Preparing for Single Audit When You Have Braided Funding

Every braided-funded healthcare organization that spends $750,000 or more in federal awards during its fiscal year is subject to Single Audit under 2 CFR 200 Subpart F. For organizations managing braided funding, this threshold is crossed almost by definition — a single SAMHSA grant plus a Section 330 award puts most CCBHCs and FQHCs well above it.

The Single Audit tests whether federal funds were spent in compliance with the terms of the award and applicable federal regulations. For an organization with a single federal grant, the audit tests are focused: allowable costs, cash management, reporting, and a handful of other compliance areas specific to the grant program.

For an organization with braided funding — multiple federal awards under 2 CFR 200, potentially a 638 contract under ISDEAA, state contracts, and Medicaid — the audit becomes significantly more complex. The auditor must identify major programs, test compliance across multiple frameworks, and evaluate a cost allocation methodology that distributes shared costs across streams with different compliance rules. An error found in one stream's allocation implicates every other stream that shares the same methodology.

This guide covers how to prepare for Single Audit when your funding portfolio spans multiple frameworks — what auditors look for, how to organize working papers, and how to present braided compliance in a way that is clear, defensible, and efficient.

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How Single Audit Works for Braided Organizations

Major Program Determination

The auditor identifies "major programs" — the federal awards that will be subject to compliance testing. The determination is based on federal expenditure levels, risk assessment, and the requirement to test a certain percentage of total federal expenditures.

For braided-funded organizations, multiple federal awards may qualify as major programs. A CCBHC with a $425,000 SAMHSA expansion grant, a $310,000 SAMHSA treatment grant, and $2.1 million in Medicaid may have two or three major programs selected for testing. A tribal health program with a 638 contract plus SAMHSA and CDC grants may have all three tested.

Implication: More major programs means more compliance areas tested, more working papers required, and more auditor hours — which translates to higher audit fees. Budget accordingly.

Compliance Areas Tested

For each major program, the auditor tests compliance in areas specified by the OMB Compliance Supplement. The standard areas include:

Compliance Area	What's Tested	Braided Funding Complication
Allowable costs	Were costs charged to the award allowable under the program's cost principles?	Shared costs allocated to multiple streams must be allowable under each stream's framework
Cash management	Were federal funds drawn down in proportion to expenditures?	Multiple drawdown accounts (PMS) with different expenditure rates
Period of performance	Were costs incurred within the award period?	Three fiscal years mean costs must be matched to the correct period per-stream
Procurement	Were procurement standards followed?	Shared purchases allocated across streams must meet the most restrictive procurement standard
Reporting	Were financial and programmatic reports accurate and timely?	SF-425s, state reports, and Medicaid cost reports must reconcile
Subrecipient monitoring	Were subrecipients monitored per 2 CFR 200.332?	If subgrantees receive braided funding, monitoring must cover all applicable frameworks

The ISDEAA Complication

For tribal organizations with both 638 contracts and competitive federal grants, the Single Audit may apply two different compliance supplements:

1. ISDEAA compliance supplement for the 638 contract — tests CSC calculation, contract modification compliance, self-determination requirements
2. Standard 2 CFR 200 compliance supplement for competitive grants — tests the standard compliance areas

The auditor must understand which supplement applies to which program. Auditors unfamiliar with ISDEAA may apply 2 CFR 200 tests to 638 contracts — producing findings that are technically incorrect because the wrong standard was applied. If your organization has 638 contracts, verify that your audit firm has ISDEAA experience before the engagement begins.

