Single Audit Threshold is Changing | Meaden & Moore

On April 22, 2024, the Office of Management and Budget (OMB) made some important changes to its Uniform Guidance on Single Audits. If your nonprofit receives federal grants, keep reading to see if these changes will affect you.

What is a Single Audit?

A Single Audit is an annual audit of a nonfederal entity that receives and spends federal grants. An independent, third-party auditor will ensure the following when they perform a Single Audit:

1. Audit the financial statements in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States (GAGAS);
2. Determine whether the entity’s financial statements were prepared in accordance with Generally Accepted Accounting Principles (GAAP) and determine the Schedule of Expenditures of Federal Awards (SEFA) is fairly stated in all material respects in relation to the financial statements as a whole;
3. Understand and perform testing to support low assessed level of control risk of noncompliance for major programs;
4. Determine if the entity has been compliant with the federal statutes, regulations, and terms of federal awards that have a direct and material effect on each major program(s);
5. Test transactions and complete other audit procedures to provide sufficient audit evidence to support an opinion on compliance of major programs;
6. Follow up on prior audit findings;
7. Report any current audit findings;
8. Complete and sign specific sections of the Data Collection Form (DCF).

Which programs will be audited?

There are a few unique rules and exceptions for how programs are selected for audit, but in general, auditors are required to perform compliance testing on nearly all federal programs that expend over a certain threshold called “Type A” programs. But they may also be required to test smaller programs — called “Type B” programs — if (1) their Type B program is considered high-risk or (2) to meet the “percentage of coverage” rule. To ensure federal funds are being used appropriately, auditors must review enough programs to account for at least 20% (low-risk auditee) or 40% (high-risk auditee) of the nonprofit’s total grant expenditures. This may require them to review even low-risk Type B programs.

Which entities are required to commission a Single Audit?

Nonfederal entities like nonprofits and tribal governments are subject to the Single Audit requirements if the following are true:

• They have been awarded federal grants
• They use or expend grants that — in total — exceed the Single Audit threshold in the report year

What is the new Single Audit threshold?

The OMB raised the Single Audit threshold from $750,000 to $1,000,000. This means that nonfederal entities who expended less than $1 million in federal awards in a fiscal year are typically not required to commission a Single Audit.

When is the new Single Audit threshold effective?

The $1 million Single Audit threshold is effective for fiscal years that begin on or after October 1, 2024. In other words, the new threshold is effective for fiscal years that end on or after September 30, 2025.

What else was in the OMB guidance?

The OMB guidance made more key changes and expanded many definitions, but here is one additional change that nonprofits should keep in mind:

Indirect cost rate

Nonprofits that haven’t already negotiated for a specific indirect cost rate may elect to apply a de minimis indirect cost rate up to 15%. This de minimis rate rose from 10% to 15%. The nonprofit is responsible for determining the appropriate rate up to 15% of the modified total direct costs.

How should nonprofits prepare?

These changes are — for the most part — good news for nonprofits. Thanks to the new reporting thresholds, fewer nonprofits will be subject to the Single Audit requirements. Two things that we recommend when new guidance like this is released are to (1) report the changes to the Board of Directors and (2) have your Finance and Audit Committees review the new guidance. Make sure to review Federal awards awarded and prepare your SEFA for expenditures made during the fiscal year, which includes agreeing these expenditures to your internal financial statements for accuracy.

For more information on how these changes impact your nonprofit and to ensure compliance, contact us today.