11 Tips for Success with Single Audits: Extra Care Is Essential as New Guidelines Take Effect
[ILLUSTRATION OMITTED] A new federal regulation makes this a year of significant change for compliance audits of governments, not-for-profit organizations, institutions of higher education, and Indian tribes expending federal funds (referred to as single audits)--and the practitioners who perform them. The new regulation, issued by the Office of Management and Budget (OMB), is referred to as the "Uniform Guidance," because it consolidates in one regulatory location (2 C.F.R. 200) federal grants management policy for federal agencies administering federal programs, recipients of federal funds, and auditors. The Uniform Guidance supersedes many former OMB circulars, including the audit requirements in OMB Circular A-133. The new Uniform Guidance audit requirements became effective for the first time for audits of fiscal years beginning on or after Dec. 26,2014. Among the many resulting changes, the threshold for a required single audit was increased to $750,000 from $500,000, and certain aspects of how auditors select federal major programs to test have been revised. Because of the high degree of regulatory exposure, single audits were high-risk enterprises even before the changes. This risk and the specialized nature of single audits mean that they are not easy for every firm to perform successfully (see the sidebar, "Doing It Right at Small Firms"). "You can't develop the experience and the expertise to do this if you're only going to do one or two," said Brian Schebler, CPA, national director of public sector services for RSM US and the immediate past chair of the AICPA Governmental Audit Quality Center (GAQC) executive committee. "You need to be developing a practice in this area to ensure an appropriate understanding of the relevant regulations and standards." Here are best practices that firms would be wise to consider as they perform single audits: DON'T ACCEPT IF YOU'RE UNPREPARED Auditors who haven't previously performed single audits may be tempted to try one if they have a not-for-profit or local government client that has received small amounts of federal awards in the past and suddenly meets the threshold for a single audit. They may believe it won't be difficult or have concerns about losing the client. "Unfortunately, they don't recognize that performing a single audit is a completely different ballgame," Schebler said. Sometimes firms in this situation try to learn as they go along. Others figure that they can catch any mistakes with a preissuance review at the end of the audit. But by the time the reviewer uncovers any mistakes, it may be very difficult to correct them so late in the process. "A firm should accept an engagement only when they have the competency, the ability, and the staffing required to accept that engagement," said Rick Reeder, CPA, CGMA, the owner of Tampa, Fla.-based Reeder & Associates, former chair of the AICPA Peer Review Board and a previous member of the GAQC executive committee. PLAN PROPERLY Effective planning for a single audit starts with developing an understanding of the entity being audited, including its federal funds, and doing a proper risk assessment. This means getting familiar with the entity's people, skills, and attitudes. It also means exploring the federal awards received by the entity and how they are being used. "That helps you understand what you need to pay attention to, what the compliance requirements are, and what controls might be in place," said Erica Forhan, CPA, a partner in Moss Adams's professional practice group who also chairs the GAQC executive committee. "And everything flows from there." Junior audit staffers in the field are the first line of defense in finding noncompliance, so they need to understand what they're looking for instead of performing procedures without thinking about their purpose. VERIFY INDEPENDENCE Auditors must take care to consider the areas where they have the potential to compromise their independence in a single audit engagement. …