Common Findings in Single Audits: How Nonprofits Can Strengthen Compliance

By Tricia Katebini, CPA, MBA and John McIntosh, CPA

For organizations that receive federal funding, few processes are as important—or as closely scrutinized—as the Single Audit. Unlike a standard financial statement audit, a Single Audit digs deeper into financial operations, internal controls, and compliance with complex federal regulations. It is the government’s way of ensuring that taxpayer dollars are being used responsibly and in line with the requirements of each funding program.

But Single Audits can also be a source of stress for nonprofits, higher education institutions, and local governments. Each year, auditors uncover recurring issues that, if left unaddressed, can lead to findings, questioned costs, or even jeopardized funding. The good news? Most of these issues can be avoided with proper preparation and awareness.

This article provides an overview of Single Audits, highlights recent regulatory updates, and explores the most common deficiencies identified along with steps organizations can take to strengthen compliance.

What Makes a Single Audit Different?

A Single Audit is triggered when a non-federal entity spends $750,000 or more in federal awards during its fiscal year (rising to $1,000,000 starting with fiscal years beginning on or after October 1, 2024). A traditional independent financial audit focuses on whether the financial statements are presented fairly. A Single Audit takes it a step further to determine if a recipient complied with the terms of its grant agreements and if its Schedule of Expenditures of Federal Awards (SEFA) is fairly stated in relation to the financial statements as a whole.

The auditor’s role includes testing whether:

• Financial statements comply with federal cost principles and are free from material misstatement.
• Internal control systems are adequate to safeguard federal funds.
• The organization follows program-specific laws and regulations tied to each federal award.

To ensure transparency, Single Audits must be filed in machine-readable format with the Federal Audit Clearinghouse within nine months of the end of the fiscal year, or 30 days after the auditor’s report is received, whichever comes first. The report must also be shared with any pass-through entities and made available to the public, often via the organization’s website.

 Auditee Responsibilities

Federal funding comes with strings attached. Before executing an award, organizations must demonstrate that they have the right financial management systems in place. This includes:

• Clear identification of federal award spending in accounting systems.
• Accurate and complete financial results that can support federal draws.
• Effective internal controls to safeguard assets.
• Written procedures covering payments, procurement, subrecipient monitoring, cost allowability, compensation, travel expenses, and much more.
• Performance measurement systems that demonstrate how funds are being used to meet program goals.

In short, good governance and compliance must be baked into the organization’s everyday financial practices, not just pulled together at audit time.

The Compliance Supplement: An Annual Roadmap

Each year, the Office of Management and Budget (OMB) issues the Compliance Supplement, a detailed guide that helps auditors understand the federal program and the compliance requirements associated with the programs. It outlines program objectives, key compliance areas, suggested audit procedures, and sample testing methods.

The 2024 Compliance Supplement, effective for audits of fiscal years beginning after June 30, 2023, supersedes the 2023 version. It will remain in effect until the 2025 edition is released, which is currently being anxiously awaited (a draft is currently available as of posting date of this article). Nonprofits should pay attention not only to their own federal program guidance but also to cross-cutting requirements, such as procurement, reporting, and cash management.

Recent Revisions to the Uniform Guidance

The regulatory framework known as the Uniform Guidance (2 CFR 200) underwent significant revisions that take effect October 1, 2024, for new awards issued on or after that date. These changes are designed to simplify administration and reflect updated cost realities. Notable revisions include:

• Equipment threshold: Raised from $5,000 to $10,000. It also provides more clarity between equipment and supplies.
• Subaward cost exclusions: Increased from $25,000 to $50,000 per subaward when calculating Modified Total Direct Costs (MTDC).
• Indirect costs: The de minimis indirect rate rises from 10% to 15%, although organizations with a negotiated indirect cost rate agreement (NICRA) must continue using that rate unless documented approval is received from their cognizant agency.
• Audit threshold: Both the Single Audit requirement and the “major program” threshold increase from $750,000 to $1,000,000 in federal expenditures. This change is effective for fiscal years beginning on or after October 1, 2024.

In addition, some prior written approval requirements have been eliminated, and cognizant agencies now have authority to extend audit deadlines in certain cases. Organizations should review these revisions closely and update policies to reflect the new thresholds.

Common Findings in Single Audits

Despite clear regulations and guidance, many organizations struggle with the same issues year after year. The following areas are among the most common deficiencies reported by auditors:

1. Activities Allowed or Unallowed

Not all activities can be charged to a grant. For example, a public health grant may permit community outreach but not direct clinical services. Common problems include:

• Lack of written policies on allowable activities.
• Expenses approved without reviewing the grant agreement.
• Charging costs without verifying eligibility.

Best practice: Develop grant-specific checklists and require program staff familiar with the program objectives to review allowability of activities before approving expenses.

