By Mikaela Davis, CPA
The Office of Management and Budget (OMB) issued 2 CFR Part 200 on December 26, 2013, which will bring changes to the information federal grant recipients and their auditors use to navigate federal grant programs. To understand the impact of those changes, let’s start with some basic understanding about Single Audits.
- Currently, non-federal entities that expend $500,000 or more in a fiscal year are required to have a Single Audit conducted for that year. These requirements are currently prescribed in the OMB Circular A-133.
- A Single Audit requires an auditor to determine whether the entity has complied with laws, regulations, and provisions of contracts or grant agreements for federal grant programs. The auditor is also required to gain an understanding of the entity’s internal control over federal programs.
- Currently, three primary OMB circulars establish the administrative requirements and cost principles related to federal programs:
- OMB Circular A-21: Educational Institutions
- OMB Circular A-87: State, Local, and Indian Tribal Governments
- OMB Circular A-122: Non-Profit Organizations
The new guidance in 2 CFR Part 200, which is effective for fiscal years beginning after December 26, 2014, consolidates the above circulars and replaces OMB Circular A-133 in prescribing requirements for Single Audits. The most significant impact includes the increase of the Single Audit threshold from $500,000 to $750,000. While this change may be beneficial for smaller organizations, recipients of sizable federal grants will continue to experience Single Audits. Auditees should consider the following tips:
- If a federal grant is received, the organization should compile the following documents for use in complying with requirements of the federal grant program:
- Grant Contract. This may come from a State pass-through agency.
- Compliance Supplement applicable to the federal program.
- Specific agency guidance. Often, federal granting agencies provide more user-friendly guidance, Q&A’s, and helplines for grant recipients. Visit the federal agency’s website.
- Applicable OMB Circular guidance.
- The Schedule of Expenditures of Federal Awards (SEFA) is typically included with the financial statements of an organization and summarizes all federal monies expended, grouped by federal programs. This schedule lists federal grants expended, not federal grants received.
- Documentation is key. Auditors are required to determine if the grant recipient complied with the grant provisions and in doing so, must review documentation that proves the grant recipient’s consideration of specific compliance requirements. Ask, “How are the steps taken to comply with a federal grant requirement documented?”
- Good organization breeds a smoother audit process. Auditors generally request all documentation pertaining to a specific federal grant program. Maintaining files in a unified and orderly manner will allow for a more efficient audit. Assigning grant management functions to one or two employees can improve efficiency and help avoid confusion when the auditor requests documentation.
- Auditors are required to identify whether a federal grant recipient organization qualifies as a Low-Risk Auditee. This determination identifies what portion of federal grant programs the auditor must test. The auditor is required to test a lesser portion of federal grant programs if the auditee qualifies as low-risk, which is a benefit to both the auditor and auditee. 2 CFR Part 200.520 identifies the criteria for a low-risk auditee.
- Pass-through agencies do not generally remove compliance requirements from recipient organizations. Often, there is confusion when federal grant funds are passed through another agency; a State, for example. Even if the pass-through agency is performing certain record keeping functions, a federal grant recipient is still charged with the responsibility of complying with the provisions of the federal grant program. Federal grant recipients should maintain adequate documentation, if even federal grant funds are received on a reimbursement basis from a pass-through agency.
Single Audits will likely continue to present challenges for recipients of federal grant awards. However, using the above tips and paying close attention to the provisions of federal grant awards your organization receives can allow for better understanding and a more positive Single Audit experience. For more in-depth information regarding the upcoming changes to Single Audits, please review 2 CFR Part 200.
HBE’s Nonprofit Specialty Team will also be presenting additional information on upcoming changes to Single Audits at the Nonprofit Finance & Accounting Leaders Roundtable session on Tuesday, July 22. This FREE session is open to both clients and non-clients. For more information, and to register, please click here.