What Triggers a Federal Grant Audit
Non-profit organizations that receive $750,000 or more in federal awards in a fiscal year are required to undergo a Single Audit (formerly known as the A-133 audit) — an independent audit covering both the organization's financial statements and its compliance with the requirements of each federal program it administers. Below the $750,000 threshold, federal awarding agencies may still include audit requirements in individual grant agreements. Additionally, federal program agencies may conduct their own monitoring visits or program-specific audits independent of the Single Audit requirement. Understanding which audit obligations apply to your organization based on your specific grant portfolio — and building the organizational capacity to meet those obligations — is a foundational responsibility for any non-profit that receives federal funding at significant levels.
Organizing for Audit Success
The organizations that emerge from federal grant audits with clean opinions and no significant findings are not those that scramble to assemble documentation when the auditor arrives — they are those that maintain audit-ready documentation throughout the year as a routine financial management practice. This means: keeping complete, organized grant files for every federal award, including the grant agreement, all modifications, all correspondence with the program officer, all financial and narrative reports submitted, and all supporting documentation for significant transactions; maintaining time and effort records that accurately reflect staff time on each federal grant, updated at least semi-monthly; documenting the competitive process for all procurements above relevant thresholds; maintaining property records for equipment purchased with federal funds; and ensuring that your accounting system can produce grant-specific financial reports that reconcile to your financial statements. The audit itself then becomes a verification exercise rather than a discovery process — and verification of well-maintained records produces clean audit opinions.
Understanding Federal Compliance Requirements
Federal grant compliance covers a range of requirements that go beyond financial controls. The major compliance areas tested in a federal Single Audit include: activities allowed or unallowed (were funds spent on activities permitted by the program legislation and grant terms?), allowable costs and cost principles (were cost principles under 2 CFR 200 followed?), cash management (were disbursements made in accordance with cash management requirements, and were advances of federal funds drawn down only as needed?), eligibility (were services provided only to eligible beneficiaries?), procurement (were competitive procurement processes followed?), reporting (were required reports submitted accurately and on time?), subrecipient monitoring (were sub-grantees properly monitored?), and special tests and provisions specific to the program. Understanding these compliance areas before an audit — and self-assessing your compliance against each one — is far better than discovering gaps when an auditor does.
Responding to Audit Findings
If your audit produces findings — observations about compliance weaknesses or internal control deficiencies — respond to them with the same combination of seriousness and constructiveness recommended for all audit findings. Each finding requires a formal management response that acknowledges the finding, explains its cause, describes specific corrective actions to be taken, identifies the responsible party, and provides a timeline for completion. Submit this management response on time and implement the corrective actions as described. For findings that require repayment of questioned costs, work with your auditor and the federal program officer to understand the repayment process and timeline. Keep your board fully informed of any audit findings and the remediation plan — findings are not career-ending events if handled transparently and decisively, but findings that are hidden from the board or that recur year after year without corrective action indicate organizational dysfunction that funders and auditors find deeply concerning.