2. Allowable Costs and Cost Principles

Federal awards must only cover costs that are reasonable, necessary, allocable, and well-documented. Yet organizations often trip up by:

• Failing to document payroll allocations.
• Skipping formal approval for expenditures.
• Applying indirect costs inconsistently.

Best practice: Implement formal approval workflows and conduct periodic reviews of cost allocations. Ensure that salary allocations are supported by timesheets or other reasonable allocation methodology.

3. Cash Management

Federal rules require minimizing the time between receiving funds and spending them. Findings often stem from:

• Drawing down funds too far in advance.
• Holding excess cash for extended periods.
• Not reconciling cash draws with actual expenditures.
• Failing to remit interest earned above $500.

Best practice: Reconcile draws monthly and align requests with real expenditures. When operating on an advance basis, do not exceed 30 days’ worth of expenditures in a given drawdown. Ensure that any interest earned on federal advances is also tracked and monitored appropriately.

4. Eligibility

Grants that serve individuals or organizations—such as SNAP or rental assistance—require eligibility determinations. Errors arise when:

• Eligibility criteria are misapplied.
• Documentation is incomplete or missing.
• Records are not retained as required.

Best practice: Establish standardized eligibility verification procedures and retain supporting documentation. Intake software is also a valuable tool to assist with the retention and tracking of eligibility. Ensure that eligibility requirements are revisited at least annually to ensure individuals or organizations receiving assistance still meet the criteria.

5. Equipment and Real Property Management

Federal rules require careful tracking of federally purchased assets. Common issues include:

• Not conducting required physical inventories.
• Lacking a fixed asset management system.
• Disposing of property without required approvals.

Best practice: Invest in a quality fixed asset management system. Perform physical inventories at least every two years and maintain detailed asset records, including tagging assets with the grants they were purchased under and the percentage of federal funds used.

6. Period of Performance

Costs must be incurred only during the approved grant period. Findings often involve:

• Pre-award costs charged to grants without agency pre-approval.
• Late expenses posted after the period ended.

Best practice: Train staff to double-check dates before approving expenses. If expenses were incurred prior to the period of performance, work with your grants officer or manager to obtain an approval of pre-award costs.

7. Procurement, Suspension, and Debarment

Procurement of goods and services must follow strict standards, including competition and vendor vetting. Common deficiencies include:

• Missing or inconsistently applied procurement policies.
• Failure to verify vendor status against SAM.gov.
• Inadequate documentation of price or cost analysis.

Best practice: Centralize procurement oversight and require documented vendor checks or a vendor certification to determine if they are otherwise suspended or debarred from working with the federal government. Ensure that vendor checks are performed at least annually.

8. Reporting

Federal financial and performance reports must be timely, accurate, and consistent with accounting records. Common errors include:

• Late submissions or missing reports.
• Inconsistencies between reports and internal records.
• No supervisory review before submission.

Best practice: Establish internal deadlines ahead of federal due dates and require review by finance leadership. Utilize a tool to track and monitor against these deadlines to keep program staff and others internal to your organization accountable.

9. Subrecipient Monitoring

When funds are passed through to subrecipients, the primary recipient must monitor compliance. Deficiencies often occur when organizations:

• Skip risk assessments of subrecipients.
• Fail to review subrecipient uniform guidance audit reports.
• Do not follow up on corrective actions.

Best practice: Create a formal subrecipient monitoring policy with risk-based oversight.

Documentation: The Golden Rule

Perhaps the most important lesson from Single Audits is this:
“If it isn’t documented, it didn’t happen.”

Auditors can only rely on what is written, not on verbal assurances or intentions. Without adequate documentation, even compliant activities can result in audit findings.

Preparing for a Successful Audit

Avoiding these common pitfalls requires a proactive approach:

• Invest in training for finance and program staff to understand compliance requirements.
• Review policies annually to ensure alignment with current Uniform Guidance revisions.
• Conduct internal audits or mock single audits to identify weaknesses before the real audit.
• Leverage technology such as automated approval workflows, grant management systems, and dashboards to improve accuracy and oversight.

Summary

Single Audits are not just a compliance exercise; they are an opportunity for organizations to demonstrate accountability and strengthen stewardship of federal funds. By paying attention to the requirements, learning from common findings, and embedding strong controls into daily operations, nonprofits and other entities can reduce risk and focus on what matters most: advancing their mission.

For organizations that want added guidance, working with experienced auditors and advisors can make all the difference. With the right preparation, a Single Audit can be a manageable, even valuable, part of your organization’s financial journey.

Contact

GRF specializes in helping nonprofits and federal award recipients strengthen compliance, establish effective controls, and prepare for a smooth audit process. For help with your organization’s single audit, contact us.