Five Key Challenges in Preparing a SEFA and How to Overcome Them
Many organizations have become subject to Single Audits in recent years due to increased federal grant activity. As part of compliance with Uniform Guidance, these organizations must prepare a Schedule of Expenditures of Federal Awards (SEFA). Accurate SEFA reporting is essential for demonstrating proper use of federal funds and maintaining compliance, and preparing the SEFA can present several challenges for organizations, especially those new to federal funding or with limited administrative capacity. Applying a few best practices can help ensure compliance while allowing the organization to stay focused on its mission.
What Is a SEFA?
Under 2 CFR 200.510(b), organizations are required to prepare a Schedule of Expenditures of Federal Awards (SEFA) as a supplementary schedule to their audited financial statements. Prepared by management, the SEFA is essential for determining whether an organization meets the federal expenditure threshold that triggers a Single Audit requirement. This schedule must include important details, such as the federal awarding agency (or pass-through entity), the Assistance Listing Number (ALN), the program name, total federal expenditures, and amounts provided to subrecipients. A SEFA is also required to include notes describing the significant accounting policies used in preparing the schedule and whether the auditee elect to use the de minimis indictor cost rate.
When Is a SEFA Required?
A SEFA must be prepared as part of an entity’s Single Audit. A Single Audit is triggered when an organization expends $750,000 or more in federal funds, whether received directly or through a pass-through entity, during its fiscal year, as reported on the SEFA. For fiscal years ending on or after September 30, 2025, this threshold will increase to $1,000,000, reflecting a recent update to the Uniform Guidance.
Five Challenges When Preparing a SEFA
1. Centralizing Grant Documentation
Maintaining a centralized, up-to-date repository of all grant agreements is essential. These documents often evolve, and it is critical to ensure the most current version is used for compliance and reporting. Careful review of each agreement helps identify key provisions, including allowable costs and reporting requirements. A centralized location for all grant documentation will also help to ensure the SEFA that is prepared by management is complete.
2. Understanding Pass-Through Funding
When funding is received through a pass-through entity, it may not be clearly communicated that the funds are federal or subject to specific federal compliance requirements. Organizations should proactively confirm the source of the funding and seek clarity on compliance expectations. The OMB Compliance Supplement, published each year, is an excellent resource for all questions regarding the grant-specific compliance requirements.
3. Leveraging Grant Officer Support
If the grant is administered by a grant officer, reaching out early and maintaining periodic communication can be beneficial. A grant officer’s insight into program expectations and compliance matters can help resolve questions efficiently and strengthen the organization’s future grant readiness. Further, the previously mentioned OMB Compliance Supplement provides contact information at the federal level for questions regarding reporting and compliance.
4. Strengthening Expense Tracking
Accurate and detailed expense tracking is critical. Grant-related expenditures should be clearly segregated in the chart of accounts to facilitate SEFA reporting. If the chart of accounts is not organized in a way to facilitate this reporting, accurate sub-ledgers or other tools must be used. This is imperative! Organizations should also support expenses with third-party documentation (invoices, receipts, payment records) and perform regular reconciliations to ensure completeness and accuracy.
5. Maintaining and Testing Internal Controls
Strong internal controls aligned with grant requirements are necessary to avoid audit findings, as well as the accurate preparation of the SEFA. It’s not enough to have written policies, organizations must regularly assess whether day-to-day practices align with documented controls. Periodic internal reviews can help identify gaps and improve compliance, and reconciliation back to the amounts on the SEFA are critical.
In summary, the SEFA is a vital document for organizations that receive federal funding. It plays a key role in determining whether a Single Audit is required and serves as a cornerstone of grant compliance and transparency. While it’s commonly prepared at the time of audit, best practice is to update and maintain the SEFA throughout the year to ensure accuracy and completeness, and, by addressing these challenges proactively, organizations can enhance audit readiness and overall federal compliance.
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