Does Crossing $1 Million in Federal Awards Mean Your Nonprofit Now Needs a Single Audit?

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Receiving $1 million in federal awards does not automatically mean your nonprofit needs a federal audit, but spending that amount during a fiscal year generally does. Under updated federal regulations applicable in 2026, the audit threshold increased from $750,000 to $1 million, changing compliance obligations for organizations receiving government funding. Understanding which expenditures count, what auditors examine, and how to prepare can help nonprofit leaders avoid costly compliance problems.

What a Single Audit Is and What Federal Law Requires It

A single audit examines an organization’s financial statements and compliance with federal funding requirements. Unlike a conventional financial statement audit, it evaluates whether federal awards are administered according to applicable laws, regulations, and grant agreements.

Under the Office of Management and Budget’s Uniform Guidance, 2 CFR 200.501, nonprofits expending $1 million or more in federal awards during a fiscal year generally must undergo an audit.

The threshold increased from $750,000 for fiscal years beginning on or after October 1, 2024. Certain organizations receiving funding under only one federal program may qualify for a program-specific audit instead.

These single audit requirements apply to qualifying federal expenditures, regardless of whether funding comes directly from a federal agency or through another organization.

The $1 Million Threshold: What Counts Toward It and What Does Not

The $1 million threshold measures federal awards expended during the fiscal year, not simply grant commitments or cash received.

Under 2 CFR 200.502, qualifying expenditures include federal grant costs, funds disbursed to subrecipients, certain loan activity, and the value of qualifying noncash assistance.

For example, a nonprofit spending $650,000 from a federal grant and $400,000 from federally funded state-administered programs would exceed the threshold with $1.05 million in expenditures.

Private donations and ordinary Charitable Contributions generally do not count toward this calculation.

Organizations should distinguish federal awards from other revenue sources and prepare a Schedule of Expenditures of Federal Awards (SEFA) to document applicable expenditures accurately, including federal funds received through pass-through entities.

What a Single Audit Actually Covers Beyond a Standard Financial Audit

A standard financial audit evaluates whether an organization’s financial statements are materially accurate. A uniform guidance audit goes further, examining compliance with federal program requirements.

Auditors use a risk-based approach to identify major federal programs and evaluate:

• Allowable costs and supporting documentation
• Procurement practices and vendor eligibility
• Payroll allocations and employee time reporting
• Subrecipient monitoring and federal reporting
• Internal controls over grant expenditures

Auditors also evaluate previous findings and determine whether corrective actions were implemented.

Understanding Nonprofit vs For-Profit Accounting is important because nonprofits administering federal awards face additional accountability requirements.

The audit produces separate reporting on financial statements, internal controls, and compliance with requirements affecting major federal programs.

 

What Happens If an Organization Fails Its Single Audit

An unfavorable audit result does not automatically mean losing federal funding. Findings identify financial reporting deficiencies, compliance violations, or weaknesses in internal controls that require management attention.

Auditors distinguish between significant deficiencies and material weaknesses, with the latter representing more serious control problems.

Common findings include unsupported payroll charges, inadequate procurement documentation, unallowable expenses, and insufficient subrecipient oversight.

Under 2026 regulations, auditors generally must report certain questioned costs exceeding $25,000.

Organizations must prepare corrective action plans identifying responsible personnel, proposed improvements, and anticipated completion dates.

Unresolved findings can lead to increased oversight, repayment demands, or restrictions on future federal funding. Prompt corrective action can help organizations demonstrate accountability and reduce recurring compliance problems.

How to Prepare for a Single Audit Before the Auditor Arrives

Preparation should begin before fiscal year-end, particularly when federal expenditures approach $1 million.

Nonprofit finance teams should reconcile federal awards, prepare financial statements, and assemble grant agreements, expense records, payroll documentation, and procurement files.

Management should also:

• Verify federal expenditures and Assistance Listing Numbers.
• Review grant-specific compliance requirements.
• Evaluate internal controls over federal programs.
• Document subrecipient monitoring activities.
• Address outstanding findings from previous audits.
• Assign responsibility for audit requests and documentation.

Early coordination with auditors helps identify missing information and potential compliance concerns.

Under 2 CFR 200.512, required audit submissions generally must reach the Federal Audit Clearinghouse within 30 calendar days of receiving the auditor’s reports or nine months after fiscal year-end, whichever comes first.

How BT Can Help

For more than four decades, Bennett Thrasher has provided businesses and individuals with strategic business guidance and solutions through professional tax, audit, advisory, and business process outsourcing services. Contact Bennett Thrasher’s nonprofit accounting practice, or call us at 770.396.2200.

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