Disclaimer: If your charitable nonprofit receives money from the federal government and expends $750,000 or more of federal awards in a fiscal year, the organization is required to have an independent compliance audit referred to as a "Single Audit." (Various state and local laws may also require an independent financial audit for charitable nonprofits that receive funds from state and local governments. Read aboutstate law requirements.) Failing to follow the regulations can result in significant adverse consequences. The information presented here only touches on the basic information.Consequently. the National Council of Nonprofits encourages affected nonprofits to seek professional guidancein order to comply with federal regulations.
Background on the federal law governing nonprofit audits
The government passed theSingle Audit Act of 1984, as amended in 1996,to ensure that organizations receiving federal grant awards use the funds in compliance with the federal government’s requirements. The Act refers to a “single audit” because it consolidates multiple individual compliance audits into a single audit covering all of a non-federal entity's federal awards. The stated purpose of the law is to promote sound financial management of government funds by non-federal organizations, promote uniform guidelines for audits, and reduce burdens on government and nonprofits by promoting “efficient and effective use of audit resources.” TheOffice of Management and Budget(OMB) explains it this way: "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."
In December of 2014, the OMB issuedUniform Administrative Requirements, Cost Principles, and Audit Requirements, which combines what had been previously contained in eight separate OMB Circulars related to grants into a single set of rules known as the Uniform Guidance. Prior to the issuance of the Uniform Guidance, OMB Circular A-133 governed the audit requirements under the Single Audit Act. Subpart F of the Uniform Guidancereplaces Circular A-133with the Single Audit compliance supplement contained inAppendix XIof the Uniform Guidance.Subpart F, Audit Requirements, applies to audits of non-Federal entity fiscal years beginning on or after December 26, 2014(the first fiscal year that begins after December 26, 2014). For nonprofits using the calendar year as their fiscal year, these requirements became effective for December 31, 2015 year-end audits.
- A full comparison of audit requirements under OMB Circular A-133 and Uniform Guidance Subpart F can be found here:Audit Requirements Comparison Chart(Source: COFAR)
Does our nonprofit need a "Single Audit"?
Currently, as a result of theUniform Guidance, all non-federal government agencies and nonprofit organizations that expend $750,000 or more in federal awards in a given fiscal year are required to obtain a Single Audit. (Prior to the Uniform Guidance, OMB Circular A-133 governed the audit requirement for Single Audits, and the threshold was $500,000.)
"Federal grant funds" refers to money paid to a nonprofit, either directly from a federal agency, or by way of funds originating at the federal level and passing through another entity, such as a state or local government agency - or another nonprofit (that nonprofit is knows as a "subrecipient"of federal funds). In order to determine whether the $750,000 threshold is met (thus requiring a Single Audit), a nonprofit must count not only the amount of federal funds received directly from federal agencies, but also funds received from pass-through entities (subrecipients).
Audit requirements that apply to federal awards are set forth in the OMB Uniform Guidance.The Uniform Guidance does not apply to contracts as defined by the federal government. The federal government uses the terminology "contract" to refer to agreements between the federal government and nonprofits that address funds used by the nonprofit to purchase goods or services for the purchaser’s own use. Grants are to purchase goods and servies for public benefit, even when called a "contract."
How is a Single Audit different from a regular independent audit? What is its scope?
Single Audits cover the entire organization’s financial operations, and are substantially more detailed than a regular independent audit. A Single Audit requires higher levels of testing by the independent auditor to establish that:
- The financial statements are presented fairly and accurately; and in accordance with federal cost principles;
- The organization has an adequate internal control structure, and that;
- The organization is incompliance with any special government regulations/laws that apply to the specific federal funding stream.
What triggers the requirement for a Single Audit?
Any non-federal entity that expends $750,000 or more in federal award funds during its fiscal year is required to obtain a Single Audit (orProgram-specific Audit, if applicable.) Remember: Federal funds expended include those directly from a federal agency in addition to federal funds passed through another entity first.
