Personal and business Tax

The Anatomy of a Single Audit – What Nonprofits and Governments Need to Know

For nonprofit organizations and government entities across Virginia and Washington DC, receiving federal grant funding represents both opportunity and obligation. With that funding comes the requirement to demonstrate—through an independent Single Audit—that federal dollars were spent properly, documented thoroughly, and used only for their intended purposes.

The Single Audit is not a routine financial statement audit. It is a comprehensive examination that combines financial statement review with detailed compliance testing of major federal programs. For organizations expending $1,000,000 or more in federal awards in a fiscal year, the Single Audit is mandatory under the Uniform Guidance.

This guide provides a comprehensive overview of the Single Audit process, from pre-audit preparation through final report issuance, and explains what organizations must do to ensure a smooth and successful audit.

Understanding the Single Audit Requirement

The Single Audit requirement applies to any non-federal entity—including nonprofits, state and local governments, colleges and universities, and healthcare providers—that expends $1,000,000 or more in federal awards during its fiscal year. The threshold was increased from $750,000 to $1,000,000 effective for fiscal years beginning on or after October 1, 2024.

The audit is conducted in accordance with the requirements of 2 CFR Part 200, commonly known as the Uniform Guidance. The Single Audit examines two distinct but interrelated areas:

  1. Financial Statement Audit: An examination of the organization’s financial statements to determine whether they are presented fairly in accordance with GAAP.

  2. Compliance Audit: Testing of the organization’s compliance with the specific requirements of its major federal programs, including allowable costs, procurement, cash management, and reporting.

The Schedule of Expenditures of Federal Awards (SEFA)

A critical component of the Single Audit is the Schedule of Expenditures of Federal Awards (SEFA). The SEFA is a supplementary schedule that lists all federal awards expended during the fiscal year, organized by federal agency and program. The SEFA must include:

  • The name of the federal program

  • The Assistance Listings number (formerly CFDA number)

  • The federal agency providing the award

  • The amount expended during the fiscal year

  • The amount passed through to subrecipients

The SEFA serves as the foundation for determining which programs are considered “major programs” subject to detailed compliance testing. Errors or omissions in the SEFA can lead to incorrect major program determination and audit findings.

Determining Major Programs: The Risk-Based Approach

Not every federal program is tested in a Single Audit. Instead, auditors use a risk-based approach to identify “major programs” that receive focused testing. The process involves:

Step 1: Calculate the Type A Threshold
The Type A threshold is the dollar amount above which a federal program is considered “large.” For entities with total federal expenditures between $1 million and $10 million, the Type A threshold is $750,000. For larger entities, the threshold increases.

Step 2: Identify Type A Programs
All programs exceeding the Type A threshold are candidates for major program status.

Step 3: Assess Risk
Auditors assess risk for each Type A program and certain Type B programs (programs below the Type A threshold) based on factors including:

  • Whether the program is considered “high-risk” by the federal agency

  • The results of prior audits

  • The complexity of the program requirements

  • The amount of federal funds expended

Step 4: Select Major Programs
At minimum, auditors must test major programs that in aggregate expend at least 40% of total federal awards. Programs are selected based on risk assessment and the requirement to cover a percentage of total expenditures.

Internal Controls Over Compliance

The Single Audit requires auditors to obtain an understanding of and test internal controls over compliance for each major program. The Uniform Guidance identifies several “compliance requirements” that organizations must meet, including:

  • Activities Allowed or Unallowed: Costs must be allowable under the program’s terms.

  • Allowable Costs/Cost Principles: Costs must comply with the Cost Principles in Subpart E of the Uniform Guidance.

  • Cash Management: Drawdowns must be timed to minimize the time between receipt and disbursement.

  • Eligibility: Only eligible participants may receive services.

  • Equipment and Real Property Management: Property must be used for authorized purposes and properly maintained.

  • Matching, Level of Effort, Earmarking: The organization must meet any matching or cost-sharing requirements.

