How Can a Nonprofit Stay Single-Audit Ready?

Single Audit readiness is a year-round responsibility.

Organizations receiving federal funding should understand award terms, identify federal assistance information, track expenditures accurately, maintain supporting documentation, monitor subrecipients when applicable, and understand the compliance requirements attached to their major programs.

The strongest Single Audit preparation does not begin when the auditor arrives.

It begins when the award is accepted.

Identify Federal Awards Correctly

Not every government grant is federal, and not every federal award comes directly from a federal agency.

Federal funding may be passed through a:

state agency;
county or municipality;
university;
nonprofit organization; or
other pass-through entity.

For each award, the organization should identify and retain information such as:

federal awarding agency;
program name;
Assistance Listing Number, or ALN;
federal award identification number;
pass-through entity;
pass-through identifying number;
award period;
total award amount; and
applicable terms and conditions.

This information becomes critical when preparing the Schedule of Expenditures of Federal Awards, or SEFA.

Track Federal Expenditures Throughout the Year

The Single Audit threshold is based on federal awards expended during the fiscal year, not simply cash received.

Organizations should therefore maintain grant-level accounting that makes it possible to determine:

which expenditures relate to each federal award;
how much has been expended during the fiscal year;
whether costs fall within the award period;
whether amounts were passed to subrecipients; and
total federal expenditures across all programs.

Waiting until year-end to reconstruct federal activity increases the risk of missing awards or reporting expenditures incorrectly.

Related Resource: When Does a Nonprofit Need a Single Audit? →

Understand the Award Before Spending the Money

Federal funding often carries specific compliance requirements.

Before significant spending begins, management should understand:

allowable and unallowable costs;
period-of-performance requirements;
procurement requirements;
reporting requirements;
matching or cost-sharing provisions;
cash management requirements;
eligibility requirements;
equipment requirements;
subrecipient monitoring responsibilities; and
other award-specific conditions.

Not every requirement applies to every federal program.

The organization should understand which requirements are relevant to each award and build those requirements into its financial and operational processes.

Maintain Supporting Documentation

Federal expenditures should be supported by documentation that demonstrates both:

what was purchased or paid

and

why the cost was allowable under the award.

Depending on the transaction, support may include:

vendor invoices;
contracts;
purchase approvals;
payroll records;
time and effort support;
reimbursement requests;
travel documentation;
procurement records;
allocation methodologies; and
proof of payment.

Documentation should be organized by award whenever practical.

A transaction recorded in the general ledger is not necessarily sufficient by itself to demonstrate compliance.

Reconcile Grants Regularly

Federal awards should be reconciled throughout the year.

Management should periodically compare:

grant budgets;
general ledger activity;
reimbursement requests;
federal expenditures;
cash received; and
remaining award balances.

This can help identify problems such as:

expenditures charged to the wrong grant;
costs outside the award period;
missing reimbursement requests;
duplicate charges;
budget overruns; or
differences between program records and accounting records.

Monthly or quarterly reconciliation is generally much easier than rebuilding an entire year during audit preparation.

Build the SEFA During the Year

The SEFA should not be a schedule created from scratch after year-end.

Organizations receiving federal awards should maintain the underlying information throughout the year, including:

federal agency;
federal program;
ALN;
pass-through entity;
pass-through award number;
federal expenditures;
amounts provided to subrecipients; and
other required identifying information.

At year-end, the SEFA should largely be the culmination of that tracking process.

Monitor Subrecipients When Applicable

Organizations that pass federal funds to other entities may have additional responsibilities.

One of the first questions is whether the receiving entity is a subrecipient or a contractor.

That distinction matters because subrecipient relationships generally carry monitoring responsibilities under the Uniform Guidance.

Depending on the arrangement, monitoring may include:

reviewing financial and performance reports;
communicating federal award information;
evaluating risk;
following up on audit findings;
reviewing Single Audit reports;
performing additional monitoring procedures when necessary; and
documenting the organization's oversight.

Subrecipient monitoring should occur during the award period—not only when the Single Audit begins.

Maintain Strong Procurement Processes

Federal awards can carry specific procurement requirements.

Organizations should maintain documented purchasing procedures and retain evidence supporting how significant purchases were made.

That may include:

bids or quotes;
vendor selection documentation;
conflict-of-interest considerations;
purchase approvals;
contracts;
procurement thresholds; and
justification for noncompetitive procurement when applicable.

