If your organization is receiving Federal awards, you may be required to have a single audit. How do you know if you are required to have one? And just what is a single audit anyway?
The Office of Management and Business (OMB) issued Circular A-133, Audits of States, Local Governments and Non-Profit Organizations to establish the requirements for audits of non-Federal entities that expend Federal awards. Referencing a few important points found in the guidelines will help determine if your organization needs a single audit.
Three main groups of entities may be required to have a single audit:
- Recipient – A recipient directly receives and spends Federal awards from a Federal entity;
- Pass-Through Entity – A pass-through entity receives Federal awards and disperses them to other entities to carry out Federal programs; and
- Subrecipient – A subrecipient receives Federal funds from pass-through entities.
If your entity falls under one of these three groups, and you expend $500,000 or more in a year in Federal awards, you are required to have a single audit. An important detail to observe is that this threshold is based on expenses and not revenue.
This leads an organization to answer two important questions: When is an award expended, and what counts as an expense?
According to OMB Circular A-133, an award is considered expended when the activity related to the award occurs. For example, if you are receiving a Federal award to educate lower income children, the award is considered expended when an instructor has provided lessons to those children in class and the value of the expense is the amount of that instructor’s wages.
Even though the award is expended, and expenses are always money paid for a good or service, an exception is made with Federal awards. Federal awards expended can also include loan and loan guarantees, endowment funds, free rent and other Federal non-cash assistance. If you have any of these expenses, it may be best to contact your CPA to help you determine the value of any of these non-cash items.
Based on the information above, if your organization is above the expense threshold you will have to prepare for a single audit. A single audit involves a review of the financial statements, procedures performed to understand internal controls over Federal programs and a determination of compliance with laws, regulations and the provisions of contracts or grant agreements that may have a direct and material effect on each of the major Federal programs.
If you have additional questions regarding your organizations need for a single audit, please contact Paul Stumbaugh at 312.670.7444 to discuss your specific situation.