Audit Q&A - what to know when taking federal money

Audit Q&A

What to Know When Taking Federal Money

The Office of Management and Budget (OMB) has streamlined its guidance on audit requirements for nonprofits that receive federal awards. Among other things, the new rules reduce the burden on smaller nonprofits by increasing the threshold that triggers compliance audits from $500,000 to $750,000. Thus, nonprofits will be required to undergo a single audit only if they spend $750,000 or more in federal awards in a fiscal year.

Prior to the issuance of the new Uniform Guidance, OMB Circular A-133 governed the audit requirements under the Single Audit Act. Consider these answers provided by the National Council of Nonprofits to some of the most commonly asked questions by nonprofits that receive federal funding:

Q: What, exactly, is a “Single Audit?”

A: The 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.”

Q: When is the audit requirement triggered?

A: The requirement for a nonprofit to conduct a Single Audit is triggered when a nonprofit receives federal funds from either one or several government funding sources and when that nonprofit expends $750,000 or more in federal funding in a single year.

Q: What is meant by “federal funding”?

A: Federal funding includes either money that originated directly from the federal government — whether in the form of a government contract or a grant — or funds that came to the nonprofit from a “pass-through entity,” such as a state or local government agency.

Q: What if the nonprofit receives less than the threshold for federal funds?

A: Nonprofits that spend less are required only to make their records available for review or audit by the federal awarding agency, any pass-through agency and the U.S. Government Accountability Office.

Q: When do the new rules take effect?

A: These regulations became effective for new awards and/or new funding increments made on or after Dec. 26, 2014. However, standards set forth related to the audit requirements will be effective for audits of fiscal years beginning on or after Jan. 1, 2015 (i.e., the first single audits affected by this rule will be for the year ending Dec. 31, 2015).

Q: How is a Single Audit different from a regular independent audit?

A: A Single Audit of federal funds is much more detailed than a regular independent audit of your organization’s financial statements. Substantially higher levels of testing are performed on expenses to verify that the federal funds have been properly used, and auditors are required to verify compliance with regulations specific to the program or grant for which funds were expended. It is important to note that auditors who perform Single Audits are required to receive a heightened level of professional education.

Q: Who covers the cost?

A: The costs of auditing the financial statements are allowable as in-direct costs for non-federal entities subject to the requirements of the Single Audit Act.

Q: When is the audit report due?

A: The Single Audit must be completed and submitted either 30 days after receiving the auditor’s report or nine months after the end of the nonprofit’s fiscal year, whichever comes earlier.

Q: Who receives the audit?

A: 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.

For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.