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What Auditors Focus On in Braided Organizations

Experienced auditors know that cost allocation is the critical area for braided-funded organizations. Their testing will center on:

1. Cost Allocation Methodology

The auditor will request your written cost allocation plan and test whether it is:

• Documented — a written policy describing allocation bases, cost classifications, and framework-specific treatments
• Reasonable — allocation bases logically relate to how costs benefit each stream
• Consistent — applied the same way each period, without unexplained changes
• Compliant — satisfies the cost principles of each applicable framework

What to prepare:

• Current cost allocation methodology document
• Any amendments to the methodology during the audit period (with dates and rationale)
• Board or management approval documentation for the methodology

2. Personnel Cost Allocation and Effort Documentation

Auditors will select a sample of employees charged to federal awards and test whether:

• Effort documentation exists (time records, activity logs, or certifications)
• Effort percentages match the financial allocations
• Documentation was prepared contemporaneously (not reconstructed for the audit)
• Total effort across all streams equals 100%
• Documentation is signed by the employee or a supervisor with firsthand knowledge

What to prepare:

• Effort documentation for all multi-funded staff (organized by employee, by period)
• Reconciliation showing that effort percentages match financial allocations per-employee per-period
• Certification schedule showing when semi-annual certifications were completed and signed

3. Indirect Cost Rate and Overhead Recovery

Auditors will test whether:

• The organization has a current NICRA (or is using the 10% de minimis)
• The indirect cost rate was applied correctly to each federal award
• CSC (for tribal organizations) was calculated correctly and doesn't overlap with indirect cost recovery
• State contract indirect cost caps were applied correctly
• Total overhead recovery across all mechanisms doesn't exceed actual indirect costs

What to prepare:

• Current NICRA or de minimis election documentation
• Indirect cost pool calculation showing what's included
• Rate application worksheet showing recovery per-stream
• For tribal orgs: CSC calculation and delineation from indirect cost pool

4. Cross-Stream Reconciliation

Auditors will test whether the total costs allocated across all streams equal total actual costs — no more, no less. They'll look for:

• Costs allocated to more than one stream (double-counting)
• Costs not allocated to any stream (potentially unallowable costs hidden in unrestricted)
• Inconsistencies between what's reported to different funders for overlapping periods

What to prepare:

• Annual reconciliation showing total costs by category = sum of per-stream allocations + unrestricted/unallocated
• Monthly allocation schedules for the audit period
• Cross-calendar reconciliation for months that fall in multiple fiscal year quarters

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Organizing the Audit Working Papers

The difference between a smooth audit and a painful one is preparation. For braided-funded organizations, the working paper package should be organized in a structure that allows the auditor to trace any cost from the financial statements through the allocation to the specific funding stream.

Working Paper Structure

Section 1: Organizational Overview

• Funding stream summary (all active grants, contracts, and revenue streams)
• Compliance framework per stream
• Fiscal year and reporting schedule per stream
• Cost allocation methodology document

Section 2: Financial Summary

• Trial balance for the audit period
• Total expenditures by cost category
• Total expenditures by funding stream
• Reconciliation: sum of per-stream totals = total expenditures

Section 3: Personnel Allocation

• Roster of all multi-funded employees
• Per-employee effort documentation by period
• Per-employee cost allocation by period
• Reconciliation: per-employee allocations match payroll records

Section 4: Non-Personnel Allocation

• Shared cost inventory
• Allocation base documentation (square footage measurements, FTE counts, etc.)
• Per-cost allocation calculations by period
• Supporting documentation (leases, invoices, contracts)

Section 5: Indirect Costs

• Indirect cost pool composition
• Rate calculation (NICRA documentation or de minimis election)
• Rate application per-stream
• Underrecovery calculation (for capped streams)
• For tribal orgs: CSC calculation, CSC vs. indirect cost delineation

Section 6: Per-Stream Financial Data

• One subsection per major program
• Expenditures by category for the award period
• Budget vs. actual
• SF-425 or other financial report copies
• Programmatic report copies

Section 7: Cross-Stream Reconciliation

• Monthly reconciliation: per-stream totals + unrestricted = actual total
• Fiscal period reconciliation: FFY data + SFY data + CY data = actual total (for overlapping months)

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Common Findings and How to Prevent Them

Finding: Effort Documentation Does Not Support Financial Allocations

What happened: Auditor selected an employee charged 30% to a SAMHSA grant. The effort certification says 30%, but the payroll records show 35% of the employee's salary was charged to the grant. The 5% discrepancy is a questioned cost.

