How to Avoid Single Audit Deficiencies

A Single Audit is a comprehensive financial audit required of non-federal entities that spend $1,000,000 of federal awards in a fiscal year beginning after October 1, 2024 ($750,000 prior to October 1, 2024). It is governed by the Uniform Guidance (2 CFR Part 200 Subpart F) from the Office of Management and Budget (OMB) and is comprised of two main sections, which are the financial audit and the audit of compliance. The financial audit is the audit of the recipient’s financial statements. The audit of compliance focuses on compliance with federal programs.

About Single Audits

Single Audits are significantly important and help monitor proper use of federal funds, promote accountability and transparency, identify weaknesses and risks, and identify fraud, waste, and abuse by deterring misuse of funds. Single Audits help provide assurance to federal agencies that the grant recipient complied with program rules and financial guidelines. Single Audits also provide confidence to taxpayers that public funds are used responsibly.

Quality in a Single Audit is important because it provides attestation to material compliance with federal requirements, protects public funds, and identifies real risks and corrective actions. Deficiencies or findings in a Single Audit can lead to legal and financial consequences for both the organization and the federal government, along with potential waste, fraud, and abuse.

A Single Audit finding is a problem or issue that is discovered during a Single Audit that relates to:

1. Noncompliance with federal, state, or local requirements
2. Weakness in internal controls over compliance
3. Weakness in internal controls in financial reporting

These findings are documented in the “schedule of findings” and “questioned costs” section of the audit report.

Common Types of Audit Findings in a Single Audit

Several reasons could cause a single audit deficiency to occur, including:

• Material Weakness – A serious flaw in internal controls that could lead to misuse of funds or noncompliance.
• Significant Deficiency – Less severe than a material weakness but still important enough to report.
• Noncompliance – Failure to follow federal requirements, such as reporting or procurement noncompliance.
• Questioned Costs – Costs that the auditor believes may be unallowable or inadequately supported.
• Repeat Findings – Problems identified in prior audits that have not been corrected.

Practical Example of a Single Audit Finding

 XYZ Nonprofit Corp received a federal grant for the construction of a new building. XYZ utilizes ABC Contractors on all the entity’s other projects and felt they were the best for the job. XYZ did not perform any other procedures over procurement (including RFP, formal bid, or even price comparisons) for this new building funded by a federal grant. Therefore, XYZ Nonprofit Corp did not follow federal procurement rules of 2 CFR Part 200 Subpart D. Depending on the severity of the finding, this would likely be a finding over internal control and compliance.

Consequences of a Single Audit Finding

Audit findings can have significant consequences for the organization receiving federal funds, including:

1. Potential increased oversight by federal agencies
2. Repayment of federal funds
3. Risk of grant freezing or termination
4. Damage to the organization’s reputation
5. Internal process and administrative changes

Strategies to Avoid Audit Deficiencies

It is key that an organization strives to avoid audit findings. To avoid audit findings or inaccuracies, entities should continually monitor and maintain systems to promote an environment of compliance and responsiveness. Here are a few strategies to avoid findings:

Strengthen Risk Assessment and Internal Controls

Document controls clearly to help employees and stakeholders easily understand policies and procedures. When documenting internal controls, organizations should focus first on the high-risk areas for federal programs, such as allowable costs and procurement. At a minimum, review the controls annually and keep them readily available for audit review. Internal controls should include segregation of duties to avoid one person performing all aspects of the transaction. In addition, regular reconciliation of accounts should occur.

Understand Grant and Compliance Requirements

Read the grant agreements thoroughly and maintain a compliance matrix for each grant award. The organization should understand each compliance requirement that applies to the grant and have processes in place for each applicable requirement.

Maintain Timely and Accurate Financial Reporting

Timeliness and accuracy in financial reporting is important for reporting to the grant agencies.

Track Federal Funds Separately

Use unique account codes/funds for each federal program and avoid co-mingling funds with non-federal or other grant sources.

Maintain Thorough Documentation

Maintain support for all expenditures, including but not limited to receipts, timesheets, approvals, and procurement documentation. Be sure that the documentation supports and demonstrates the provision and delivery of all activities, products, and services required of the grant.

Train Staff Regularly

Provide regular training for grant and accounting personnel related to internal controls, compliance, and Uniform Guidance. Cross-training should be completed to mitigate the risks of missed compliance while a person is on leave or absent.

Respond Promptly to the Auditor’s Requests

Keep track of the client-prepared listing and designate a knowledgeable employee to communicate with the auditors and coordinate responses.

Following the above key best practices can help prevent single audit findings by enabling the organization to:

• Demonstrate Compliance with Federal Requirements – Documentation proves that you’ve followed internal control and compliance requirements and will reduce the risk of audit findings.
• Reduce the risk of errors and mismanagement – Strong internal controls such as segregation of duties, reconciliations, and staff trainings catch issues before they become audit problems.
• Improve audit readiness – Increased organized and accurate documentation enables the audit process to move smoothly and less disruptively. When records are complete and easy to follow, auditors are less likely to require additional information.

Steps to Implement Key Strategies

Entities looking to implement additional procedures to assist in avoiding single audit findings should start with internal control and risk assessment.

1. Map out current policies and procedures for key compliance areas; allowable costs and activities (expense and payroll), procurement, reporting, and other areas of the Compliance Supplement.
2. Identify the responsible person(s) and any system or process weaknesses.
3. If there are weaknesses, implement segregation of duties, reconciliation, or other review-type procedures to mitigate.

The EisnerAmper Difference

As each grant has different requirements, organizations must entrust their federal grant funding to knowledgeable, experienced people. With decades of experience across our governmental assurance and consulting team, EisnerAmper is equipped with the skills, knowledge, and experience to assist your organization.

We serve nonprofits and government entities, including local, state, federal, school districts, housing authorities, and more, and have extensive knowledge and experience in grant funding and audit compliance. As members of the AICPA’s Government Audit Quality Center, we are committed to performing the highest quality audits and adhering to rigorous standards such as Single Audits. To learn how EisnerAmper can assist your organization, contact us today.