit is required?

There are several additional components of the financial statements when a single audit is necessary. For some governmental entities, the financial statements previously only consisted of the annual DCED-30-CLGS State Report; however, if a single audit is required, then a set of financial statements must be prepared and audited, including footnote disclosures. In addition, for those that previously prepared financial statements, the schedule of expenditure of federal awards (SEFA) is required to be included. The SEFA contains the details of all federal grants expended during the current fiscal year, including grant name, amounts received during the fiscal year, and amounts expended during the fiscal year. In addition, there will be other required communications and correspondence regarding the results of the auditor’s completion and compliance testing portion of the single audit.

What to do now?

If you feel that you may be near the single audit threshold, a SEFA should be prepared. If this is your first time doing so, we suggest preparing a listing of your federal grants, which includes the following for each of the federal grants related to the 2021 fiscal year:

1. Grant name
2. Agency by which the funds were received
3. Assistance Listing Number
4. Award amount
5. Cash received
6. Amount expended

In addition, all federal grant agreements should be segregated and reviewed to ensure the appropriate compliance and internal controls over compliance are in place. Once the information is compiled, we suggest reviewing the information with your auditors, as the summary will be audited to make the final determination of whether a single audit is necessary. Once received and verified, the auditors will then select the program(s) to be tested as part of the single audit.

If your organization needs a single audit or assistance in determining whether one is required, please do not hesitate to contact SEK. We are here to provide guidance you can count on.