Audits Related to Federal Awards

Does your organization receive federal awards either directly or indirectly?  If so, your grantor may require you to have an audit. There are three primary types of audits that may be required.

1. Financial statement audit – this is the typical audit that many for-profit enterprises have conducted as well as not-for-profit organizations.  It is a process that involves auditing the account transactions and year-end balances included in the organization’s financial statements and reporting on the “fairness of the presentation”.  It is all encompassing – not just concerned with the federal awards received.
2. Yellow book audit – this is a type of financial statement audit that is conducted under Government Auditing Standards.  Its focus is also oriented towards financial statement reporting, but it also includes assessing internal controls and compliance issues.  As with a financial statement audit, a yellow book audit’s objective is to provide an opinion on whether the financial statements are free of material misstatements. 
3. Single audit – this type of audit is required when the amount of federal awards EXPENDED (or incurred) during an organization’s fiscal year exceeds $500,000.  The term EXPENDED means the amount of expenses that the organization incurred related to the grant, not the amount of expense that have been paid. Be aware that the amount of funds RECEIVED is not the trigger.  This audit is focused on one or more “major” programs that received federal funding.  If you have a single audit, then the financial statement audit must be conducted under Government Auditing Standards (a.k.a.  a yellow book audit).

Financials statement audits may be “optional” for some not-for-profit organizations, with only the Board of Directors requiring an audit.  Yellow book audits will be required by law, regulations or grant contract and would not be optional.  Additionally, single audits are not optional.  If you expend more than $500,000 in your fiscal year, this type of  audit is required by the federal government.

So how do you know what type of audit is required?  You must read your grant agreement.  Typical language may include, “If the contractor receives $500,000 or more from all federal sources during one fiscal year, the contractor shall have an independent, organization-wide audit conducted in accordance with the Single Audit Act of 1984…“  If the grant agreement does not mention audit requirements, then you should contact the grantor for clarification.

If your grant agreement does not require you to have an audit, please keep in mind that this does not diminish your responsibility to comply with the grant and compliance requirements that govern federal awards. If you have any questions regarding compliance, contact us.