Clarifying the Single Audit Threshold Changes for 2024

Important Information Regarding Updated Audit Requirements for Entities Receiving Federal Funds

The Office of Management and Budget (OMB) raised the single audit threshold in 2024, a significant change that would affect companies that accept federal funds. Single audits ensure that government funding is handled in line with compliance standards, therefore strengthening spending accountability.

Smaller organizations may find relief from compliance costs when the threshold is raised from $750,000 to $1,000,000; larger organizations that generally receive more federal funds will still have to undergo regular single audits. Understanding these developments helps companies properly manage internal controls and are ready for compliance, thereby ensuring good operations and appropriate fund usage.

The New Single Audit Requirements

Entities using $750,000 or more in federal monies are mandated by the Single Audit Act to have a single audit. By grouping several audits into one, all-encompassing evaluation and offering government supervision on how money is handled across the company, this audit system is meant to lower the audit load.

Organizations whose expenses are below $1,000,000 could now be free from these audits as the new barrier is $1,000,000. Smaller organizations notably benefit from this shift since it helps them stay away from audit compliance’s expenses and complexity.

Smaller entities benefit from the increase by eliminating the single audit requirement near the former threshold, providing significant financial relief. A small community group receiving $800,000 in federal subsidies for healthcare services, for example, will not have to spend some of that money on audit compliance.

For larger entities, compliance requirements will remain the same for grants above $1,000,000 in federal funds, assuring full government oversight.

All reporting periods or fiscal years starting on or after October 1, 2024 are subject to the threshold change. Companies near the threshold should evaluate their federal spending to ascertain if they will satisfy the new exemption standards.

Frequently Asked Questions

How do we determine if we meet the new $1,000,000 threshold?

Organizations should more rigorously examine their whole federal spending for the fiscal year than they have done in past years. See your grant administrator or a qualified accountant if you are not sure if grant money are federal in character. Inquiries to your accountant or administrator should be “are these funds federal or state funded” and “what are the reporting requirements related to this grant?”

What happens if our federal funding fluctuates around the threshold each year?

Like above, companies will have to keep an eye on their federal funds. If a company is confident, it will be at or above $1,000,000; so, we advise them to budget for the load of one audit.

How do we communicate this to our Owners / Board of Directors / Committee?

Organizations should let individuals in charge of governance know about the change and how it may affect their operations and audit planning for fiscal years-end.

These changes seek to lower compliance expenses for smaller companies while keeping suitable control for bigger recipients. Companies who gain from this exemption can channel money usually used for audits toward operations with a mission in mind.

Type A Program Changes and Audit Frequency

Threshold Increase: Programs qualified as Type A programs in past years if they entailed expenses of $750,000 or more. The cutoff for a Type A program now is $1,000,000 for entities with total government awards of less than $25 million.

Type A vs. Type B Programs: Type A programs are major federal financing initiatives needing audits at least once every three years; Type B programs have less auditing requirements. This difference is important since Type A programs usually have more financial risk and so demand more exacting inspection.

Audit Implications: By lowering the frequency of necessary audits, this move mostly helps smaller organizations—those with government awards less than $25 million. Previously meeting the $750,000 threshold programs might now be excluded, therefore saving time and money.

Impact on Larger Entities: The Type A program threshold is computed as 3% of the total federal awards spent for entities whose overall federal expenditures exceed $25 million. This guarantees that audit criteria stay commensurate with the federal assistance received, therefore preserving strict control where more taxpayer money is engaged. An organization with $30 million in federal grants, for example, would have to audit programs reaching the 3% level, or $900,000.

A nonprofit running multiple government grants totaling less than $25 million would suddenly find less programs classified as Type A. Less required audits as a result translate to resources freed for other program activities. For larger companies, including state agencies, the 3% level guarantees that important government programs are routinely reviewed, therefore preserving responsibility.