Prevention: Reconcile effort documentation to financial allocations monthly. The effort percentage and the financial allocation must match. If they diverge (because the effort percentage changed mid-month but payroll ran on the old percentage), document the adjustment and correct the allocation.

Finding: Indirect Costs Exceed the Allowable Rate on a State Contract

What happened: The organization's NICRA is 22%. The state contract caps indirect costs at 10%. But the allocation schedule shows 18% of overhead allocated to the state contract. The 8% excess ($16,000) is a disallowed cost.

Prevention: Apply the correct rate per-stream in the allocation. Build the rate caps into the allocation spreadsheet or system as validation rules. Review the overhead recovery summary monthly to verify no stream exceeds its allowable rate.

Finding: Cost Allocated to a Stream Where It's Unallowable

What happened: A $3,200 expenditure for staff recruitment advertising was allocated 25% to a SAMHSA grant. Under 2 CFR 200.421, advertising for recruitment is allowable. But the state contract terms specifically exclude recruitment costs. The state-allocated portion ($800) is questioned.

Prevention: Before allocating any cost category to a stream, verify allowability under that stream's framework. Maintain an allowability matrix that maps cost categories to streams, noting any exclusions. Review new or unusual costs against the matrix before allocation.

Finding: CSC Calculation Includes Costs Already Recovered Through Indirect Rate

What happened (tribal org): The CSC calculation includes certain administrative costs as direct program costs for CSC purposes. The same costs are also in the indirect cost pool and recovered through the NICRA on competitive grants. This is double recovery — the same overhead dollar recovered through two mechanisms.

Prevention: Clearly delineate which overhead costs flow to CSC and which flow to the indirect cost pool. The delineation must be documented in the cost allocation plan and consistently applied. Auditors specifically test this boundary for tribal organizations.

Finding: Cross-Stream Totals Exceed Actual Expenditures

What happened: The sum of per-stream allocations for January exceeds total actual expenditures for January by $4,200. A cost was allocated to two streams when it should have been allocated to one.

Prevention: Monthly reconciliation check: sum of all per-stream allocations = total actual costs. Any variance must be investigated and resolved before the allocation is posted. This is the most fundamental validation in braided compliance.

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Working With Your Audit Firm

Before the Engagement

Verify braided compliance experience. Not all audit firms understand multi-framework cost allocation. Ask specifically: have they audited organizations with braided funding under multiple compliance frameworks? For tribal organizations: have they applied the ISDEAA compliance supplement?

Set expectations on scope. Braided-funded audits take more time than single-grant audits. Discuss the expected number of major programs, the compliance areas to be tested, and the additional working papers needed. This affects the audit fee — build it into the budget.

Provide the working paper package early. Send the organized working papers (Section 1 through Section 7) before fieldwork begins. The more preparation the auditor can do before arriving on-site, the shorter and less disruptive fieldwork will be.

During Fieldwork

Assign a single point of contact. The person who understands the cost allocation methodology should be available throughout fieldwork. This is typically the CFO or finance director. Auditor questions about allocation should be answered by the person who can explain the rationale, not just the numbers.

Anticipate the cross-stream questions. Auditors will ask: "Is this cost also charged to another program?" "How do you ensure no double-counting?" "Why is the indirect rate different on this contract?" Have the answers documented and ready.

Flag the framework boundaries proactively. If you have a 638 contract and competitive grants, tell the auditor which programs fall under which compliance supplement before they ask. This prevents the common error of applying the wrong supplement to a program.

After the Audit

Review findings carefully. If a finding relates to cost allocation, assess whether it affects one stream or all streams. A finding on the SAMHSA grant's personnel costs may implicate the same allocation methodology used for the state contract and Medicaid.

Correct systemic issues, not just the finding. If the auditor found an effort documentation gap for one employee, review documentation for all multi-funded employees. A Single Audit finding is a signal about the system, not just the sample.

Update the methodology if needed. If the finding reveals a flaw in the allocation methodology, correct it, document the change, and implement the correction for all streams going forward.

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This guide is part of GrantBridges's braided funding compliance series. See also: Cost Allocation Across Multiple Compliance Frameworks and Braided Funding Is an Operations Problem.