Federal funding can put your nonprofit on the main stage but the first Single Audit shows whether everything behind the curtain is ready for showtime.
For many nonprofit organizations, receiving federal funding is a major growth moment. It can expand programs, deepen impact, and help serve more people.
But federal funding also changes the game.
At a certain point, an organization may be required to undergo a Single Audit. For first-time organizations, the key is understanding what this audit is really designed to evaluate.
Under the Single Audit Act and Uniform Guidance, a Single Audit kicks in when a nonfederal entity spends $750,000 or more in federal awards during a fiscal year, with that threshold increasing to $1,000,000 for fiscal years beginning on or after October 1, 2024 (affecting September 30, 2025 year‑ends and later).
A financial statement audit asks whether the financial statements are fairly stated. A Single Audit goes deeper. It looks at whether federal funds were spent properly, documented properly, and supported by internal controls that actually work.
Put another way: The financial statement audit looks at the numbers. The Single Audit looks at the system behind the numbers.
The SEFA Is the Starting Point
One of the most important parts of a Single Audit is the Schedule of Expenditures of Federal Awards, commonly referred to as the SEFA.
The SEFA lists federal awards expended during the year and helps determine which programs the auditor will test. It should include the federal agency, pass-through entity, Assistance Listing Number, program name, award number, federal expenditures and other identifying information.
Think of the SEFA as the map for the audit. If the map is incomplete, outdated, or built at the last minute, the audit can quickly go off course.
For organizations preparing for their first Single Audit, SEFA completeness is one of the biggest areas of risk. The SEFA should reconcile to the general ledger and be supported by grant agreements, award letters, reimbursement records, and expenditure detail.
Do not treat the SEFA like a year-end scavenger hunt. Treat it like a living schedule, maintained throughout the year.
Documentation Is the Difference
A common first-time mistake is assuming that if the organization spent the money correctly, the audit will be fine.
Not always.
In a Single Audit, it is not enough to say a cost was allowable. The organization needs to show why it was allowable, when it was incurred, how it was approved, and how it connects to the federal award.
Auditors may test allowable costs, payroll allocations, procurement, period of performance, reporting, eligibility, cash management, equipment, program income, matching, and subrecipient monitoring.
The organization may have delivered the program successfully, but if the documentation is scattered, informal, or incomplete, the audit trail may not support the story.
Good intentions do not clear audit comments. Documentation does.
Internal Controls Matter
A Single Audit also evaluates internal controls over compliance. Auditors are not only asking: “Was this cost allowable?,” they are also asking: “What process did management have in place to make sure it was allowable before it was charged to the grant?”
Important controls may include review of grant expenditures, reconciliation of grant activity, review of reimbursement requests, payroll allocation approvals, procurement review, grant budget monitoring, review of reports before submission, and controls over SEFA completeness.
Controls do not need to be complicated. But they do need to be clear, documented, and consistently performed.
For many nonprofits, federal funding is like moving from a small local production to a bigger stage. The mission may be ready for a larger audience, but the organization also needs stronger lighting, sound, stage management, and backstage coordination.
Growth requires infrastructure.
How to Prepare for a First-Time Single Audit
The best preparation starts before year-end.
Create a complete inventory of federal awards, including direct federal grants and federal funds passed through state, county, city, or other agencies.
Centralize key documents, including grant agreements, award letters, amendments, budgets, reporting requirements, reimbursement terms, and Assistance Listing Numbers.
Track federal expenditures separately in the accounting system. If grant activity is buried in broad revenue or expense accounts, SEFA preparation becomes harder and audit risk increases.
Reconcile throughout the year. Federal expenditures, reimbursement requests, receivables, deferred revenue, and the general ledger should all tell the same story.
Connect finance and program staff. Single Audit readiness is not only an accounting function. Finance understands the ledger. Program staff understand service delivery, eligibility, performance reporting, and grant requirements.
Finally, involve leadership and the Board. A first Single Audit is a governance milestone. The Board should understand why the audit is required, which programs are significant, what risks exist, and whether the organization has the people, systems, and controls to manage federal funding well.
Common First-Time Single Audit Issues
Many first-time Single Audit issues are preventable. Common findings or delays may involve:
- Incomplete SEFA reporting
- Missing Assistance Listing Numbers
- Weak procurement documentation
- Unsupported payroll allocations
- Costs charged outside the period of performance
- Reimbursement requests that do not reconcile to the general ledger
- Undocumented internal controls
- Late or incomplete grant reports
- Limited subrecipient monitoring
Most of these are not mission problems. They are infrastructure problems that can be strengthened before the audit begins.
Final Thought
Federal funding can help a nonprofit do more. But it also requires the organization to prove more.
A first Single Audit should be used as an opportunity to strengthen grant compliance, improve internal controls, clean up documentation, and give management, the Board, and funders greater confidence.
The real question is not: “Can we get through the audit?”
The better question is: “Are we ready for the larger stage and is everything behind the curtain ready for showtime?”
For more information on Single Audits and preparedness, please contact Dan Sefick at dsefick@hbkcpa.com .
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