Recent Changes to Federal Nonprofit Financial Audit Requirements

Since 2009 the United States Office of Management and Budget  (OMB) has been working to determine ways that the efficacy and efficiency of federal financial management. The effort led to the creation of the Council on Financial Assistance Reform (COFAR), which along with the OMB published the results of its examination in December, 2013 for public comment. The changes proposed would consolidate and clarify OMB guidelines and regulations. Since many federal agencies grant large sums of money to nonprofit organizations throughout the United States, if these changes are approved they have the potential to seriously impact your nonprofit. That’s why it’s important that your nonprofit coordinate its accounting efforts with well trained and local certified public accountants.paperwork-315083_1280

One of the key changes that COFAR proposed was the consolidation of most referenced circulars. Circulars are designed to guide other regulatory agencies on the best practices for assessing financial documents. Those agencies may be looking at your documents, especially through OMB Circular A-133 has dictated the rules for government regulatory agencies overseeing audits of state and local governments, and audits of nonprofits administering federal funds which is why it’s crucial to understand how their priorities are changing. OMB proposed consolidations to the following circulars:

  • A-21, Cost Principles for Educational Institutions
  • A-87, Cost Principles for State, Local, and Indian Tribal Governments
  • A-89, Federal Domestic Assistance Program Information
  • A-102, Awards and Cooperative Agreements with State and Local Governments
  • A-110, Uniform Administrative Requirements for Awards and Other Agreements with Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations
  • A-122, Cost Principles for Non-Profit Organizations
  • A-133, Audits of States, Local Governments and Non-Profit Organizations
  • A-50, Audit Follow-Up, related to Single Audits

These proposed changes will reduce the amount of duplicate information on your tax filings because they will consolidate the places where your tax forms will prompt you for information. These changes will make crucial differences in simplifying your tax filing for you and for the IRS, hopefully minimizing nonprofit financial audit inquiries.  Although in aggregate these changes are affecting the ways that federal agencies are looking at your expenditures, the changes most directly relevant to your nonprofit apply to Circulars A-122 and A-133. If you want assistance clarifying how these changes may be relevant to your nonprofit, contact a local certified public accountant who specializes in nonprofit accounting.

The changes proposed by COFAR include another addition that will almost ensure fewer nonprofit financial audits from regulatory agencies: COFAR recommended raising the single audit threshold from its current $500,000 level to a $750,000 level. According to the OMB this change will remove the need for 5,000 individual audits while ensuring that 99% audit coverage will be sustained. COFAR furthermore recommended raising the threshold for reporting questioned cost from $10,000 to $25,000. When an auditor questions the results of a suspicious expense, they must now provide more detail in their report about their findings. Auditors must now consider how much time and effort an organization invested in a project receiving government funds as well, so nonprofits should be even more diligent in recording and reporting their expenditures.

Perhaps most importantly, the OMB is reducing the number of reporting requirements from 14 to 6 to ensure proper compliance. Make sure that your nonprofit follows the progress of these proposed changes as they continue to receive public scrutiny and hopefully make their way through the necessary legislative channels.

  • Activities allowed (or unallowed) and allowable costs/cost principles
  • Cash management
  • Eligibility of program (type A or B)
  • Reporting
  • Subrecipient monitoring
  • Special test provisions

If you need help making sure that your nonprofit is prepared for your next nonprofit financial audit, be sure to contact a qualified certified public accountant who has extensive experience helping nonprofits. At Gurman & Company, we will work with you to make sure that your information is properly disclosed to the necessary government administrators.