  • Period of Performance: Costs must be incurred within the approved period.

  • Procurement and Suspension and Debarment: Purchases must follow procurement standards, and the organization must verify that vendors are not suspended or debarred.

  • Program Income: Income generated by the program must be treated in accordance with program rules.

  • Reporting: Reports must be accurate and timely.

  • Subrecipient Monitoring: Pass-through entities must monitor subrecipients.

  • Special Tests and Provisions: Program-specific requirements.

Common Single Audit Findings

Auditors frequently identify several categories of findings in Single Audits. Understanding these common issues helps organizations prepare and avoid them.

Documentation and Recordkeeping Deficiencies

Missing receipts, incomplete time and effort documentation, and inadequate supporting documentation for expenditures are among the most common findings. Organizations must maintain records that clearly demonstrate how every dollar of federal funding was spent.

Procurement Violations

Federal procurement standards require that purchases above certain thresholds follow specific procedures, including competition and documented selection. Organizations that fail to follow procurement rules risk questioned costs.

Subrecipient Monitoring Failures

Organizations that pass federal funds to subrecipients must monitor how those funds are used. Common failures include not conducting risk assessments, not obtaining required audits, and not following up on findings.

Time and Effort Reporting Issues

Salary and benefit costs charged to federal awards must be supported by time and effort records that accurately reflect the work performed. Improperly documented time and effort is a frequent audit finding.

Reporting Errors and Late Submissions

Federal grant reporting requirements are strict. Late submissions, inaccurate reports, and failure to submit required reports are common findings.

Preparing for a Single Audit

Organizations that prepare thoroughly for a Single Audit experience fewer findings, shorter timelines, and lower costs. Key preparation steps include:

1. Maintain Year-Round Audit Readiness
Do not wait until audit season to organize records. Maintain a system that ensures documentation is complete and accessible throughout the year.

2. Review the SEFA Carefully
Reconcile the SEFA to your general ledger. Ensure all federal awards are included and that expenditures are accurately classified.

3. Document Internal Controls
Have written policies and procedures for cash management, procurement, time and effort reporting, and subrecipient monitoring. Document that these controls are operating.

4. Train Staff
Program staff and finance staff should understand federal award requirements, including allowable costs, procurement rules, and reporting deadlines.

5. Conduct a Mock Audit
Consider an internal review or pre-audit assessment to identify and correct issues before the auditor arrives.

The Single Audit Timeline

A typical Single Audit follows this timeline:

Planning and Risk Assessment (2–3 weeks): Understanding the organization, identifying major programs, and developing the audit plan.

Fieldwork and Testing (4–6 weeks): Testing internal controls over compliance and performing compliance testing for major programs.

Draft Report Preparation (2–3 weeks): Preparing the draft financial statements, SEFA, and Schedule of Findings and Questioned Costs.

Management Review and Response (1–2 weeks): Management reviews the draft findings and prepares corrective action plans.

Final Report Issuance (1–2 weeks): Partner review, quality control, and issuance of the final report.

Virginia and DC Considerations

Virginia: Nonprofit organizations with gross annual revenue of at least $750,000 must provide a financial review performed by an independent CPA when applying for or maintaining the Virginia sales tax exemption. Virginia Tax may require a full financial audit for organizations with gross annual revenue of at least $1.5 million.

Washington DC: The DC Office of Tax and Revenue administers audits of various tax types, including corporate franchise, unincorporated business franchise, and sales and use tax. Nonprofits with unrelated business income must report and pay DC franchise taxes on that income.

How Nova Tax & Accounting Services Can Help

At Nova Tax & Accounting Services, we provide Single Audit services for nonprofits, government entities, and other federal award recipients. Our team helps organizations prepare for a smooth Single Audit experience, organize grant documentation, and address findings and corrective action plans.

We also assist with pre-audit assessments to identify and correct issues before the audit begins. For more information, visit https://novataxservices.com/audit-attestation-services/ or schedule a free consultation.

External Resources: