For controllers of nonprofit organizations and governmental entities, preparing for the annual financial audit is one of most time-consuming tasks of the year.
Per the terms of recent changes imposed by the Office of Management and Budget (OMB), entities with federal funds expenditures exceeding $500,000 are required to perform a single audit. The OMB has raised the threshold to $750,000 beginning with the fiscal year ending Dec. 31, 2015. The American Institute of CPAs offers extensive guidance on OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, but there are certain measures of preparation specifically applicable to governments and nonprofits.
In accordance with A-133, the single-audit requirement includes a compliance audit over major federal assistance, in addition to the financial statement audit. Preparing for a successful single audit requires additional preparation. Some things to consider are:
- Complete an accurate preparation of the schedule of expenditures of federal awards (SEFA). The SEFA is a listing of all federal awards expended during the year, including the federal program name, the catalog of federal domestic assistance (CFDA) number, grant numbers and amount of federal awards. Controllers must ensure the schedule is aligned with their general ledger, including pass-through entities.
- Gather and summarize all grant documentation and information, including the grant award, any requests for reimbursements during the year, every federal financial report and any correspondence with grantor agencies.
- Document all policies and procedures over grant awards, organizing them according to control environment, risk assessment, control activities, information, communication and monitoring.
- Review the OMB A-133 compliance supplement section for each federal grant received during the year. This will aid in the preparation of all documents and tasks requested by an auditor.
- Compare the grant budget and federal financial reports to transactions on the general ledger. Perform reconciliations and any necessary journal and reclassing entries to facilitate an easily understandable audit trail. This will help any required certifications have been obtained and are securely in the grant file.
- Review vendors throughout the year and ensure all purchases using federal grant funds have been made to vendors not on the excluded-parties list system, which is located at www.sam.gov.
With adequate preparation and attention to detail, controllers can successfully prepare their entities for audits. If further assistance is required or there is a need to engage an auditor, parties can contact John Murray, CPA, CGFM, LaPorte Public Sector industry group leader, at [email protected], or Lance Moran, CPA, LaPorte Nonprofit industry group leader, at [email protected]