The Uniform Grant Guidance (UGG) states that an organization expending $750,000 or more in Federal awards during its fiscal year must have a federal single audit conducted. (The threshold increased to $1 million for fiscal years starting after October 1, 2024).

The SEFA is used to determine the amounts expended for each of an organization’s federal programs.

As a result, the SEFA is a financial statement schedule that indicates whether the threshold requiring a federal single audit has been met. In addition, the information on the SEFA is used by auditors to determine which programs will be considered major programs and subject to audit testing. If the SEFA is not properly prepared, it can lead to incorrect conclusions about whether a single audit is needed and the programs that should be tested. Therefore, the SEFA is a foundational part of the single audit process. A properly completed SEFA is a critical part of staying compliant with federal compliance requirements.

The Preparation of the SEFA

200.508(b) of the UGG makes it clear that the organization being audited is responsible for preparing the SEFA. In other words, the auditor is not supposed to be preparing the SEFA on behalf of a client. If a client cannot prepare an accurate SEFA, it is an indicator of a reportable internal control weakness.

Determining the amounts considered to be expended on each award can be complex. In general, the accrual-basis expenses incurred for each program during the fiscal year are considered expended for purposes of the SEFA. However, there are special rules for how to account for funds related to items such as loans and loan guarantee programs, endowment funds, free rent, non-cash assistance, Medicare and Medicaid payments. Organizations engaged in these types of activities should pay special attention to how these items are presented on the SEFA. §200.502 of the UGG provides detailed guidance on what should be included within the amounts expended for SEFA reporting purposes.

Another area to remember is that certain federal programs that are closely related and share common compliance requirements are to be presented as a cluster on the SEFA. The cluster is considered one combined program that encompasses all of the individual programs within the cluster. Failing to identify clusters of programs is a common error in SEFA preparation.

Part 5 of the Compliance Supplement (2 CFR Part 200, Appendix XI) contains a good overview of the types of program clusters. An organization should consult this part of the Compliance Supplement if they are unsure whether they should be reporting clusters of programs.

The Contents of the SEFA

The minimal, required elements of the SEFA are listed in §200.510(b) of the UGG and include items such as:

• Listing of individual federal programs by federal agency;
• Identification of clusters of programs that list the individual Federal programs within the cluster and the applicable federal agency names;
• For awards received as a sub-recipient, the name of the pass-through entity and the applicable identifying number assigned by the pass-through entity;
• Total amounts expended on each award and the Assistance Listing Number of each award;
• Total amounts provided to sub-recipients from each award;
• Any Covid-19 funding must be separately identified;
• Information on loan or loan guarantee programs;
• Notes describing significant accounting policies used in preparing the SEFA; and
• Information on whether the organization elected to use the 10% de minimis cost rate for indirect cost reimbursements. (Fiscal years starting on October 1, 2024, the De minimis cost rate increases to 15%)

Internal Control Considerations

One area that can lead to potential audit findings relates to the internal control over the preparation of the SEFA. §200.303(a) of the UGG requires organizations to maintain effective internal control over Federal awards. Furthermore, auditors will also be considering the controls over SEFA preparation as part of obtaining an understanding of the organization’s controls over financial reporting. If auditors cannot conclude that effective internal control over SEFA preparation was maintained, it will likely lead to an audit finding.

So, in addition to providing an accurate SEFA, an organization must also be able to demonstrate that it has a system of internal control that supports the accurate preparation of the SEFA. At a minimum, an organization should be able to show documentation that the SEFA was reviewed and approved by an individual who was not directly involved with the initial preparation of the SEFA. The review process should include checking both the reported expenditures of federal awards and the assistance listing numbers reported for each grant program.

The SEFA is Crucial to Compliance

The SEFA is a foundational piece of the single audit process. The SEFA should not be viewed as something that is just done for the audit. Rather, it is a key part of an organization’s federal grants management system. As such, organizations receiving federal funds should ensure that they have the ability, and internal control structure, to prepare an accurate SEFA meeting the requirements of the UGG.

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