Getting Ahead of the Audit: A Risk-Informed Strategy for Government Agencies

Is your agency ready to demonstrate accountability, transparency, and compliance at any point in the year, not only when an audit is announced? Federal oversight has intensified, and agencies and other recipients of federal awards are increasingly expected to demonstrate compliance continuously throughout the life of an award, from how funds are spent and documented to how subrecipients and contractors are monitored. Meeting that expectation means having the right people and processes in place to stay audit-ready, which can be a challenge for entities operating with limited resources and increasing workloads.

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Key Takeaways

• Audit readiness is no longer an annual exercise. Organizations receiving federal funds should expect increased scrutiny throughout the life of an award.   
• Auditors test whether controls actually work, not whether they exist on paper, so organizations should be able to show their controls operate effectively and produce the documentation behind a decision quickly and completely.
• Unresolved and repeat findings are increasingly easy to identify, making it essential to revisit prior findings and confirm each has been fully resolved.

What Is Driving Increased Government Audit Scrutiny?

Increased audit scrutiny is being driven by a combination of factors. One is the growing scale of federal spending, which reached about $7 trillion in fiscal year 2025. Another is the rising public expectation that agencies and recipients can account for every dollar and demonstrate not just that funds were spent but that they were spent as intended.

Regulations continue to develop. The Uniform Guidance (2 CFR Part 200) was overhauled in 2024, with its most significant revision since 2013. Now, another overhaul is being proposed. A March 2026 executive order established a federal Task Force to Eliminate Fraud, emphasizing stronger eligibility verification, fraud controls, and oversight across federally funded benefit programs. These developments reflect a continued focus on accountability, oversight, and program integrity across federally funded activities.

Technology advancements are making it easier than ever to enforce expectations. In May 2026, for example, the U.S. Department of Health and Human Services launched its Audit Enforcement and Risk Oversight (AERO) initiative, which uses AI-driven analysis of at least five years of single audit data across all 50 states to identify recipients with persistent findings, unresolved deficiencies, or overdue audit submissions. As tools like these mature, issues that once went unnoticed for years are surfacing quickly.

Building an Audit-Ready Environment for Your Government Agency

By focusing on the following areas, organizations can position themselves for greater audit readiness. While not all-inclusive, these areas commonly receive attention during audits and other oversight activities.

Internal Controls and Control Environment

Strong internal controls are the foundation of audit readiness. Auditors do not test whether controls exist on paper; they test whether those controls operate effectively, function consistently, and are supported by documentation. Controls should be aligned with the specific compliance requirements applicable to each federal program. Whether an organization is new to federal funding or has managed awards for years, it should confirm that its controls reflect current federal guidance and align to a recognized framework. Two are referenced in the Uniform Guidance: the “Standards for Internal Control in the Federal Government” issued by the Comptroller General of the United States, and the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Controls should be reviewed periodically and updated whenever there is a significant change in personnel, program scope, systems, funding requirements, or federal guidance. They should also be scaled to the size and risk of the organization’s programs. A well-structured control environment does more than support compliance; it identifies issues earlier and strengthens daily operations.   

Documentation and Defensibility

Contemporaneous documentation is what allows an organization to defend its decisions long after they are made. Records should be thorough enough to support high-judgment decisions, such as cost allocations, eligibility exceptions, and sole-source justifications. Organizations that keep accessible, well-organized records can respond to requests quickly and completely, rather than reconstructing rationale under pressure. A simple test of readiness: can the documentation supporting a specific transaction be produced quickly, and can responsible personnel adequately respond to any follow-up questions?

Subrecipient Oversight

When an organization passes federal funds to subrecipients, it remains accountable for how those funds are used. Weak subrecipient oversight can lead to disallowed costs, financial and legal penalties, and loss of funding. Pass-through entities should have clear visibility into their subrecipients’ controls and follow a consistent schedule for monitoring performance, spending, and operations throughout the award.  

The Uniform Guidance in 2 CFR 200.332 requires pass-through entities to assess each subrecipient's risk of noncompliance and to tailor monitoring accordingly. Organizations should conduct and document the risk assessment at the time of the subaward and update it as conditions change throughout the award period, so monitoring decisions are based on documented risk rather than judgment alone.

Contractor Oversight

While subrecipient oversight often draws scrutiny in federal audits, contractor relationships carry their own compliance obligations that agencies should not overlook. Contractors paid with federal funds must be selected through a compliant procurement process, and the resulting contracts must include the provisions required by Appendix II to 2 CFR Part 200. Oversight does not end at selection; organizations should monitor contractor performance against contract terms, confirm before payment that invoices are consistent with the contract and work performed, and document the basis for each contracting decision from selection through performance.

Monitoring and Corrective Actions

Effective monitoring provides insight into whether activities are being performed consistently and where additional attention may be needed. Organizations should test controls regularly, confirm they operate as intended, and address any gaps before they become audit findings. Once the audit is underway, the time to correct issues is short and resources are often limited.

Organizations should conduct periodic internal desk reviews outside the audit cycle, perform fraud risk assessments, monitor for indicators of fraud, waste, and abuse, and provide a clear reporting channel such as a hotline. Staff should be trained on the compliance requirements of the funds they manage, with that training documented. Finally, organizations should confirm this monitoring is actually occurring as written and retain evidence of the review performed, exceptions identified, follow-up completed, and any changes implemented.

Repeat Finding and Scrutiny Risk

Repeat findings draw scrutiny because they suggest earlier corrective actions were not fully implemented or were ineffective. Organizations should track every finding and corrective action formally, with implementation dates, assigned responsibilities, and evidence of completion. A documented record of these actions helps leadership see where gaps remain and provides a clear trail of remediation.

This matters more as enforcement tools improve. Oversight bodies are increasingly able to spot unresolved and recurring findings across years of audit data, so a deficiency left unaddressed is far more likely to resurface. Organizations should revisit their prior audit findings and confirm that each one has been fully resolved, rather than assuming past findings are closed.

Three Practical Steps Agencies Can Take Now

A few focused steps can strengthen your audit posture almost immediately.

1. Review recent regulatory updates. Confirm your policies, procedures, and controls reflect the current Uniform Guidance and any agency-specific requirements.
2. Assess where you stand. Evaluate your current readiness to identify gaps before an auditor does.
3. Consult an internal audit professional. They can evaluate your controls and documentation and help prioritize where to focus first.

Audit Readiness Assessment for Federally Funded Programs

Find out where your organization stands before an auditor does.

Audit Readiness Assessment

We have developed a 15-question assessment to help you gauge your audit readiness. Our risk, compliance, and government advisory professionals help federal award recipients evaluate their controls, address gaps, and stay audit-ready throughout the life of an award. To get ahead of the audit, contact us or take the assessment.