Apr. 12th, 2021

Single Audit – Your Guide to Audit Readiness

By: Marc Sawyers, CPA, MSA – Senior Manager of Hungerford Nichols CPAs + Advisors

The 2020-21 federal grant compliance audit, more affectionately known to us all as the “single audit”, will be unlike any other.  Dramatic, I know, but many of us have been feeling the effects for some time now, seemingly with no end in sight.  Some school districts in the state, those with historically low levels of federal grant funding, may just be familiarizing themselves with what the term single audit even is, having to get past the irony that it essentially doubles your annual audit requirements.  Auditors are performing more audits and reviewing more major federal programs than ever before, operating within the same window of time as those “normal” years we now long for.  And school district officials are managing increased levels of funding from an increased number of sources, all while navigating an ever-changing fiscal and regulatory environment.

The brutal reality of it aside, there is good news to deliver – a silver lining in all this mess.  This year’s single audit does NOT have to be a bad experience.  With proper attention and preparation, you all can be ready when your auditor comes knocking.  Whereas there are many unavoidable, minute details to consider in grants management, having a high-level understanding of the programs you administer, and the audit process can take you a long way towards establishing and maintaining an effective internal control environment, and ultimately passing your audit with flying colors!

Easier said than done, but wouldn’t it be nice if there was guidance published for the programs you administer; guidance that effectively communicates program objectives and how to administer the grant, going as far as to indicate suggested procedures that auditors must consider when performing their testing?  I promised good news, and it brings me great (some?) joy to say that such a cheat sheet to your single audit exists. The Federal Compliance Supplement, updated and published annually by the Office of Management and Budget, includes program-specific guidance for most or all grant programs your district administers.  When taking on funding for new programs, especially those emergency funds associated with COVID-19, strongly consider looking up your new grant in the supplement.  Or just utilize it to refresh or enhance your understanding of grant programs you have administered for years.

While the supplement can provide you with a solid baseline understanding of your federal programs and what your auditor may ask for during a single audit, it is important that these efforts aren’t the end-all-be-all of your preparation.  Through what is hopefully an official grant agreement or memorandum of understanding detailing grantor and grantee responsibilities, your awarding agency (i.e. MDE, counties, etc.) must provide you with an abundance of pertinent information to assist you:

  • Federal award identification (i.e., CFDA number).
  • Federal award amount and date.
  • Federal award project description.
  • Period during which expenditures can be incurred.
  • All requirements imposed on the district by the grantor agency so that the Federal award is used in accordance with Federal statutes, regulations and the terms and conditions of the Federal award.
  • Any additional requirements imposed on the district for the grantor agency to meet its own responsibility to the Federal awarding agency, including identification of any required financial or performance reports.
  • Much more detailed in 2 CFR 200.332.

Having reviewed your grant agreement with the awarding agency, in conjunction with your review of the federal compliance supplement for the program, you’re now well read and have achieved that solid baseline understanding.  You understand what your auditor is going to test and what your and your grantor’s oversight responsibilities are, but there is one final piece of this puzzle. An important distinction between a financial and single audit must be considered when establishing your set of policies and procedures that will ensure compliance with grant requirements: auditor treatment of internal controls.

Internal controls, whereas evaluated during your financial audit as they relate to financial reporting, carry more stringent auditor requirements when evaluated during your single audit as they relate to federal grant compliance.  Both internal controls over compliance and financial reporting should be evaluated by your auditor in planning an audit, including “walking through” various significant controls in your processes and confirming their implementation and effectiveness.  However, in a single audit your auditor must take it a step further and perform transaction-level tests of controls over compliance. Auditor skepticism is never on full display quite like it is during testing of internal controls in a single audit, so protect yourself by considering the following:

  • Document written policies and procedures for significant grant processes and identify the key control in the process. For example, a second-level review with a documented approval, invoice approval for expenditures charged to grant, etc.
  • Ensure an audit trail exists. Effective key controls not only help to ensure compliance is achieved, but also leave a documentation trail that allows your auditor to “test” the control in the single audit.
  • Establish effective monitoring procedures to ensure that controls are consistently performed and documented. Since your auditor must test controls, it’s important to note that compliance alone will not protect you from audit findings.  Control failures identified in an audit, even if noncompliance did not result from the failures, may lead to a reportable condition in the report that communicates a significant deficiency or material weakness in internal controls over compliance.

For more information or if you have additional questions, please contact any one of our Hungerford Nichols’ Governmental Audit team members.

Adriane Schrauben, CPA, MBA – Shareholder
Marc Sawyers, CPA – Senior Manager
Michael Gruennert – Manager