The appropriate documentation depends on the nature and amount of the purchase and the applicable requirements.

Keep Policies Current

Policies should reflect how the organization actually operates.

For organizations receiving federal awards, relevant written policies may address:

procurement;
conflicts of interest;
cash management;
travel;
payroll;
cost allocation;
credit cards;
purchasing;
equipment;
subrecipient monitoring; and
document retention.

A policy that exists only in a binder but is not followed in practice provides limited value.

The operational process should align with the documented policy.

Understand Cost Allocation

Many nonprofits operate multiple programs and funding sources, which means some expenses must be allocated.

The organization should have a reasonable and consistently applied methodology for allocating shared costs such as:

payroll;
occupancy;
information technology;
administrative salaries;
insurance;
supplies; and
other shared expenses.

Allocation methods should be supportable and consistent with the underlying benefit received.

This becomes especially important when federal awards are charged a share of common costs.

Monitor the Single Audit Threshold

For fiscal years beginning on or after October 1, 2024, organizations that expend $1 million or more in federal awards generally become subject to the Single Audit requirements.

Management should estimate total federal expenditures during the year rather than waiting until the final close.

If expenditures begin approaching the threshold, that is the time to:

contact the audit firm;
evaluate SEFA readiness;
review federal award documentation;
assess compliance processes; and
plan for the additional audit scope.

Review Prior Findings

If the organization has undergone a previous Single Audit, prior findings should remain part of the compliance process.

Management should understand:

what the prior finding was;
the underlying cause;
corrective action taken;
whether the corrective action is operating effectively; and
whether the issue could recur.

Repeat findings can indicate that corrective action was incomplete or not sustained.

Assign Clear Responsibility

Federal compliance should not sit entirely with one person unless that person truly controls every aspect of the award.

Responsibility often crosses:

accounting;
program management;
payroll;
human resources;
procurement;
executive leadership; and
grant administration.

Each team member should understand what they own.

A grant manager may understand program requirements, while accounting understands expenditures and reimbursements. Both perspectives may be necessary to demonstrate compliance.

Perform Periodic Internal Reviews

Organizations do not need to wait for the external auditor to test whether their processes are working.

Periodic internal reviews can focus on areas such as:

expense support;
procurement;
payroll charging;
grant reporting;
subrecipient monitoring;
cost allocation;
eligibility documentation; and
SEFA completeness.

Catching an issue during the year gives management an opportunity to correct the process before it becomes a broader compliance problem.

Single Audit Readiness Checklist

Throughout the year, the organization should ideally be able to answer yes to the following:

Do we know which awards are federal?
Do we have the correct ALN for each federal program?
Are pass-through awards clearly identified?
Are federal expenditures tracked by program?
Do we understand applicable award terms?
Are costs supported and allowable?
Are expenditures within the period of performance?
Are grant reconciliations current?
Is the SEFA being maintained throughout the year?
Are procurement procedures documented and followed?
Are shared costs allocated consistently?
Are subrecipients identified and monitored?
Are prior findings being addressed?
Are relevant policies current?
Do we know whether federal expenditures are approaching the Single Audit threshold?

If several answers are no, the organization likely has work to do before year-end.

The Bottom Line

Single Audit readiness is not primarily an audit-season exercise.

It is the result of good grant accounting, clear documentation, strong compliance processes, and disciplined financial management throughout the year.

Organizations that understand their awards, track federal expenditures accurately, maintain support, monitor subrecipients, and prepare the SEFA as they go are generally better positioned for an efficient Single Audit.

The goal is not simply to pass an audit.

It is to demonstrate that federal resources are being managed in accordance with the requirements attached to them.

How Bilotta & Company Can Help

Bilotta & Company, CPAs, LLC provides financial statement audits and Single Audits for nonprofit organizations receiving federal awards.

We work with nonprofit leadership teams to understand their federal funding environment, identify Single Audit requirements, plan for audit readiness, and establish clear expectations before fieldwork begins.

For organizations that need stronger year-round accounting, grant tracking, internal controls, board reporting, and financial leadership, our Nonprofit Navigator® Financial Stewardship program can help build the infrastructure behind audit readiness.

Related Resource: When Does a Nonprofit Need a Single Audit? →

Visit the Nonprofit Financial Resource Center →

This article is provided for general educational purposes and should not be considered accounting, legal, or federal grant compliance advice for a specific organization or award.