How For-Profit Companies Can Determine Federal Assistance Audit Requirements

July 20, 2026

A Practical Guide to Audit Requirements, Uniform Guidance, and Agency-specific Compliance for For-profit Recipients.

By Michael Larson, CPA, Manager, Audit & Assurance

Federal assistance awards (grants, cooperative agreements, and subawards) follow a different compliance framework than federal contracts governed by the Federal Acquisition Regulation (FAR). Most for-profit recipients are not subject to the Single Audit requirements under 2 CFR Part 200, Subpart F unless a statute, agency regulation, or the award’s terms require otherwise. Instead, they may face program-specific audits, compliance audits, agreed-upon procedures engagements, or financial reviews. The applicable requirements come from Uniform Guidance, agency-specific regulations, and the individual award agreement itself, so they must be confirmed on an award-by-award basis.

What Is Federal Financial Assistance?

Federal financial assistance refers to grants, cooperative agreements, and subawards issued by federal agencies. It is distinct from federal contracting, which is governed by the FAR. While federal assistance awards are governed by a different regulatory framework, for-profit recipients may encounter certain compliance requirements and cost principles that are similar to those used in federal contracting.

Companies may receive federal financial assistance either directly from a federal agency or indirectly as a subrecipient through another organization. Whether funding is received as a prime recipient or as a subrecipient can affect the compliance, reporting, and audit requirements that apply.

Who Should Read This?

This guide is intended for CFOs, controllers, grants managers, compliance officers, accounting professionals, and executives at for-profit organizations that receive federal grants, cooperative agreements, or pass-through funding and need to understand their audit and compliance obligations.

What Regulations Govern Federal Assistance Awards?

Requirements for federal assistance awards come from three sources:

  1. Uniform Guidance (2 CFR Part 200) — the government-wide framework for federal awards
  2. Agency-specific implementing regulations — rules layered on top of Uniform Guidance by individual agencies
  3. The terms and conditions of the award itself — requirements specific to that agreement

Agencies frequently add their own requirements on top of Uniform Guidance. For example, Department of Energy assistance awards are also governed by 2 CFR Part 910.

When reviewing an award agreement, ask:

• Does this award require an audit?
• If so, what type?
• Which regulations are incorporated?
• Are there agency-specific requirements?
• Are there reporting deadlines beyond financial reporting?

Common Misconceptions

Myth Reality
Every for-profit recipient needs a Single Audit. Most do not, unless specifically required by the award or agency.
Uniform Guidance alone answers every compliance question. Award terms and agency regulations control.
Compliance begins when auditors arrive. Compliance begins on day one of the award.

Do For-Profit Companies Need a Single Audit?

Generally, no. For-profit recipients are not subject to the Single Audit requirements in 2 CFR Part 200, Subpart F, unless required by statute, agency regulation, or the specific terms of the award. This is one of the most common misconceptions among for-profit recipients, who often assume Single Audit rules apply universally across all federal award types.

Instead of a Single Audit, for-profit recipients may be subject to:

  • Program-specific audits
  • Compliance audits
  • Agreed-upon procedures engagements
  • Financial reviews
  • Other compliance examinations defined by the award or agency

Why Does This Distinction Matter?

  • Assuming a Single Audit applies can create unnecessary cost. Single Audits are more extensive (and expensive) than most program-specific alternatives.
  • Overlooking agency-specific requirements can result in noncompliance. Not all federal assistance awards follow identical rules.
  • Early planning reduces audit risk and disruption. Waiting until an audit is imminent limits a company’s options.

How Do You Determine Your Audit Requirements?

At a high level, companies should review the award terms, understand whether they are a prime recipient or subrecipient, and evaluate any applicable agency regulations. In practice, the award agreement itself is usually the best starting point.

Before reviewing the award terms, determine whether your organization is receiving funding directly from a federal agency or indirectly as a subrecipient through a pass-through entity, as this may affect the applicable compliance, reporting, and audit requirements.

Next, identify the regulations incorporated into the award. These references typically appear near the beginning of the agreement or within the terms and conditions. Depending on the funding source, an award may reference Uniform Guidance, agency-specific regulations, or other program requirements.

