If a not-for-profit entity expends more than $750,000 in federal grants under the Uniform Guidance1 or $500,000 under Circular A-133 (even if the grants are passed through a state or local government) then an additional audit requirement will be necessary to comply with the Single Audit Act. The Single Audit Act’s objective is to provide assurance to the US government as to the management and use of federal funds by recipients such as states, cities, universities, and non-profit organizations.
Entities must adhere to the specific requirements mentioned within the Office of Management and Budget’s (“OMB”) Compliance Supplement, which contains a catalogue of federal awards and is updated annually. Each federal award is designated a specific Catalogue of Federal Domestic Assistance (“CFDA”) number as an index. The CFDA number should be explicitly stated in the contract received from the funding agency. The compliance supplement specifies various rules that the funding recipient must adhere to when spending federal funds. These compliance requirements vary depending on the type of federal award/CFDA. Types of compliance requirements listed within the supplement include the following, but may not be applicable to certain federal awards:
- Activities allowed or unallowed
- Allowable costs and cost principles
- Cash management
- Equipment and real property management
- Match level of effort and earmarking
- Period of performance
- Procurement, suspension, and debarment
- Program income
- Subrecipient monitoring
- Special tests and provisions.
There are times when a specific requirement for a federal award will not be listed in the compliance supplement. In this case, entities should refer to the scope of work within the federal contract received and use the general compliance requirements listed within Section 3.1 (A-133) and 3.2 (Uniform Guidance) of the compliance supplement as a guide.
Accounting and Reporting
Expenditures made with federal awards must be tracked separately within the entity’s accounting records, either through specific fund accounting that directly integrates with the general ledger, or through maintenance of schedules outlining the detail behind the federal grant disbursements. Fund accounting is an accounting system for recording resources whose use has been limited by donor, grant authority, or governing agency. Fund accounting serves to segregate an organization’s chart of accounts organization into a series of separate funds. Each fund is examined and tracked on its own, so that it has its own profit and loss statement. Through use of fund accounting, organizations can individually track receipts and expenditures by each federal award separately within the general ledger to ensure compliance and reporting accuracy. Tracking federal expenditures is crucial, since as a part of the Single or Uniform Guidance Audit, organizations must prepare a Schedule of Expenditure of Federal Awards (“SEFA”) that summarizes federal grant expenditures throughout the year segregated by CFDA number. Adequate documentation should also be maintained in order to substantiate any expenses incurred. The SEFA, along with the Single/Uniform Guidance Audit report and audited financial statements must be submitted to the Federal Audit Clearing House (“FAC”) thirty days after receipt of the auditor’s report(s), or nine months after the end of the fiscal year, whichever comes first.
1 Entities fall under Uniform Guidance requirements if the Federal Awards were made on or after December 26, 2014. All awards spent prior to this date fall under the Circular A-133 guidance.