The Potluck

Federal largesse can trigger big audits for nonprofits

By: - March 22, 2022 9:12 am
loves and fishes

A volunteer distributes free meals with Loaves and Fishes in Bloomington in March 2020. Photo by Max Nesterak/Minnesota Reformer.

In a normal year, Interfaith Action of Greater Saint Paul receives about $60,000 in federal funds. But during one of the pandemic years, the nonprofit took in more than $800,000, which passed the threshold at which the government requires the nonprofit to hire an accountant to do a “single audit.”

Many nonprofits and other organizations may get more familiar with these more rigorous financial reviews — which are more onerous than a regular audit, with more reporting and tracking required — given the outpouring of federal funds during the pandemic. Entities that receive more than $750,000 in federal funds in a fiscal year must get a single audit, which can cost upwards of $25,000 fees paid to accounting firms.

Interfaith Action of Greater Saint Paul received extra federal funding to expand a homeless shelter and food shelf.

Nonprofits are facing fresh scrutiny in the face of the sprawling investigation of Feeding our Future and the large sums the federal government funneled through nonprofits to make sure people were fed and cared for during the pandemic. The U.S. Justice Department is investigating the Minneapolis nonprofit for allegedly misappropriating $65 million in federal food program dollars. 

Peter Olsen, director of finance and administration for the group, audited nonprofits for a dozen years and was familiar with the threshold that triggers the special audit.

But for other nonprofit groups, the requirement has been a surprise. If they’ve never had a traditional financial audit, it could cost $20,000 to $25,000, Olsen said, which they probably can’t charge to the government program.

Elizabeth Barchenger of Mahoney CPA and Advisors in St. Paul said some small nonprofits don’t get audits at all in normal times, so often they’re not prepared for it. Her firm charges at least $5,000 for a single audit on top of a regular audit.

It involves asking for invoices, checking allowed vendors, making sure the money went to eligible purposes.

“It can be really complicated,” she said. “We end up talking to people you’d never (expect).” That includes program managers and even people who received aid. 

Olsen advises people to communicate to the board, program directors, finance committee and executive director — and to find the right audit firm.

“This is gonna be new,” he said.  

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Deena Winter
Deena Winter

Deena Winter has covered local and state government in four states over the past three decades, with stints at the Bismarck Tribune in North Dakota, as a correspondent for the Denver Post, city hall reporter in Lincoln, Nebraska, and regional editor for Southwest News in the western Minneapolis suburbs. Before joining the staff of the Reformer in 2021 she was a contributor to the Wall Street Journal and the New York Times. She and her husband have a daughter, son, and very grand child. In her spare time, she likes to play tennis, jog, garden and attempt to check out all the best restaurants in the metro area.