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New Audit Requirements in Effect Now

First Quarter 2015

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As CohnReznick discussed in prior communications, the Office of Management & Budget (OMB) finalized federal grant reform guidance on December 26, 2013. As the Uniform Guidance changes are now in effect, all federal grant recipients – whether or not they are subject to the new audit requirement thresholds – should thoroughly understand the changes and clarifications to administrative requirements and cost principles.

The following are highlights of the changes to the Audit Requirements (previously referenced by OMB Circular A-133), which apply to audits of fiscal years beginning on or after December 26, 2014:

Increased threshold. The guidance increases the requirement for an organization to have a Single Audit performed from a threshold of $500,000 to $750,000 when federal awards are expended. According to the OMB, this change will provide audit relief to approximately 5,000 organizations while maintaining audit coverage of 99% of currently covered federal funds.

Major program determination. The guidance modified the sliding scale threshold that separates Type A(major programs) from Type B programs, including raising the lowest threshold from $300,000 to $750,000 for organizations that spend between $750,000 and $25,000,000 in federal awards.

The guidance amends the types of findings that will trigger a high-risk classification, which requires a Type A program to be audited as a major program. Type A programs will be considered high-risk if, in the most recent audit period, the program:

  • Failed to receive an unmodified opinion;
  • Had a material weakness in internal control; or
  • Had known or likely questioned costs exceeding 5% of total program expenditures.

Keep in mind, however, that Type A programs must be audited as major programs at least once every three years, regardless of whether they are high-risk.
Finally, the guidance reduces the number of high-risk Type B programs that must be tested as major programs from 50% to 25% of the total number of low-risk Type A programs.

Audit coverage. The guidance reduces the percentage of coverage required in a Single Audit to 40% of federal expenditures for entities that do not qualify as low-risk auditees (20% for low-risk auditees). The current requirements are 50% and 25%, respectively. The guidance also revises the criteria for low-risk auditee status, making it more difficult for some organizations to qualify.

Audit findings. The guidance requires auditors to report their findings in greater detail, but it increases the threshold for reporting questioned costs from $10,000 to $25,000.

Compliance requirements. The proposed guidance contemplated a reduction in the compliance requirements from 14 to 6, but this change was ultimately not incorporated in the final guidance. OMB may reduce the number of compliance requirements subject to audit in the future as part of its annual compliance supplement update.

What Does CohnReznick Think?
This new guidance impacts federal award recipients whether or not they are subject to the new audit thresholds, as it modified and enhanced the administrative requirements and cost principles. The revisions to the Audit Requirements, in particular the increase in dollar threshold, may impact an organization’s requirement to have single audits performed. In addition, for organizations that pass-through federal funds to subrecipients and utilize those entities’ single audit reports as a means for monitoring compliance, they may no longer be required to do so given the increase in dollar threshold.  In such circumstances, the organization that passes through the federal fund would need to develop alternative procedures for monitoring and ensuring compliance with the federal funds requirements at the subrecipient level. For this reason, we believe that all not-for-profit organizations receiving federal grants should review the OMB’s final guidance and evaluate the potential impact of the circular changes to the organization and audit process.


For more information, please contact Kelly Frank, a CohnReznick partner and the Firm’s Not-for-Profit and Education Industry Practice Leader, at or 973-403-7999, or John Eusanio, a CohnReznick partner, at or 646-625-5767.

To learn more about CohnReznick’s Not-for-Profit Industry Practice, please visit our webpage.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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