Look for sections covering:

  • Audit requirements
  • Applicable cost principles
  • Financial reporting
  • Record retention
  • Procurement requirements
  • Equipment management
  • Subrecipient monitoring

Some agreements label this clearly as “Audit Requirements.” Others incorporate these obligations by reference to Uniform Guidance, agency regulations, or standard award provisions, without spelling them out directly.

Many awards cite Uniform Guidance or agency-specific regulations without describing the underlying compliance, reporting, or audit requirements in full. Determining what actually applies often requires reading both the agreement and the regulations it references.

Because award agreements are structured differently across agencies, there is rarely a single clause that answers every compliance question. When in doubt, don’t assume no audit is required. Ask.

What Compliance Areas Do Companies Commonly Overlook?

  • Audit requirements incorporated through referenced regulations rather than a standalone audit clause
  • Agency-specific requirements that differ from Uniform Guidance
  • Cost principles governing whether expenditures are allowable
  • Record retention and reporting requirements
  • Additional obligations contained in subaward agreements

One of the most common mistakes is focusing on funding amounts and reporting deadlines while overlooking the provisions that establish compliance and audit obligations. A related mistake is assuming all federal assistance awards follow the same rules when agency-specific regulations or special award conditions may impose additional requirements.

When Should Compliance Preparation Begin?

At the start of the award, not before the audit. Companies are best positioned for a successful audit when compliance activities begin on day one of the award period rather than shortly before an audit begins. In our experience, many compliance findings stem from documentation gaps, unsupported costs, or internal control weaknesses that occurred months before the audit ever started. By the time auditors request support, it can be difficult and costly to recreate records or address compliance issues retroactively.

Building compliance into day-to-day operations from the outset can significantly reduce audit risk, improve reporting accuracy, and make the audit process more efficient and less disruptive. Companies that establish clear responsibilities, maintain documentation as costs are incurred, and periodically review compliance requirements throughout the award period are generally better prepared when an audit or compliance review occurs.

Companies can reduce audit risk by:

  • Maintaining effective internal controls.
  • Documenting allowable, allocable, and reasonable costs.
  • Maintaining labor, procurement, indirect cost, and financial support records.
  • Monitoring subrecipients when applicable.
  • Retaining documentation supporting reports and compliance decisions.

Common Mistakes For-Profit Recipients Make 

  • Assuming every award requires a Single Audit
  • Looking only at the award amount instead of the award terms
  • Ignoring agency-specific regulations
  • Waiting until the audit begins to organize documentation
  • Treating grants like FAR contracts
  • Assuming prior awards have the same requirements

Frequently Asked Questions

No. Most for-profit recipients do not need a Single Audit unless it is specifically required by the award terms, agency regulation, or statute.

No. Uniform Guidance (2 CFR Part 200) establishes the general framework, but agency-specific regulations and the individual award’s terms and conditions control the specific requirements that apply.

Federal contracting is governed by the Federal Acquisition Regulation (FAR). Federal financial assistance, including grants, cooperative agreements, and subawards, is governed by Uniform Guidance, agency-specific regulations, and award terms, a separate compliance framework.

This distinction is often a source of confusion because many companies perform both federal contracts and federal assistance awards simultaneously. Although the funding may come from the same federal agency, the compliance framework can be entirely different depending on whether the organization is operating under a procurement contract or receiving federal financial assistance.

Program-specific audits, compliance audits, agreed-upon procedures engagements, financial reviews, or other compliance examinations, depending on the award and awarding agency.

At the beginning of the award period. Waiting until shortly before an audit significantly increases compliance risk and cost.

Key Takeaway

Understanding applicable audit requirements before federal funds are spent is one of the most effective ways to reduce compliance risk. By focusing on award terms, agency regulations, and proactive documentation, for-profit recipients can confidently manage federal assistance awards while avoiding unnecessary audit costs and surprises.

 

How GRF Can Help

GRF’s government contracting professionals help for-profit companies interpret award requirements, evaluate internal controls, prepare for audits and compliance reviews, respond to agency inquiries, and strengthen overall grants compliance.

Learn More

Susanna (Sue) Chon, CPA, CFE

Partner, Audit & Assurance

Tom Myers, CPA, CGMA

Partner, Audit & Assurance

Michael Larson, CPA

Manager, Audit & Assurance

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