Will your school district need a Single Audit this year?
With the influx of federal funding related to the COVID-19 pandemic, many school districts will likely have to conduct a Single Audit for the first time in 2020-21.
Single Audits can appear daunting because, in addition to showing where the money went, it also confirms that grant monies were expended for the allowed purposes, as well as calling for internal controls to ensure compliance.
However, as we will discuss further, proper documentation throughout the year and pre-planning can remove much of the stress and worry surrounding Single Audits.
When is a Single Audit Required?
A Single Audit is required if a district expends more than $750,000 in federal funds during a fiscal year.
Keep in mind that expenditures and not funds received trigger a Single Audit. Even if a district has not yet received the anticipated federal grant money, expending $750,000 or more means a Single Audit is still required.
What are the regulations governing a Single Audit?
Single Audits must be performed by an independent Certified Public Accountant in accordance with Government Auditing Standards and Uniform Guidance issued by the Office of Management and Budget (OMB).
Every year, the OMB issues a compliance supplement to the Uniform Guidance to help auditors perform the required compliance testing.
It is vital to work with an experienced CPA since the Single Audit compliance requirements to be tested differ for each program.
OMB’s compliance guidelines include the following six areas, which auditees should be familiar with:
- Part 1: Describes the purpose and applicability of the compliance supplement.
- Part 2: Provides a matrix of compliance requirements for each federal program listed by CFDA number and indicates which requirements to test.
- Part 3: Describes the 12 types of compliance requirements, related audit objectives, and suggested audit procedures for each requirement.
- Part 4: Includes program-specific audit objectives, program procedures, and compliance requirements listed by CFDA number.
- Part 5: Identifies “clusters of programs” – a grouping of closely related programs with similar compliance requirements – which get treated as a single program for the audit.
- Part 6: Addresses the objectives, principles, and components of internal control. It also provides illustrations of entity-wide controls and controls specific to each type of compliance requirement.
How are Single Audits conducted?
Single Audits look at financial and compliance components, with an auditor taking the following steps:
- Review the Schedule of Expenditures and Federal Awards to ensure that it is complete and accurate.
- Conduct a risk assessment to determine which federal programs to test based on prior audits, the type of opinion issued in the prior year, and any previous findings.
- The auditor then determines the compliance requirements to be tested based on the grant agreements and the Compliance Supplement for the applicable year. There are 12 compliance areas for possible review:
- Allowable activities
- Allowable costs
- Cash management
- Equipment & real property management
- Matching, level of effort, earmarking
- Period of performance
- Procurement, suspension, and debarment
- Program income
- Subrecipient monitoring
- Special tests and provisions
- The auditor must also gain an understanding of and test internal controls over compliance for each major program in addition to testing for compliance.
Beginning in 2019, the compliance supplement requires each federal agency to limit the number of compliance requirements subject to audit to six of the 12 listed above, with allowable activities and allowable costs treated as one requirement. Federal agencies must review the list annually and update it as necessary. Therefore, areas identified for testing may change from year to year.
How districts can prepare for a Single Audit
Throughout the year:
- Read all grant documentation carefully to identify rules, regulations, and compliance requirements.
- Work with the CPA conducting the audit to determine which six areas of grant compliance will be tested and plan for compliance in those areas.
- Identify CFDA numbers for all federal funds. This is typically included in the grant agreement and will be needed to prepare the Schedule of Expenditures and Federal Awards (SEFA).
- Track federal receipts and expenditures by using a unique identifier in the general ledger.
- Maintain all relevant documentation, especially the following:
- Grant application
- Grant agreements/ award letters
- Federal receipt documentation
- Quarterly expenditure reports or invoices submitted for reimbursement
- Final expenditure reports
- General ledger detail that agrees to the reports submitted
- Performance reports
- Monitoring reports
- Correspondence from the awarding federal agency
- Maintain regular communication between fiscal office personnel and program staff. This will ensure that each understands the grant's purpose, use of the grant funds, and compliance requirements.
- Ensure staff follows and documents internal control procedures.
- Prepare the SEFA in the required format and make sure to include all federal programs (grants).
- Reconcile all general ledger activity to the SEFA.
- Organize the documentation to provide to the CPA conducting the audit.
- Review with your CPA the six areas of compliance to be tested.
With districts receiving thousands of additional dollars in Elementary And Secondary School Emergency Relief (ESSER) and other federal programmatic grants designed to help during the pandemic, meeting the threshold for a Single Audit will not be hard.
But the process itself does not have to be difficult, especially if districts reach out early to their CPA and stay alert to new funding streams that may trigger a Single Audit. Ensuring from the start that proper internal controls are in place and that your district expends the funds correctly will pay dividends at year’s end.
The Boyer & Ritter team is well versed in conducting Single Audits and works with more than 20 school districts throughout Pennsylvania. If you have questions regarding Single Audit requirements, our knowledgeable CPAs have the answers and solutions you need.