For nonprofits, government entities, and other organizations that expend $1 million or more in federal awards in a fiscal year, the Single Audit is a mandatory annual engagement. Unlike a routine financial statement audit, the Single Audit combines financial reporting review with detailed compliance testing of major federal programs. It is more time-intensive, more document-heavy, and less forgiving of disorganized records. Organizations that prepare well in advance experience shorter timelines, fewer findings, and lower costs. Organizations that treat the Single Audit as a scramble discover problems during fieldwork—when correcting them is expensive and disruptive. This guide walks through each stage of the Single Audit process, identifies the preparation that should occur before the engagement begins, and explains what auditors look for during planning, fieldwork, reporting, and follow-up. Understanding What Triggers a Single Audit The Single Audit requirement applies to any non-federal entity that expends $1,000,000 or more in federal awards during its fiscal year. The threshold is based on expenditures, not awards received. An organization may receive an award in one year but expend the funds over multiple years; the threshold is measured against what was actually spent. The audit is conducted in accordance with the Uniform Guidance (2 CFR Part 200) and includes: A financial statement audit A compliance audit of major federal programs Testing of internal controls over compliance Preparation and review of the Schedule of Expenditures of Federal Awards (SEFA) Even organizations below the threshold remain subject to federal grant management rules. The threshold determines whether a Single Audit is required—not whether compliance obligations apply. Pre-Engagement Preparation: The Work Before the Work The most important Single Audit preparation happens before the auditor arrives. Organizations should complete the following tasks well in advance. Reconcile Federal Expenditures to the General Ledger The SEFA must agree to the general ledger. If federal awards are tracked in separate accounts, funds, or classes, reconcile the totals to ensure nothing is misclassified or omitted. Discrepancies discovered during fieldwork extend timelines and may result in findings. Confirm Program Identification and Assistance Listings Numbers Each federal award should be identified by its Assistance Listings number (formerly CFDA number), the federal agency, and the pass-through entity if applicable. Incorrect or missing numbers create SEFA errors and can affect major program determination. Verify Subrecipient Information Organizations that pass federal funds to subrecipients must confirm that each subrecipient is not suspended or debarred. Verification should be performed through SAM.gov before funds are disbursed and documented in the subaward file. Review Time and Effort Documentation Salary and benefit costs charged to federal awards must be supported by records that accurately reflect the work performed. The method used to allocate salaries must be documented, applied consistently, and supported by timesheets or activity reports. Confirm Procurement Documentation Procurement files for federally funded purchases should include documentation of competition, price reasonableness, vendor selection, and required contract clauses. Missing documentation is one of the most common Single Audit findings. Stage One: Planning Defining Scope and Objective Single Audit planning begins with understanding the organization’s federal awards, internal controls, and compliance environment. The auditor identifies major programs, assesses risk, and designs procedures to test compliance with the requirements that apply to each major program. The Entrance Meeting The auditor typically conducts an entrance meeting with management to discuss the purpose of the audit, risk factors, and logistics. Management is included in the planning phase, and the details are documented in a planning and scoping memo. Depending on the organization, the entrance meeting may involve a single email notification, a formal meeting, or both. Coordination and Scheduling Planning includes coordination with management to schedule fieldwork during a period when key personnel are available and the necessary records are complete. The auditor provides a Prepared by Client (PBC) list identifying the records and schedules to be prepared. Getting this list early and working through it systematically shortens the audit timeline. Documentation and Approval Audit planning should be documented, recording the audit’s objective, scope, methodology, timeline, staffing, and identified risks. In internal audit environments, director or Chief Audit Executive approval may be required before fieldwork begins. For external audits, the engagement letter defines the terms and responsibilities of both parties. Stage Two: Fieldwork What Auditors Do During Single Audit Fieldwork During fieldwork, auditors conduct the steps identified in planning. For Single Audits, this includes: Interviews with management and staff to understand processes, controls, and