As year-end approaches, many organizations turn their attention to financial statement audit preparation—closing the books, pulling schedules, and coordinating with auditors. For December year-end organizations, this work is already well underway.

What often gets missed in the process is a more uncomfortable question:

Are we also subject to a federal compliance audit under 2 CFR 200 Subpart F?

In our experience, some organizations don’t discover the answer until auditors raise it—often late in the financial statement audit, when timelines are tight and options are limited.

When Federal Awards Trigger a Subpart F Audit

Under Uniform Guidance (2 CFR 200 Subpart F), an organization that expends more than $1 million in federal awards during its fiscal year is required to undergo a federal compliance audit.

For most organizations, this means a Single Audit, which includes:

• An audit of the organization’s financial statements, and
  
• Compliance testing over major federal programs

In more limited cases, a program-specific audit may apply, focusing only on compliance for a single federal program. Determining which audit applies is not automatic—it depends on how the federal funding is structured and how many programs are involved.

A Common (and Costly) Misunderstanding: Terminated Grants Still Must Be Audited

One of the most frequent surprises we see is this:

Even if a federal grant was terminated, the expenditures made before termination still count toward the Subpart F threshold.

Termination does not eliminate compliance obligations tied to funds already spent. If cumulative federal expenditures exceed $1 million for the fiscal year, the audit requirement may still apply—regardless of whether the award is active, suspended, or closed early.

Organizations are often caught off guard by this, particularly when terminated awards are no longer front of mind during year-end close.

Another Overlooked Trigger: Cost-Reimbursement Contracts

Another common misconception is the belief that only grants trigger Single Audit requirements.

In reality, certain federal contracts—especially cost-reimbursement contracts—are also subject to Uniform Guidance (via FAR 52.215-2(h)) and must be included in federal expenditure totals.

For nonprofits, this is a frequent blind spot. Cost-reimbursement contracts may look and feel like fee-for-service arrangements, but when they:

• Are funded by a federal agency or federal pass-through entity, and
  
• Reimburse allowable costs under federal rules

they may meet the definition of a federal award for Subpart F purposes.

When these contracts are excluded from the SEFA—or not evaluated at all—organizations can unknowingly cross the audit threshold.

Expenditures—Not Cash Received—Drive the Requirement

Another persistent source of confusion is the assumption that the Subpart F threshold is based on federal funds received. It’s not.

The requirement is driven by federal expenditures, which may include:

• Federal grants and cooperative agreements
  
• Pass-through awards from state or local governments
  
• Cost-reimbursement contracts subject to FAR 52.215-2(h)

Because pass-through funding and federal contracts are often administered outside traditional “grants management” functions, they are easy to miss during year-end evaluation.

Why the SEFA Is the Starting Point—and the Pressure Point

Determining whether a Subpart F audit applies begins with a complete and accurate Schedule of Expenditures of Federal Awards (SEFA).

The SEFA identifies:

• Federal agencies and pass-through entities
  
• Assistance Listing numbers
  
• Federal program names
  
• Total federal expenditures for the fiscal year

Preparing the SEFA is often where issues surface—particularly around:

• Determining whether a contract is subject to Uniform Guidance
  
• Identifying pass-through funding correctly
  
• Including terminated awards appropriately
  
• Reporting expenditures consistently and defensibly

If the SEFA isn’t right, everything that follows is exposed.

Why Timing Matters More Than Organizations Expect

Discovering Subpart F applicability late in the financial statement audit can create real disruption:

• Audit scope changes with little notice
  
• Compliance documentation is requested under tight deadlines
  
• Internal staff are pulled into reactive cleanup mode
  
• The likelihood of audit findings increases

Organizations that identify these requirements early have more control—over scope, timing, and outcomes.

The Year-End Question That Deserves a Real Answer

As part of year-end close and audit preparation, organizations with federal funding should be asking:

Have we evaluated all federal expenditures—including terminated awards and cost-reimbursement contracts—to determine whether a 2 CFR 200 Subpart F audit applies?

Answering that question accurately requires more than a threshold check. It requires a clear understanding of Uniform Guidance, federal award structures, and how auditors interpret compliance.

That’s often the point where organizations decide they don’t want to navigate this alone. Award Advisors is ready to help secure you a successful audit outcome. Contact us today.