What Is a Single Audit and When Is It Required?

A single audit is an examination of a non-federal entity’s financial statements and its use of federal awards. The purpose of this audit is to provide assurance to the federal government that funds are being managed responsibly and in compliance with applicable laws, regulations, and grant terms. This audit process originated with the Single Audit Act of 1984, which aimed to standardize and streamline audit requirements for state and local governments receiving federal financial assistance. The Act was later amended in 1996 to include non-profit organizations. By consolidating multiple audits, single audits ensure accountability and reduce administrative burden.

Determining if a Single Audit is Required

A primary criterion for determining if a single audit is necessary is the amount of federal awards an entity expends within its fiscal year. Generally, a non-federal entity must undergo a single audit if it expends $750,000 or more in federal awards during its fiscal year. However, for fiscal years beginning on or after October 1, 2024, this threshold increases to $1,000,000. This requirement applies to various types of entities, including state and local governments, non-profit organizations, universities, and tribal governments.

Federal awards include direct federal financial assistance, such as grants, cooperative agreements, and direct payments from the U.S. government. It also includes pass-through awards, which are federal funds initially received by one entity (a pass-through entity) and then provided to another non-federal entity (a subrecipient). The single audit requirement is triggered by the expenditure of these funds, not merely their receipt. This means the audit focuses on how the money was used during the fiscal year.

Understanding the Audit’s Core Elements

A single audit is composed of two main parts: a financial statement audit and a compliance audit. The financial statement audit evaluates whether the entity’s financial statements are presented fairly and in accordance with generally accepted accounting principles (GAAP). It provides an independent opinion on the reliability of the financial information.

The compliance audit focuses on the entity’s adherence to federal program requirements. This part specifically examines “major programs,” which are federal programs with significant expenditures or those deemed high-risk. Auditors determine major programs using a risk-based approach, considering factors like prior audit experience and the inherent risk of the program. The compliance audit tests specific requirements applicable to these major programs, such as allowable costs, cash management procedures, eligibility criteria for beneficiaries, and reporting accuracy.

Navigating the Audit Steps

The single audit process begins with the non-federal entity selecting an independent auditor. The entity is responsible for procuring these audit services. Once an auditor is engaged, a pre-audit planning phase commences, where the auditor gains an understanding of the entity’s operations, its federal programs, and its internal control environment. This planning helps the auditor tailor the audit procedures to the specific risks and complexities of the entity’s federal award expenditures.

During the fieldwork phase, auditors perform testing of the entity’s internal controls over both financial reporting and compliance with federal program requirements. This involves examining transactions and balances to ensure funds were used for authorized purposes and in accordance with specific grant terms. Auditors also evaluate whether the entity has established adequate internal controls to safeguard federal assets and ensure proper accountability. Any identified weaknesses in controls or instances of non-compliance are documented as audit findings.

Throughout the audit, effective communication between the entity’s management and the auditor is important. Management is responsible for providing auditors with access to necessary information and records. Following the completion of fieldwork, auditors communicate their findings to management, often in a draft report. Management then has the opportunity to review these findings and prepare responses, including plans for corrective action. This approach helps ensure that the audit process is transparent and that any issues are clearly understood and addressed.

Key Audit Deliverables

The culmination of a single audit is a comprehensive report package submitted to the Federal Audit Clearinghouse (FAC). This package typically includes several distinct documents, each serving a specific purpose. A primary component is the auditor’s opinion on the financial statements, assessing their fair presentation in accordance with GAAP. This report also includes an opinion on whether the Schedule of Expenditures of Federal Awards (SEFA) is fairly stated in relation to the financial statements.

Another essential deliverable is the Schedule of Expenditures of Federal Awards (SEFA). The SEFA is a detailed schedule prepared by the entity’s management, listing all federal awards expended during the fiscal year, categorized by federal agency and program. It provides critical information for identifying major programs and is the foundation for the compliance audit. The report package further includes the auditor’s report on internal control over financial reporting and on compliance for each major program.

Additionally, the package contains a Schedule of Findings and Questioned Costs, which details any deficiencies in internal controls, instances of non-compliance, or questioned costs identified during the audit. The entity is then required to prepare a Summary Schedule of Prior Audit Findings, reporting the status of all findings from previous audits. Lastly, a Corrective Action Plan is developed by the entity, outlining specific steps, responsible parties, and anticipated completion dates to address current audit findings. This plan demonstrates the entity’s commitment to resolving identified issues and maintaining compliance.