The 501 S(c)ene

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How do you determine which grant to test in a single audit?

When single audits are required, there are a few steps needed in order to determine which federal program will be tested. Auditors use a risk-based approach when looking at the programs and their backgrounds.

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The steps are as follows:

  1. Identify the larger federal programs and label them as type A or B.

Type A programs are federal awards that expended $750,000 or more but less than $25 million in the year. Generally, type A programs must be tested, but it can depend on the assessed risk. Type B programs are the rest of the federal awards that did not expend over $750,000.

  1. Determine if programs are high or low risk. Assess type A and B programs.

For a federal program to be determined as low risk it must have the following characteristics:

  • Audited as a major program in at least one of the two most recent audit periods
  • Must not have had a material weakness over internal controls in the most recent period
  • Must not have had a modified opinion in the last audit
  • Must not have had any questioned costs over 5% of total federal award in the most recent period
  1. High risk type B programs must be identified using professional judgement. High risk type A and B programs should be tested.

Finally, when determining the major program(s) to test, the federal award(s) selected needs to meet the minimum coverage requirement. An entity that is not a low risk auditee overall has a requirement for 40% of the total federal awards expended to be tested, and a low risk auditee’s requirement is for 20% coverage. If the federal programs determined to be tested in the above steps do not exceed the required coverage, an additional federal award should be selected to test in order to reach the coverage required.

  1. Federal awards must be determined as major programs if they have the following:
  • Type A programs identified as high risk
  • Additional programs necessary to comply with the percentage of coverage.

After going through these steps, the auditor will have determined which major program(s) to test as per single audit requirements.

Do you still have any questions? Feel free to contact a Henry+Horne audit professional to assist you. For more information on how Henry+Horne can help you with your audit, check out our audit services page.

Jessica Martinez