Attention nonprofits… have you started receiving significant federal funding? It might be time to move from a GAAP audit (Generally Accepted Accounting Principles) to a Uniform Guidance audit (Single Audit). A Uniform Guidance audit is more complex than a GAAP audit and requires additional compliance testing, so preparing for one will involve ensuring that your organization has the proper documentation, systems, and processes in place to meet the specific requirements. 

Quick Takeaways

• A Uniform Guidance audit includes compliance testing in addition to standard financial auditing.
• For fiscal years ending on or after September 30, 2025, the audit threshold increases from $750,000 to $1 million in federal expenditures.
• Preparing requires updated policies, proper documentation, strong internal controls, and accurate recordkeeping.
• Early preparation is key to avoiding delays and audit findings.

What is a Uniform Guidance Audit?

A Uniform Guidance audit involves a financial statement audit as well as a compliance audit, in which the auditors will gain an understanding of and test internal controls as well as compliance, in order to provide an opinion on the organization’s compliance with the rules and regulations of federal awards. For fiscal years ending prior to September 30, 2025, the threshold to require a Uniform Guidance audit is federal expenditures of $750,000 or more. However, for fiscal years ending on or after September 30, 2025, this threshold increased to federal expenditures of $1,000,000 or more.

Steps to Ensure Your Organization is Ready for a Uniform Guidance Audit

Once it is determined that a Uniform Guidance audit will be necessary, follow these basic steps to help prepare your organization.

1. Gather and understand documentation related to each source of federal funding. Identify all federal awards your organization received during the audit period, including grants, loans and other contracts. Gather all documents and communications received pertaining to each federal award and ensure you understand the terms that were accepted. Review these documents in conjunction with the Office of Management and Budget’s (OMB) Compliance Supplement, which includes directions on how and what the auditor should be testing for specific programs.
2. Review and update policies and procedures. Update policies and procedures to align with specific requirements noted in your review of the federal agreements and OMB’s Compliance Supplement. Be sure to include policies and procedures for areas relevant to your awards which might include procurement, subrecipient monitoring, cost allocation and reporting. Most importantly, ensure all relevant staff members are informed of and trained on the updated policies and procedures.
3. Assess and strengthen internal control over compliance. As part of a Uniform Guidance audit, auditors will obtain an understanding of the organization’s internal control over compliance through assessing that such controls exist and facilitate compliance with the requirements of the federal awards received. Ahead of the audit, ensure your system of internal control is designed and operating effectively and address any control gaps or weaknesses, especially as they relate to compliance. Clearly document all policies and procedures related to management of and compliance with federal awards.
4. Maintain accurate and complete financial records. Ideally, before you start spending any federal funds, develop a plan to ensure a process to track and document all federal awards, including agreements, expenditures and program activities. Ensure records are well-organized and readily accessible. Not only will this help provide for a smooth audit process, but it will also make it easier for the organization to prepare the schedule of federal awards (SEFA) and any required federal submissions, such as Federal Financial Reports (FFRs), accurately and in a timely manner.

Not all CPA firms are equipped to perform audits under the Uniform Guidance. These specialized audits require deep knowledge of federal grant compliance, including areas like internal controls, allowable costs, subrecipient monitoring, and more. At KLR our team has extensive experience conducting Uniform Guidance audits for nonprofit organizations and government-funded entities. We understand the nuances of federal requirements and provide the expertise necessary to help our clients stay compliant and prepared for federal oversight. 

FAQs

1. What triggers the need for a Uniform Guidance audit?

   Spending $1 million or more in federal funds in a fiscal year triggers the requirement (starting FY ending after Sept 30, 2025).

2. Can a GAAP audit firm conduct a Uniform Guidance audit?

   Only if the firm is experienced with OMB Compliance Supplement and federal grant compliance. Many nonprofits require new audit partners for this.

3. What is the SEFA and why is it important?

   The Schedule of Expenditures of Federal Awards (SEFA) details all federal spending and is a critical component of the audit.

4. How long does it take to prepare?

   Ideally, start preparation at least 6 months before your fiscal year-end to ensure compliance and avoid findings.

Proactive preparation is essential to ensure any audit goes well and is successful. However, by taking these steps, your organization can transition smoothly from a GAAP audit to the additional requirements of a Uniform Guidance audit.