The Single Audit Act requires nonprofits receiving federal funding above a certain threshold to undergo an independent financial audit—a requirement that directly impacts your compliance obligations and budget. Understanding when this threshold applies and what an audit entails will save you headaches, penalties, and unnecessary expenses down the road. Here's what you need to know to stay compliant.
The $750,000 Federal Expenditure Threshold
If your nonprofit spends $750,000 or more in federal awards during a single fiscal year, you must commission a Single Audit conducted by an independent certified public accountant (CPA) firm. This threshold has been in place since 2015 and applies to all nonprofit organizations, school districts, and local governments. Federal awards include grants, loans, loan guarantees, property, cooperatives, food commodities, direct appropriations, and certain other assistance mechanisms.
The key word here is federal. State or local funding, private donations, and earned revenue don't count toward the threshold. You'll need to carefully track and classify which dollars in your budget actually originated from federal sources—this is a common area where nonprofits underestimate their compliance obligations.
What Triggers a Single Audit vs. Program-Specific Audit
Below the $750,000 threshold, you may still need a federal audit, but it's typically a program-specific audit rather than a comprehensive Single Audit. A program-specific audit focuses on one or two federal programs and costs substantially less—often 30–50% cheaper than a full Single Audit. The tradeoff is scope: you're only examining compliance with the rules of that specific grant or contract.
If you exceed $750,000 in federal expenditures, you cannot use the program-specific route. You must conduct a Single Audit that covers all of your federal awards, your financial statements, and internal controls across the organization.
What to Budget for a Single Audit
Single Audit costs vary widely based on organization size, complexity, and geographic location. Here's a realistic breakdown:
- Small nonprofits (under $2M total budget): $8,000–$15,000
- Mid-size nonprofits ($2M–$10M budget): $15,000–$35,000
- Larger nonprofits ($10M+ budget): $35,000–$75,000+
Factors that increase cost include the number of federal programs, the quality of internal accounting controls, and whether prior-year findings remain unresolved. If your organization has weak documentation or multiple unresolved audit findings, auditors will spend more time testing and correcting issues—and you'll pay accordingly.
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Critical Compliance Elements in a Single Audit
Your Single Audit will examine several key areas:
- Financial statements – Overall accuracy and completeness of your books
- Schedule of federal awards – Detailed breakdown of all federal funding received
- Compliance with federal requirements – Adherence to specific program rules, such as procurement standards, reporting deadlines, and allowable costs
- Internal controls – Evaluation of whether your systems can detect and prevent errors or fraud
- Direct and indirect costs – Verification that you've allocated costs correctly and claimed only allowable expenses
The auditors will also assess whether your organization has adequate controls to track federal funding separately and ensure funds are used according to grant terms.
Timeline and Reporting
Plan for a Single Audit to take 8–16 weeks from start to finish, depending on the scope and your readiness. The final audit report, called a Data Collection Form (DCF), must be submitted to the Federal Audit Clearinghouse within nine months of your fiscal year-end. Missing this deadline triggers penalties and can jeopardize future federal funding.
Before the audit fieldwork begins, prepare by organizing supporting documentation, reconciling grant accounts, and resolving any prior-year findings. The smoother your records, the faster the process moves—and the lower your audit costs.
Frequently Asked Questions
Q: If we're under $750,000 in federal funding, do we need any federal audit? If you're below the threshold, a federal audit is not required, though your funder may still mandate one individually, and a program-specific audit is often a cost-effective alternative.
Q: Can we use the same CPA firm for both the Single Audit and our Form 990 filing? Yes, many firms offer bundled services; expect 10–20% savings compared to hiring separate auditors and tax preparers, though ensure the firm has explicit experience with both disciplines.
Q: What happens if we fail a Single Audit or have significant findings? Unresolved findings must be corrected in the following year's audit, and your federal funders may impose additional monitoring, reduce grant amounts, or suspend awards until compliance improves.
Contact Mercoly today to compare qualified Audit & Form 990 Services providers and find the right fit for your nonprofit's compliance needs.