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Top Five Ways to Prepare for a Single Audit
Top Five Ways to Prepare for a Single Audit
Any nonfederal entity that expends $500,000 or more in federal awards is subject to a single audit in accordance with Office of Management and Budget (OMB) Circular A-133. This is true whether the federal funding is direct or pass-through. Preparing for your single audit should be an ongoing and routine process throughout the year.
According to OMB, “A single audit is intended to provide a cost-effective audit for nonfederal entities, in that one audit is conducted in lieu of multiple audits of individual programs.” The typical audit planning process becomes ever more crucial for organizations subject to these requirements.
Here are five ways to prepare for your single audit:
1. Make yourself available
When scheduling your single audit (both preliminary and final fieldwork), be sure to communicate the schedule to all affected staff. The most efficient and effective single audits are those where the auditor has full access to the appropriate program and fiscal staff.
2. Read your client assistance letter
Your auditor should provide some type of client assistance letter well in advance of your fiscal year-end. The letter is designed to assist the fiscal and program staff in gathering the appropriate information for the audit, such as government contracts and summaries, narratives about internal controls over key transactions, and major program compliance. The letter should include a timeline.
Take the time to review this letter with staff immediately upon receipt and start communicating any questions or concerns to your auditor as soon as possible. Your goal should be to have all requested information ready for the auditors before the audit team arrives for final fieldwork. Many auditors today will allow you to submit requested documents and work papers electronically.
3. Prepare your Schedule of Expenditures of Federal Awards
The Schedule of Expenditures of Federal Awards (SEFA) must be included in your federal reporting package (along with audited financial statements and data collection form). According to OMB, it is your responsibility to prepare the SEFA, and it is the auditor’s responsibility to provide an opinion on whether the SEFA is fairly presented in all material respects in relation to your financial statements. Therefore, it is important for you to understand the required elements of the SEFA, including:
- Appropriate Catalogue of Federal Domestic Assistance (CFDA) number(s)
- Federal awarding agency
- Federal expenditures by funding source
- Grant numbers
- Award period
- Separate identification of funding under the American Recovery and Reinvestment Act (ARRA)
- Separate identification and reporting of clusters of programs
It is also imperative to provide auditors with an accurate SEFA as soon after year-end as possible. Your auditor will determine which federal program(s) would be considered “major” and need to be audited.
Finally, take the time to work with your auditor to help ensure an accurate and timely filing. Mistakes identified on the SEFA schedule, such as incorrect CFDA numbers, missing programs or improperly calculated expenditures, can lead to untested programs that lead to serious future issues. Review the American Institute of Certified Public Accountants (AICPA) practice aid, which is designed to assist auditors in documenting their procedures in forming an “in relation to” opinion on the SEFA.
4. Understand and identify applicable compliance requirements
It is vital for program and fiscal staff to understand the applicable compliance requirements for each government grant. You can gain that understanding by:
Reading and understanding your grant agreement
Grant agreements are one of the first items that will be requested by your auditors. The grant agreement will almost always give the organization (and the auditor) a road map for applicable compliance requirements. Be certain that fiscal and federal program staff are versed in their respective grants, and that they are fully aware of the compliance areas that will need attention during the grant period.
Obtaining and reviewing the 2012 OMB A-133 Compliance Supplement
Federal grants are generally assigned a CFDA number, and each CFDA number can have up to 14 associated compliance requirements. Some examples of potential compliance requirements would include allowable costs, eligibility, and period of availability. Now in its final draft form, the Final Draft OMB Circular A-133 Compliance Supplement updates a number of requirements concerning CFDAs, program clusters, and other issues that are essential to accurate filing.
5. Be familiar with applicable cost circulars
A compliance requirement that is applicable in most (if not all) cases is whether a federal expenditure is an allowable cost. Therefore, it is imperative for program and fiscal staff to understand the cost principles applicable to your type of organization (OMB Circular A-122—Cost Principles for Nonprofit Organizations orOMB Circular A-21—Cost Principles for Educational Institutions).
Once all staff members are familiar with the appropriate cost circular, hold a staff meeting to discuss the types of expenditures that occur under each federal grant, and whether potential unallowable costs can be identified and segregated in your accounting records. Also consider proactively communicating with your auditors about any potential questionable areas when identifying allowable and unallowable costs.
Your auditor understands that you have a “day job,” and that preparing for the audit takes additional time and effort above and beyond the normal work day. However, the time you put into the process now will pay huge dividends at the end of the audit process. Your year-end deadline will be here before you know it—it’s time to start.