Welcome to Feldesman's Grants Practice Shorts series where we discuss helpful tips and strategies in common areas of federal grant management. Be sure to check out our other installments on our Grants Practice Shorts page.
Grantees are subject to independent and government audits. Some, like the annual single audit, are routine; others such as audits by a grant-making agency's Office of Inspector General ("OIG") occur more unexpectedly and may be triggered by outside events. Audits help assure grantees and the federal government that taxpayer money has been used in furtherance of authorized purposes. Alternatively, an audit can reveal when a grantee, whether intentionally or accidentally, has misused federal funds entrusted to it. In this Practice Short, we focus on implementation of single audit requirements in Subpart F of the Uniform Guidance.
The Single Audit − Authority
Under the Single Audit Act of 1984, as amended by the Single Audit Act Amendments of 1996 (collectively the "SAA") many grantees are required to obtain an annual independent audit and submit the resulting audit report to the federal government. See 31 U.S.C. §§ 7501-7506.
Subpart F of the Uniform Guidance implements the requirements of the SAA. See 2 C.F.R. §§ 200.500 – 200.521. Effective for each grantee's first full fiscal year following October 1, 2024, any grantee expending $1,000,000 or more in federal awards (including subawards) during its fiscal year is required to complete either an organization-wide audit or a program-specific audit. For a grantee's fiscal years beginning before October 1, 2024, the threshold is $750,000. § 200.501; see also OMB, Final Rule: Guidance for Federal Financial Assistance, 89 Fed. Reg. 300100−300101 (April 22, 2024).
The Single Audit − Scope
Single audits (also called "Subpart F audits") include: (i) a financial statement audit, (ii) an evaluation of grantee's schedule of expenditures of federal awards ("SEFA"), (iii) internal controls testing, and (iv) testing of grantee's compliance with major terms and conditions of its federal awards. Single audits must be conducted in accordance with Generally Accepted Government Auditing Standards ("GAGAS" or "Yellow Book"). § 200.514(a).
Grantees may choose to have an accounting firm prepare their financial statements and SEFA. However, the firm that prepares grantee's financial statements and SEFA generally should not also perform the single audit or program-specific audit. See Yellow Book ¶ 3.14(b) (Self-review threat) and A3.04(b) ("Examples of circumstances that create self-review threats for an auditor include . . . an audit organization having prepared the original data used to generate records that are the subject matter of the audit."). In addition, "when procuring audit services, [grantees] must follow the procurement standards" and ensure audit services are not performed by entities or individuals suspended or debarred from participating in federal programs. §§ 180.220(b)(3), 200.317 – 200.327 and 200.509(a).
Auditors will gather and analyze data, collecting all necessary documentation to complete the review. After analyzing the data, the audit firm will develop its draft report. The draft report supplies the grantee with the auditor's initial findings and recommendations. The findings, however, are not yet final. The grantee will have a chance to respond to the findings prior to the auditor's issuance of the final report. Providing the draft report and receiving feedback from grantee "helps the auditors develop a report that is fair, complete, and objective." Yellow Book ¶ 4.34.
The Single Audit – Final Report
The final report consists of the auditor's findings and recommendations. Specifically, the audit report must contain the auditor's opinion "as to whether the [grantee's] financial statements [and SEFA] are presented fairly in all material respects." § 200.515(a). Also, the report must address the grantee's financial internal controls over financial reporting, describing the "scope of internal control and compliance testing [conducted by the auditor] and the results of the tests." § 200.515(b). Moreover, the report will provide an "opinion (or disclaimer of opinion) as to whether the [grantee] complied with Federal statutes, regulations, and the terms and condition of [its Federal award]." § 200.515(c).
Finally, the report will contain a schedule of findings and questioned costs, including: (i) significant deficiencies and material weaknesses in internal controls, (ii) material noncompliance with the statutes, regulations, or terms and conditions of the federal award, (iii) known questioned costs greater than $25,000, (iv) known or likely fraud affecting the federal award, and (v) instances in which the prepared summary schedule of prior audit findings materially misrepresents the status of any prior audit finding. § 200.516(a).
Upon completion, the grantee must submit the final audit report to the Federal Audit Clearinghouse ("FAC") within the earlier of 30 days after the report is complete or nine months after the end of the fiscal year under audit. §§ 200.512(a)(1), 200.512(d) and 200.514(a). Final audit reports are made publicly available through the FAC, except that tribes or tribal organizations may opt not to authorize the FAC to make the audit publicly available, in which case the tribe or organization must make copies available for public inspection. § 200.512(b)(3).
Grantees' responsibilities do not end with completion of the audit. If there are any negative audit findings, a funding agency official will likely contact the grantee after receiving the final audit report to follow up on any findings. The official may provide the grantee an opportunity to present additional information, arguments, and comments for consideration in an effort to determine appropriate agency action. Agencies may pursue a number of enforcement mechanisms, including disallowing costs, requiring the grantee to update or modify its policies and procedures, and even – in severe cases – initiating suspension and debarment proceedings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
