The coronavirus pandemic has brought about several new funding streams that your organization may have received. If so, you will likely need to give more consideration to audit and compliance requirements than you have given attention to in previous years. Your organization may even be subject to a single audit for the first time, which could be a daunting process to go through if you are unprepared. Following are some special considerations to think about.
- Will you need a single audit? If you expended more than $750,000 of federal funds, you’ll likely need one (however, more on this below). In basic terms, this a more intensive audit that requires additional reporting outside of your basic financial statement audit. The single audit will communicate:
- an opinion as to whether you have complied with all material compliance requirements of your major federal programs,
- any noncompliance that was noted specific to other laws, regulations, and grant agreements,
- any internal control deficiencies over compliance or financial reporting that were noted during the audit, and
- an opinion as to the accuracy of the schedule of federal awards’ expenditures in relation to your financial statements as a whole.
Your auditor will need to perform a great deal of additional testing to complete this reporting and increased effort to prepare will be required on your part. You should make a single audit determination and let your auditor know as soon as possible, so both parties will have enough notice to plan and prepare for the single audit.
- If a single audit is needed, a new statement called the schedule of expenditures of federal awards (SEFA) will be required. Your auditor will need an accurate schedule well in advance of the audit to communicate which grants will be selected as major programs, meaning the grants that the single audit will give the most attention to. If you have never prepared this schedule before, you may wish to reach out to your auditor for guidance.
- Some of the pandemic funding is not subject to a single audit. Ensure you are familiar with which funding is and is not subject to a single audit for proper reporting on the SEFA. This point is crucial because it could be the difference between having or not having a single audit in the first place.
- Provider Relief Funds are unique funding in that although the funds are received (and possibly expended) in one period, they are not reportable until a future period. This can directly affect your schedule of expenditures of federal awards. Additionally, special audit requirements may apply. If you receive any of this funding, you should become familiar with compliance and reporting requirements.
- All expenditures must be reported separately, by grant, in your general ledger. For example, if you have Federal Grant A and Federal Grant B, you will need a way to associate how much of all costs, such as salaries, are charged to each grant. This is ideally accomplished with separate accounts or separate grant codes within the accounting system. The separation is essential to demonstrate you are not charging the same expenditures to multiple grants or ‘double-dipping.’
- Regardless of whether you need a single audit or not, as a recipient of federal funding, you should have a written procedures manual in addition to your policies that are specific to federal grants. It is important to understand that policies and procedures are two very different things. Your procedures manual should cover all compliance areas applicable to your grants, such as allowable costs and activities, reporting, earmarking, etc. The manual should be specific to your organization and in sufficient detail to document and demonstrate proper procedures, in addition to guiding employees responsible for compliance. The manual is especially important in the event of a changeover in the CFO or compliance officer position.
Ensure you are familiar with both the specific requirements of your grant and the Uniform Guidance (UG), which is outlined in the Code of Federal Regulations at 2 CFR 200. UG is the streamlined and consolidated guidance that governs all federal awards issued on or after December 26, 2014. A great deal of the single audit is focused on compliance with UG.
Contact Yeo & Yeo’s Nonprofit Services Group or your auditor if you think you may need a single audit for the first time or if you need help with any of the special considerations above.