significant transactions Review of laws, policies, and best practices applicable to federal award management Verification of sample transactions to test compliance with program requirements Analysis of data sets to identify anomalies and unusual relationships Surveys where appropriate Auditors meet regularly with management throughout fieldwork to discuss the status of the audit, preliminary observations, and potential recommendations. Issues raised early can be resolved before they become formal findings. Compliance Requirements Tested For each major federal program, auditors test compliance with the requirements in the Uniform Guidance Compliance Supplement. These include: Activities allowed or unallowed Allowable costs and cost principles Cash management Eligibility Equipment and real property management Matching, level of effort, and earmarking Period of performance Procurement and suspension/debarment Program income Reporting Subrecipient monitoring Special tests and provisions Not all requirements apply to every program. The Compliance Supplement identifies which requirements are relevant for each Assistance Listings number. What Clients Should Expect Single Audit fieldwork is document-intensive. Clients should expect requests for grant agreements, approved budgets, drawdown records, timesheets, procurement files, subaward agreements, monitoring documentation, and financial reports submitted to federal agencies. Practical steps to manage fieldwork: Designate a primary point of contact to coordinate document requests and schedule interviews Set internal deadlines for producing requested documents Organize grant files in advance so supporting documentation can be located quickly Be responsive to questions — delays extend the timeline for everyone Raise concerns early — if you disagree with a preliminary observation, address it during fieldwork Stage Three: Reporting The Exit Meeting At the conclusion of fieldwork, auditors conduct an exit meeting with management to discuss the results of the audit, specific findings and
For business owners, nonprofit executives, and government finance officers, an audit can feel like an intrusion. Staff are pulled away from daily responsibilities. Documents are requested repeatedly. Questions arise about transactions that occurred months or years ago. The process can be disruptive if it is not managed well. But an audit is not an adversarial exercise. It is a structured professional engagement designed to provide independent assurance that financial statements are presented fairly. When clients understand what happens at each stage—and what is expected of them—the process becomes smoother, faster, and more valuable. This guide walks through the four stages of a typical audit engagement: planning, fieldwork, reporting, and follow-up. It explains what auditors do at each stage, what clients should prepare, and how to minimize disruption while maximizing the value of the engagement. The Purpose of an Audit Before examining the stages, it helps to understand what an audit is designed to accomplish. A financial statement audit provides reasonable assurance that the financial statements are free from material misstatement, whether due to error or fraud. The auditor issues an opinion on whether the statements are presented fairly in accordance with the applicable financial reporting framework, typically Generally Accepted Accounting Principles (GAAP). Reasonable assurance is a high level of assurance, but it is not absolute. Auditors do not examine every transaction. They use risk assessment, sampling, and professional judgment to focus effort where misstatement is most likely. This is why audits are not guarantees—and why strong internal controls remain essential regardless of the audit opinion. Stage One: Planning Planning is the foundation of an effective audit. Done well, it reduces the risk of surprises later, focuses fieldwork on the areas that matter most, and ensures that both auditor and client understand the scope and timeline. Defining Scope and Objective Each audit begins with a clear definition of what is being audited and why. For a financial statement audit, the scope is typically the entity’s financial statements for a defined period. The objective is the expression of an opinion. For a Single Audit, the scope expands to include compliance with federal award requirements and internal controls over compliance. During this phase, the auditor considers the entity’s industry, regulatory environment, organizational structure, prior audit findings, and any significant changes in operations or accounting policies. The auditor also assesses risk—identifying areas where misstatement is most likely and designing procedures to address those risks. The Entrance Meeting Internal audit functions typically conduct an entrance meeting with management to discuss the purpose of the audit, risk factors, and logistics. Management is included in the planning phase, and the details are documented in a planning and scoping memo. Depending on the organization, the entrance meeting may include a single email notification, a formal