Federal Law Audit Requirements

Disclaimer: If your charitable nonprofit receives federal monies of a certain amount in a single fiscal year, there are complicated regulations that apply requiring an independent financial audit. (Various state and local laws may also require an independent financial audit for charitable nonprofits that receive funds from state and local governments. Read about state law requirements.) Failing to follow the regulations can result in significant adverse consequences for the nonprofit. This Guide only touches on the basic information. Consequently the National Council of Nonprofits encourages nonprofits that may have federal law audit requirements to seek professional guidance.

  • In December 2013 the federal Office of Management and Budget issued new guidance regarding government contracts/grants that require a nonprofit expending $750,000 of federal funds in a single year to have an independent financial audit. This new threshold will become effective for years ending on or after December 2015.

Background on the federal law governing nonprofit audits: The government passed the Single Audit Act of 1984 to ensure that those organizations receiving substantial federal funds use the funds in compliance with the federal government’s funding requirements. The Act refers to a “single audit” because one of the objectives of the law is to replace the need for the federal government to audit the same non-governmental organization multiple times. The stated purpose of the law is to promote sound financial management of government funds by non-governmental organizations, promote uniform guidelines for audits, and reduce burdens on government and nonprofits by promoting “efficient and effective use of audit resources.” The OMB explains it this way: "A single audit is intended to provide a cost-effective audit for non-Federal entities in that one audit is conducted in lieu of multiple audits of individual programs." (Souce: White House Office of Management and Budget)

Does our nonprofit need a "single audit"?

All non-federal government agencies and nonprofit organizations that expend $500,000 or more in federal awards in a given fiscal year are required to conduct a single audit, also known as a "A-133 Audit." The requirement for a nonprofit to conduct a "single audit" is triggered when a nonprofit receives funding from either one or several federal government funding sources (whether in the form of a government contract or a grant) AND when that nonprofit expends a certain amount of government funding in a single year. In this context, "government funding" means money that originated directly from the federal government - or - those that came to the nonprofit from a “pass-through entity,” such as a state or local government agency. In determining the total amount of federal funds expended, funds directly from federal agencies, as well as those received from pass-through entities, such as state government or other sub-recipients, are included.

Read about new audit thresholds that will be effective for years ending on or after December 2015.

What is the scope of a single audit?  How does it differ from a regular independent audit?

A single audit covers the entire scope of the organization’s financial operations, ensuring that:

  1. The financial statements are presented fairly;
  2. The organization has an adequate internal control structure;
  3. The organization is in compliance with any special government regulations/laws that apply to the specific type of federal funding the audit covers.

Compliance with the Single Audit Act requires nonprofit organizations and their auditors to conduct an audit in accordance with OMB Circular No. A-133 (hence audits triggered by federal funding are often referred to as “Circular A-133” audits), which means the auditor needs to be familiar with federal guidance that is included in the OMB Circular Compliance Supplement and Government Auditing Standards (“Compliance Supplement”). Circular A-133 sets standards for uniformity and consistency under the Single Audit Act of 1984 and the Compliance Supplement provides the auditors with guidance on the procedures to use during the audit in order to comply with Circular A-133.

An A-133 audit is typically more thorough and detailed than a regular independent audit. There are specific and higher levels of testing that must be done on expenses to ensure that the federal funds have been used properly, as well as documented and reported correctly in the nonprofit's financial statements.

The chart below explains how to determine when federal funds are “expended” for Circular A-133 purposes, which is important so that the nonprofit can determine whether a Circular A-133 single audit is required.

Type of Federal Funds Received

Basis for Determining When Expended

Grants, cost reimbursement contracts, cooperative agreements, and direct appropriations

When the expenditure or expense transactions occur

Amounts passed through to sub-recipients

When the disbursement is made to the sub-recipient

Loan and loan guarantees

When the loan proceeds are used (see GAS-A133 Audit Guide)

Donated property, including surplus property

When the property is received

Food commodities

When the food commodities are distributed or consumed

Interest subsidies

When amounts are disbursed entitling the entity to subsidy


When the insurance is in force

Program income

When received or used

Remember that the single audit requirement only kicks in when an organization has expended $500,000 of federal funds in a fiscal year (and that this threshold becomes $750,000 as of 2015). In order to be certain all federal funds are accounted for in determining whether you meet the threshold for a single audit, your auditor should obtain documentation from pass-through entities sufficient to determine whether any of the funds you received as payment for services were federal, and if so how much. The single audit must be completed and submitted to the Federal Audit Clearinghouse (address: Bureau of the Census, 1201 East 10th Street, Jeffersonville, IN 47132) either 30 days after receiving the auditor’s report, or nine months after the end of the nonprofit’s fiscal year, whichever comes earlier. It must also be submitted to any pass-through entity, if applicable, and copies of the audit report must be made available to the public.

What’s a program-specific audit?

A nonprofit expending $500,000 or more in federal funds over the course of a fiscal year - either as a direct recipient or sub -recipient - is required to have an A-133 audit. However, if all funds expended were from one single federal program (excluding Research and Development), then a nonprofit may elect to have a program-specific audit conducted. For these purposes, a federal program is defined as single cluster of awards, or those with the same number in the Catalog of Federal Domestic Assistance. When opting to have a program-specific audit, the program-specific audit guide should be followed. If no program specific audit guide is available, audit guidelines for major programs should be used. Program specific audits are conducted in  accordance with Generally Accepted Government Auditing Standards (GAGAS). The decision to have a full A-133 audit or a program-specific audit should be made with the guidnace of your independent auditor.

Resources for nonprofits receiving federal funding

Nonprofit Audit Guide© Home


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