To give an example, a nonprofit organization that received $20 million in federal funding would see a change in the amount of Type A programs tested. Before the change, any program that had a total of $750 thousand in expenditures would be tested as Type A. After the change, the threshold is $1 million which would result in less testing and therefore a less rigorous audit.

While keeping necessary control for bigger federal cash recipients, these improvements let smaller organizations save on compliance expenses. The OMB hopes to reconcile efficient compliance with cost control by lowering audit responsibilities for smaller projects.

Additional OMB Adjustments Impacting Compliance

Cybersecurity Requirements

As cybersecurity threats continue to evolve, the OMB now requires that cybersecurity practices be embedded within organizations’ internal controls. This requirement applies to entities receiving federal funds and aims to protect sensitive information associated with federal awards. Organizations will need to assess and implement security measures, such as encryption and regular vulnerability assessments, to meet these standards.

This change recognizes that cybersecurity risks can jeopardize both organizational integrity and federal program data. Small and large organizations alike are expected to incorporate cybersecurity within their compliance frameworks, making it an essential component of safeguarding public funds.

Indirect Cost Rate Increase (de minimis rate)

The de minimis rate for indirect costs has been increased from 10% to 15% of modified total direct costs. This adjustment enables organizations, especially smaller ones, to recover more of the overhead costs associated with managing federal programs.

What is a de minimis indirect cost rate?

The de minimis rate is a simplified percentage applied to direct costs, allowing organizations, particularly smaller ones, to recover certain indirect expenses without needing to negotiate a unique rate. It applies a default rate (recently increased to 15%) on Modified Total Direct Costs (MTDC), covering general overhead costs such as administration and utilities. This option is typically available to entities without a federally negotiated rate, making compliance straightforward and accessible for smaller grant recipients.

For an organization with $500,000 in eligible direct costs, applying the 15% de minimis rate would allow for an additional $75,000 in recovered costs. This rate increase helps smaller entities cover operational expenses associated with their programs.

These updates streamline auditing for smaller entities and strengthen cybersecurity for all federal fund recipients. Together, they emphasize both cost-efficiency and robust internal controls, which are essential for managing federal funds effectively.

4 Steps for Entities Evaluating Single Audit Requirements

Preparing for compliance with the updated single audit requirements involves several essential steps:

Identify Federal Expenditures: Assess your organization’s total federal funding within the fiscal year to determine whether the new $1,000,000 threshold applies.
Review Compliance Obligations: Cross-reference each grant with federal compliance standards in the 2024 Compliance Supplement to ensure you’re meeting all requirements.
Strengthen Internal Controls: As cybersecurity requirements are now emphasized, organizations should review and reinforce their internal control systems to meet compliance, cybersecurity, and reporting demands. This could involve updating policies, training staff, and establishing data protection protocols.
Maintain Expense Documentation: Accurate and timely expense reporting is essential for both single audit compliance and financial transparency. Proper documentation helps demonstrate that federal funds are used responsibly and in line with program objectives.

Proactive preparation and internal control assessment are key to navigating the updated single audit requirements. By staying informed and enhancing compliance practices, organizations can continue to manage federal funds effectively.

Conclusion

Organizations receiving federal funds should take a close look at the recent changes to single audit requirements. These updates offer relief to smaller entities by reducing compliance costs, increasing cybersecurity expectations, and adjusting indirect cost allowances through the increased de minimis rate. As of October 1, 2024, the new threshold was in effect, and organizations must adapt their policies and internal controls to meet these evolving standards.

Whether your organization is navigating the new threshold, implementing cybersecurity measures, or adjusting internal controls for compliance, these changes present an opportunity to optimize processes and improve efficiency. If your organization needs support in understanding and applying these updates, LBMC’s team is ready to guide you through each step of compliance, ensuring you’re fully prepared for the future of single audit requirements.

Content provided by Colin Airola, Manager, LBMC Audit Services. For more information, contact colin.airola@lbmc.com.