While most of the financial relief benefits driven by the pandemic have expired, there are some after-effects to consider as we head into 2023. If your business received financial assistance from a federal agency through the CARES Act, you may be subject to single audit requirements.
The CARES Act provided federal funding to many organizations in an effort to respond to the financial crisis triggered by COVID-19, and certain elements of this financial assistance may prompt a single audit requirement. In fact, some organizations that have never received federal funds are now finding themselves facing unexpected audit requirements and are unsure of what to do next.
Though there has been a lot written to assist organizations in complying with the applicable requirements, much of the guidance requirements can be daunting and overwhelming for organizations that have never received federal funds.
Requirements Under a Single Audit
In order to ensure oversight of federal funds, a single audit is intended to provide assurance to the federal government that entities are in compliance with program requirements.
Under current guidelines, if an organization spends $750,000 or more of federal awards (including grants and loans) in a fiscal year, a single audit is required under Title 2 US Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). The expenditures paid with federal funding are subject to regulatory compliance under 2 CFR 200 of the Uniform Guidance to ensure the federal funds are properly spent. All the expenditures paid during the year will be presented on a Schedule of Federal Expenditures of Federal Awards (SEFA) which will accompany the audited set of financial statements.
It’s important to note that not all stimulus funds are subject to single audits. The Small Business Administration (SBA) clarifies that:
- Stimulus funds provided through the Economic Injury Disaster Loans (EIDL) willbe subject to single audit requirements.
- Stimulus funds distributed through the Paycheck Protection Program (PPP) are not subject to single audit requirements.
This clarification is especially important for not-for-profits to take note, as the combination of traditional federal financing combined with stimulus funds may move some not-for-profits above the threshold and trigger the audit requirement.
A single audit requirement begins in the fiscal or calendar year that the not-for-profit exceeds the $750,000 level.
For-profit businesses may experience slightly different rules than not-for-profit. If your business receives federal funding and already qualifies for a single audit, any loans or grants from the EIDL are combined and reported on your Schedule of Federal Expenditures of Federal Awards (SEFA). The EIDL stimulus funds would not be aggregated with the other federal funds to determine whether your company would be subject to a single audit if your business does not traditionally receive federal funding or has never been subject to a single audit.
Please note that while PPP loans are not subject to single audit requirements, they have their own set of guidelines. A business that accepted over $2 million in PPP loans is subject to an SBA audit.
In an effort to prepare your business or not-for-profit, it’s important to have streamlined accounting records, strong controls, and separate records and accounts for federal funds to track expenditures.
An organization subject to a single audit is required to submit a report either 1) 30 days after receipt of the audit report, or 2) nine months after the end of the fiscal year. To ensure compliance, R&A CPAs’ advisors can perform an independent single audit that encompasses both financial and compliance components to fulfill federal regulations.
R&A has deep experience with single audits. Contact us if you have any questions about single audit requirements. We are here to help you through this process.