During the compliance portion of a single audit, the auditor tests compliance with requirements that both the Office of Management and Budget and each federal awarding agency have determined to be important for each major program. The auditor also evaluates and tests internal controls over those requirements. At the start of the audit, the auditor determines which requirements are applicable, or subject to audit, for each program as well as which requirements are “direct and material.” These particular requirements are those that will be tested and reported.
These requirements fall into twelve basic categories:
- Activities Allowed or Unallowed – What is the purpose of the funding?
- Allowable Costs and Cost Principles – What rules and principles apply to goods and services purchased with program funds? Were all purchased allowed by regulation?
- Cash Management – Are funds received in advance, or as reimbursements? Were drawdowns appropriately performed?
- Eligibility – Are the individuals, areas, or organizations served eligible for assistance?
- Equipment and Real Property Management – Are federally-funded assets safeguarded and tracked?
- Matching, Level of Effort, Earmarking – Are all requirements for non-Federal participation in programs met? Are set-asides and earmarks fulfilled?
- Period of Performance – Are funds spent in the proper time period?
- Procurement, Suspension, and Debarment – Have procurement decisions allowed for sufficient competition? Have suspended or debarred entities been excluded from procurement?
- Program Income – If the program generates income, has it been accounted for and used in accordance with regulations?
- Reporting – Are reports filed timely and accurately?
- Subrecipient Monitoring – Have sub-awards and sub-recipients been tracked and monitored?
- Special Tests and Provisions – Vary by program and typically relate to program-specific regulations. A common requirement relates to the Wage Rate provisions of the Davis-Bacon Act.
Each of these requirements may apply to your federal programs. The majority of programs include consideration of requirements related to the allowability of expenses, reporting requirements, cash management or drawdowns, and the procurement of goods and services used in program operations. For other programs, the eligibility of beneficiaries may drive all other program activities.
Understanding the federal or state programs that your organization administers should be the basis for your grants management function. Learning to view these requirements from an auditor’s perspective can be a great tool to improve general understanding. Be sure to reach out to a Carr, Riggs & Ingram professional if you have any questions related to the single audit process or how your organization can best prepare.