Single Audits Provide Needed Clarity to Grant Expenditures
Many entities, from nonprofits to governments, rely on federal grants. While this is money that doesn’t need to be paid back, it does need to be accounted for, and the way the government holds organizations accountable is through single audits.
This blog will take a closer look at single audits, why they matter, and the differences between low- and high-risk auditees. Rubino is the financial assurance partner that can help your entity prepare for all of them.
What Is a Single Audit and Why Do They Matter?
The term “single audit” is a little misleading because it actually refers to a series of audits with multiple objectives. Simply put, a single audit is how the federal government makes sure a non-federal grant recipient is spending federal money according to expectations. These non-federal entities can be school districts, state or local governments, or universities. Typically, they are nonprofit groups, but commercial, for-profit entities can receive grants too, and when they do, they must report how the funds are used and trace each grant to related expenditures.
The origin of the name “single audit” comes from the history of tracing grants. Before 1984, each grant provider had to do their own annual audit for every grant they provided. So, for school districts and local governments that could have dozens of grants, the number of annual audits grew to be unmanageable. Thus, a single audit takes care of all federal money and accomplishes multiple objectives; it reports financial information, internal controls, and compliance information per entity.
Where is the Money Going?
The financial component of a single audit checks to make sure grant funds are recorded according to generally accepted accounting principles (GAAP). This tracks how funds are used from the moment they are received to the moment they are spent. It examines what it was spent on and the impact the expenditure had in relation to the grant objectives.
What Is the Entity Doing to Control How Money is Spent?
Internal controls document how grant money is received, spent, and recorded. The purpose of this is to provide assurance that the organization has the proper procedures in place, and the personnel in charge of recording and disbursing the funds are doing so in an ethical and recordable way.
Are You Following All the Rules?
Not all funds are free to be spent on whatever the entity wants to spend it on. Grants can be awarded for building improvements or for certain programs, and a single audit ensures the entity that receives a grant is complying with the grant terms and conditions and reports this back to the grantor. This is closely tied to the audit of procedures, and entities that have proper recording processes will usually have no problem justifying their use of federal funds.
How to Properly Document Awards
Auditees are required to prepare a Schedule of Expenditures of Federal Awards (SEFA) that lists out the total federal awards expended for each individual major program. The SEFA is an official, public document, and many organizations look to the auditor to prepare it or turn to their accountant to prepare it along with their other financial documents.
Low-Risk vs. High-Risk Auditees
Organizations that have a history of single audits may qualify as a low-risk auditee, which means they have satisfied certain conditions over the past two auditing periods:
Single audits were performed according to official guidelines.
Audit finding submissions were timely.
The auditor’s position on the financial statements were unmodified.
The auditor’s opinion on the SEFA was unmodified.
No going concern was reported.
No material weaknesses in internal controls were reported.
No audit findings due to: internal control deficiencies, modified opinions on major programs, or questioned costs that exceed 5% of the awards expended during the audit period.
If an auditee qualifies as “low-risk,” then an auditor can select major award programs to ensure compliance.
With Rubino, There Is Strength in Numbers
Single audits are multifaceted, and they require participation from auditees and auditors in order to be successful and useful to both parties. While compliance can be daunting, especially for entities that have never undergone a single audit before, Rubino knows how to walk you through the process.
Since 1984, we have assisted a significant number of nonprofit clients that require single audits. Our auditing experience includes audits of all types of nonprofit organizations and housing authorities receiving Federal Award, as well as the occasional for-profit organization that needs a single audit.
If you are faced with a single audit, or if your entity is struggling with financial reporting, give us a call today.