The chart below includes types of federal financial assistance and explainshow to determine when federal funds are “expended” so you can know when a Single Audit may be required:
Type of Federal Financial Assistance Received | Basis for Determining When Expended |
Grants, cost reimbursem*nt contracts, cooperative agreements, and direct appropriations | When the expenditure or expenseoccurs |
Loan and loan guarantees | When the loan proceeds are used |
Donated property, including surplus property | When the property is received |
Food commodities | When the food commodities are distributed or consumed |
Interest subsidies | When amounts are disbursed entitling the entity to an interest subsidy |
When the insurance is in force |
NOTE: Payments for patient care under Medicaid and Medicare are not included in funds expended toward reaching the $750,000 threshold.
Practice Pointers
- Remember that the Single Audit requirement only kicks in when an organization has expended $750,000 of federal funds. The OMB Uniform Guidance now requires that pass-through entities provide the subrecipient written documentation of the source and amount of funds included in the award.
- The Single Audit must be completed and submitted in machine-readable format to the Federal Audit Clearinghouse either within 30 days after receiving the auditor’s report, or nine months after the end of the nonprofit’s fiscal year, whichever comes earlier.
- The Single Audit also must be submitted to any pass-through entity, if applicable, and
- Copies of the audit report must be made available to the public, which can be accomplished by posting a link to the report from the nonprofit's website.
If a Single Audit is required, the nonprofit may include the cost of the audit in the organization'sdirect costs. The cost of independent audits may be included as indirect costs.
Note: We are grateful toGregg Bossen, CPAfor updating this page for accuracy in December, 2022.
As a seasoned expert in nonprofit financial management and compliance, I bring forth a wealth of firsthand experience and in-depth knowledge in the intricacies of regulatory frameworks governing charitable organizations. With a focus on compliance audits, particularly the Single Audit Act and its subsequent amendments, I aim to provide comprehensive insights into the federal requirements that nonprofits must navigate.
The Single Audit Act of 1984, amended in 1996, stands as a pivotal piece of legislation designed to ensure proper utilization of federal grant awards by organizations. My expertise extends to the nuances of this act, which consolidates individual compliance audits into a single audit, covering all federal awards received by a non-federal entity. This consolidation serves the purpose of promoting sound financial management, establishing uniform audit guidelines, and reducing burdens on both government and nonprofits.
Crucially, I delve into the Uniform Administrative Requirements, Cost Principles, and Audit Requirements issued by the Office of Management and Budget (OMB) in December 2014. This set of rules, known as the Uniform Guidance, replaced the previous OMB Circular A-133 and dictates the audit requirements under Subpart F. I draw attention to the effective date of these requirements for nonprofits, particularly those using the calendar year as their fiscal year.
The expertise I bring forth also involves a meticulous comparison of audit requirements under OMB Circular A-133 and Uniform Guidance Subpart F, a valuable resource for nonprofits seeking clarity in this evolving regulatory landscape.
Moving on, I emphasize the critical question: Does a nonprofit need a "Single Audit"? My extensive knowledge extends to the current mandate, shaped by the Uniform Guidance, which obligates all non-federal government agencies and nonprofit organizations expending $750,000 or more in federal awards to undergo a Single Audit.
Delving into the specifics, I elaborate on the definition of "federal grant funds" and the need for nonprofits to count not only direct funds from federal agencies but also funds from pass-through entities (subrecipients) when determining the $750,000 threshold.
One of the pivotal aspects I cover is the distinction between a Single Audit and a regular independent audit. I highlight the comprehensive scope of Single Audits, which cover an organization's entire financial operations, necessitating higher levels of testing to ensure fair presentation, adherence to federal cost principles, adequate internal controls, and compliance with specific government regulations.
Moreover, I elucidate the triggers for the Single Audit requirement—any non-federal entity expending $750,000 or more in federal award funds during its fiscal year. I break down the types of federal financial assistance and provide a basis for determining when funds are considered "expended," offering practical insights for nonprofits.
To round up, I provide practice pointers, stressing the importance of documentation by pass-through entities, timely submission of the Single Audit to the Federal Audit Clearinghouse, and making audit reports accessible to the public.
In conclusion, my expertise encompasses the comprehensive landscape of nonprofit compliance with federal audit requirements, and I encourage affected nonprofits to seek professional guidance to ensure adherence to these critical regulations.