in-person meeting, or both. For external audits of small and mid-sized organizations, the planning phase may be less formal but still involves communication with management about timing, staffing, and information needs. The auditor will provide a Prepared by Client (PBC) list—a document listing the records and schedules the client needs to prepare. Getting this list early, and working through it systematically, is one of the most effective ways to shorten the audit timeline. Scheduling and Coordination An audit diverts time from normal operations. Treating it like any other special project—allocating staff time, setting internal deadlines, and designating a point of contact—minimizes disruption. The auditor should coordinate with management to schedule fieldwork during a period when key personnel are available and when the necessary records are complete. Consideration of Legal or Governance Requirements In some engagements, particularly those involving regulated entities or complex transactions, the auditor may need to consider whether engagement by legal counsel is required. This is more common in internal audit settings or engagements involving potential litigation, regulatory inquiry, or significant contractual obligations. The planning phase is the appropriate time to identify and address these considerations. Documentation and Approval Audit planning should be documented. The planning memo typically records the audit’s objective, scope, methodology, timeline, staffing, and identified risks. In internal audit environments, director or Chief Audit Executive approval may be required before fieldwork begins. For external audits, the engagement letter serves a similar function, defining the terms of the engagement and the responsibilities of both parties. Stage Two: Fieldwork Fieldwork is where the audit plan is executed. It is typically the most time-intensive phase and the one that requires the most involvement from client staff. What Auditors Do During Fieldwork During fieldwork, auditors conduct the steps identified in the planning process. These steps often include: Interviews with management and staff to understand processes, controls, and significant transactions Review of laws, policies, and best practices applicable to the entity’s operations Verification of sample transactions to test whether transactions are properly authorized, recorded, and supported Analysis of data sets to identify anomalies, trends, or unusual relationships Surveys where appropriate to gather information from a broader group Auditors meet regularly with management throughout fieldwork to discuss the status of the audit, preliminary observations, and potential recommendations. This ongoing communication is important. Issues raised early can often be resolved before they become formal findings. Waiting until the exit meeting to raise concerns benefits no one. What Clients Should Expect Clients should expect requests for documentation, access to systems and personnel, and questions about transactions and processes. The volume of requests can feel overwhelming, particularly for first-time audits or audits of organizations with decentralized operations. Practical steps to manage fieldwork effectively: Designate a primary point of contact who can coordinate document requests and schedule interviews Set internal deadlines for producing requested documents, working backward from the auditor’s fieldwork schedule Organize records in advance by pulling supporting documentation for significant transactions and account balances Be responsive to questions — delays in responding to auditor inquiries extend the timeline for everyone Keep lines of communication open — if you disagree with a preliminary observation, raise it during fieldwork, not after the report is drafted Fieldwork in Single Audits For organizations subject to Single Audit, fieldwork includes
Tax-exempt status is not the same as filing-exempt status. It is one of the most persistent misconceptions in the nonprofit sector. An organization may be exempt from federal income tax and still carry significant filing, reporting, and compliance obligations. Failure to meet these obligations can result in penalties, loss of exemption, and damage to donor trust. This guide examines the tax obligations facing nonprofits in Virginia and Washington DC, from annual Form 990 filing to state tax exemption requirements and the consequences of noncompliance. The Annual Filing Obligation: Form 990 Series Most tax-exempt organizations must file an annual information return with the IRS. The specific form depends on the organization’s gross receipts and total assets . Form 990-N (e-Postcard) is for organizations with gross receipts normally $50,000 or less. Filing is completed online, and there is no paper equivalent. Form 990-EZ is for organizations with gross receipts under $200,000 and total assets under $500,000. Form 990 is the full return, required for organizations with gross receipts of $200,000 or more or total assets of $500,000 or more. Form 990-PF is for private foundations, which file regardless of revenue level. The filing deadline is