Jul 09, 2020

Best Practices when Preparing for Single Audits as the Auditee

Valentine_Kathleen_90x90Freidhof_Meghan_90x90By Kathleen Valentine, CPA, and Meghan Freidhof, CPA

When it’s time for your organization to prepare for a single audit, do you know your responsibilities? Auditees have both compliance and reporting requirements under the Uniform Guidance. This topic will be discussed at the PICPA Not-for-Profit and Government Accounting Conference on July 13 and 14. This blog offers a preview of this topic.

Compliance Responsibilities

A single audit is an organizationwide financial statement and federal awards audit that is required when a nonfederal entity expends more than $750,000 of federal dollars in a single fiscal year. This audit is required by the Office of Management and Budget (OMB). In December 2014, the OMB issued Uniform Administrative Requirements, Cost Principles, and Audit Requirements, which is a single set of rules known as the Uniform Guidance that governs the audit requirements. Those being audited (the auditees) are responsible for arranging a timely single audit. Auditees are also required to request the most recent peer review report of the audit organization.

Preparing paperwork for an auditCompliance responsibilities rest with the auditees. They are responsible for establishing and maintaining effective internal control over compliance and meeting the requirements of laws, regulations, contracts, and grants applicable to their federal programs. When findings are reported by an auditor, auditees are responsible for prompt follow up and corrective action on those findings.  If corrective action is not taken, the findings will be reconsidered by the auditor and repeated if necessary.

Auditors are responsible for understanding the internal controls over compliance and performing testing of that compliance. Auditors also determine whether the auditee has complied with the requirements of laws, regulations, contracts, and grants applicable to its federal programs that may have direct and material effect on each of its major federal programs. While auditees have the responsibility to take prompt corrective action on any audit findings, auditors are required to follow up on any prior audit findings. The auditors must also complete and sign specified sections of the data collection form.

Overview of Reporting Requirements

There are a number of reports that get submitted to the Federal Audit Clearinghouse (FAC) as part of the audit package, so we’ll take a detailed look into which reports are the responsibility of the auditor versus which reports should be provided by the auditee.

The auditee should provide financial statements and Schedule of Expenditures of Federal Awards (SEFA), a summary schedule of prior audit findings, and a corrective action plan.

The auditor will provide the following:

  • Report on the financial statements
  • Report on the SEFA
  • Report on internal control over financial reporting and on compliance and other matters (often referred to as the Yellow Book report)
  • Report on compliance with requirements that could have a direct and material effect on each major program and on internal control over compliance (often referred to as the Single Audit Report)
  • Schedule of findings and questions costs

Preparation Tips

As the auditee prepares for a single audit, the following guidelines will help make the process go smoother.

Keep up to date on all the latest standards, guidance, and developments. The AICPA’s Government Audit Quality Center (GAQC) provides a number of free tools for everyone, so take advantage.

Communication is key to managing the audits of federal grants. Make sure to work together and communicate so everyone knows who is applying for what federal awards. Also, if any questions or issues arise during the single audit preparation, then you can reach out to your auditor to discuss the proper course of action rather than waiting for them to discover it.

Often the bulk of the work ends up on one person on the back end (the CFO, controller, business manager, etc.). By offering targeted training and getting more people involved, issues can be resolved throughout the year instead of all piling up to be dealt with at the end by one person.

Identify and address problem areas in advance. One of the easiest places to start is to look at the prior year single audit report (if available) and review any findings. Taking action to prevent prior issues from reoccurring will go a long way with your auditors.

Kathleen Valentine, CPA, and Meghan Freidhof, CPA, are audit managers at Wessel & Company. Both are members of the not-for-profit and government niches within the firm. They can be reached at kvalentine@wesselcpa.com and mfreidhof@wesselcpa.com.

PICPA’s Not-for-Profit and Government Accounting Conference will be held on July 13 and 14 and is an exclusively online event. Learn more and register today. 

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.