the 15th day of the 5th month after the end of the organization’s tax year. For calendar-year organizations, this is May 15. A six-month extension is available by filing Form 8868 . Consequences of Noncompliance Failure to file Form 990 for three consecutive years results in automatic revocation of tax-exempt status. The IRS publishes a list of organizations that have lost their exemption, which damages donor confidence and disqualifies the organization from many grants. Reinstatement requires a new application, additional fees, and no guarantee of retroactive restoration. Organizations that have lost their status may be required to file income tax returns and pay taxes during the period of revocation. The automatic revocation process is described in detail in IRS resources, and organizations should treat the filing deadline with the same seriousness as any other compliance obligation . Schedule B: Contributor Reporting Requirements Schedule B to Form 990 requires organizations to report contributors who meet certain thresholds. However, not all organizations are required to report contributor names and addresses. Organizations other than Section 501(c)(3) organizations and Section 527 political organizations are no longer required to report the names and addresses of their contributors on Schedule B. These organizations must enter “N/A” in Part I, column (b). However, they must continue to collect the names and addresses, keep the information in their records, and make it available to the IRS upon request . Section 501(c)(3) organizations must report contributor names and addresses in Part I, column (b). Special rules apply for organizations that meet the 33 1/3 percent support test. Such organizations list only those contributors whose contribution of $5,000 or more during the tax year is greater than 2 percent of total contributions reported on Form 990, Part VIII, line 1h . For example, an organization that reported $700,000 in total contributions would only need to list contributors who gave more than the greater of $5,000 or 2 percent of $700,000 ($14,000). A contributor who gave $11,000 would not be reported, even though the gift exceeded $5,000, because it did not exceed $14,000 . Virginia Sales and Use Tax Exemption As noted in the companion article on financial management, Virginia sales and use tax exemption is not automatic. Organizations must apply to Virginia Tax and meet all criteria set forth in Code of Virginia § 58.1-609.11 . The application is made through Nonprofit Online or by completing Form NP-1. There is no fee to apply. Once approved, the organization may purchase items exempt beginning on the effective date on the exemption certificate. The exemption does not apply retroactively . The exemption applies only to sales tax on purchases of tangible personal property and taxable services. It does not extend to corporate income tax, withholding tax, or utility tax . Organizations with a tax-exempt letter from another state cannot use that certificate in Virginia. Retailers located in Virginia should only accept a valid exemption certificate issued by Virginia Tax . Washington DC Tax Exemption For organizations operating in Washington DC, tax exemption is a separate application from federal 501(c)(3) status. Organizations must file Form FR-164 with the DC Office of Tax and Revenue . The application requires a copy of the IRS Determination Letter and a copy of the business registration. Processing takes approximately 30 to 60 days. Until DC approval is received, the organization may technically be liable for DC taxes . DC tax exemption is valid for five years and must be renewed. Non-renewal results in immediate loss of DC tax-exempt status . Common reasons for denial include failure to attach requested documents, attaching outdated or expired certificates, attaching proof of location that differs from the address on file, and submitting the wrong type of business license documentation . Washington DC Biennial Report In addition to tax exemption renewal, DC nonprofits must file a Two-Year Report with the Department of Licensing and Consumer Protection. The first report is due April 1 in the calendar year after registration. Subsequent reports are due biennially by April 1 . The filing fee is $80, with a $50 late fee for delinquent filings. Missing this deadline triggers administrative dissolution after five months late . Unrelated Business Income Tax Nonprofits are generally exempt from federal income tax on income related to their exempt purpose. However, income from activities that are not substantially related to the exempt purpose—known as unrelated business income—is subject to tax. Organizations with gross unrelated business income of $1,000 or more must file Form 990-T, Exempt Organization Business Income Tax Return. The form is due by the 15th day of the 5th month after the end of the tax year, the same deadline as Form 990. For Virginia purposes, organizations with unrelated business income subject to tax under IRC Section 511 must file the appropriate Virginia return and pay tax on that income. For DC purposes, corporations report