Key Takeaways
- FQHCs typically operate under two concurrent audit obligations: a Yellow Book financial statement audit and, for those expending $1 million or more in federal awards, a Single Audit. Both run under a single engagement, but each carries distinct documentation standards and deliverables.
- The Single Audit threshold rose from $750,000 to $1,000,000 effective for fiscal years beginning on or after October 1, 2024.
- The de minimis indirect cost rate increased from 10% to 15% of Modified Total Direct Costs (MTDC) for federal awards issued on or after October 1, 2024.
- The 2025 OMB Compliance Supplement, effective for fiscal years beginning after June 30, 2024, restored internal control example activities and significantly reduced the higher-risk program list, shifting major program determination to risk factors internal to your organization, including prior findings and internal control adequacy.
- Finance teams that build readiness across all four quarters are better positioned for clean results than those who compress preparation into the weeks before fieldwork begins.
For FQHC finance teams, every season is audit season.
But not every audit season goes smoothly.
With the 2024 Uniform Guidance revisions now in effect, a revised HRSA Health Center Program Compliance Manual issued in October 2025, and auditors working from a restructured OMB Compliance Supplement for the first time this cycle, the technical expectations on finance teams have shifted.
Today, we’ll break down what those requirements demand, where preparation most commonly breaks down, and what a structured readiness process looks like in practice.
The Federal Framework for FQHC Audit Requirements
Your FQHC typically operates under two audit obligations. Knowing which applies to your organization will help with thorough audit preparation.
Financial Statement Audit
Every FQHC carries a baseline financial statement audit obligation. This audit is conducted under Generally Accepted Auditing Standards (GAAS) and, because FQHCs receive federal program funding, under Government Auditing Standards (GAGAS), commonly called a “Yellow Book” audit. The Yellow Book audit tests financial statement accuracy and evaluates internal controls over financial reporting.
For FQHC finance teams, the Yellow Book audit is the foundation everything else builds on. Auditors must report on internal control deficiencies, instances of fraud, and any noncompliance with laws and regulations that could have a material effect on the financial statements. Those findings, even when they don’t rise to the level of a material weakness, create a record that follows your organization into the Single Audit and informs how auditors assess risk in subsequent years.
Single Audit
Layered on top of the financial statement audit is the Single Audit requirement for FQHCs under 2 CFR Part 200. The threshold for triggering a Single Audit rose from $750,000 to $1,000,000 in federal award expenditures, effective for fiscal years beginning on or after October 1, 2024. Most FQHCs, drawing on HRSA Section 330 grants alongside Medicaid and Medicare, will clear that threshold without question.
The exception is smaller health centers and newly designated Look-Alikes in the $750,000–$999,999 range, who should verify their position. For those organizations, the compliance burden may have just decreased meaningfully.
If your FQHC requires a single audit, pay particular attention to your submission timing. Under 2 CFR 200.512, you have to submit your single audit to the Federal Audit Clearinghouse (FAC) within the earlier of 30 calendar days after receipt of the auditor’s report, or nine months after the end of the audit period.
HRSA has made clear that late submission constitutes non-compliance with the terms of the federal award, with consequences ranging from payment holds in the Payment Management System to award termination.
How They Work Together
In practice, these two audits run concurrently under a single engagement with your audit firm.
- The financial statement audit produces an opinion on your financials
- The Single Audit layers compliance and internal control testing over your federal programs on top of that.
You’re managing one engagement timeline, but two distinct sets of deliverables and documentation standards. Understanding that distinction shapes how you stage your PBC list, how you sequence your internal review, and where the risk of a finding is highest.
Before You Prepare: Key Technical Considerations
Once you know which audits apply to you, it’s important to think through the technical nuances that can change how you prepare for each.
Uniform Data System Report
HRSA’s Uniform Data System report, due annually by February 15, is a parallel federal reporting obligation that informs program oversight and feeds directly into the data your auditors will reconcile. The CEO or Project Director attests to UDS accuracy at submission, but the data integrity behind that attestation is a finance function. A well-structured chart of accounts designed for federal reporting is what makes the connection between your general ledger and your UDS tables traceable and defensible.
Use The Right Indirect Cost Rate
Under the revised Uniform Guidance, the de minimis indirect cost rate increased from 10% to 15% of Modified Total Direct Costs (MTDC) for federal awards issued on or after October 1, 2024.
If your FQHC uses the de minimis rate rather than a negotiated rate, verify that you are applying the correct rate to the correct awards.
Clean Up Your Prior-Year Finding Status
If your organization carries unresolved findings from the previous audit cycle, those findings directly influence how auditors assess major program risk in the current year.
A documented, specific corrective action plan with assigned ownership and measurable milestones is an auditor’s expectation, and the absence of one compounds existing risk.
How Finance Teams Build a Year-Round FQHC Audit Readiness Process
Audit readiness is not just a Q4 activity. The preparation framework that supports a smooth FQHC audit season has four distinct phases, and each one depends on the prior.
Q1: Build Your Infrastructure
In the first quarter of your fiscal year, the priority is infrastructure.
Confirm that your accounting system is tracking federal award expenditures by award date, not just by program, so you can apply the correct Uniform Guidance version to each grant.
Establish the monthly federal expenditure aggregation process that will tell you, in real time, whether you are approaching the $1 million Single Audit threshold.
If your organization is carrying prior-year audit findings, assign ownership of the corrective action plan milestones now, not when your auditor arrives for fieldwork.
Q2: Zero-In On Your Internal Controls
In the second quarter, the focus shifts to internal controls. The 2025 OMB Compliance Supplement restored Part Six after it had been removed in prior supplements. Its return signals that auditors are expected to evaluate internal controls with greater rigor this cycle.
Finance teams should use this period to assess whether their controls over cash management, procurement, subrecipient monitoring, and allowable cost determinations are documented, operating as designed, and tested.
This is particularly important after Executive Order 14332, “Improving Oversight of Federal Grantmaking,” introduced enhanced interagency coordination and outcome-driven performance monitoring requirements to your audit’s risk assessment.
The practical implication is that auditors are looking more carefully at whether your FQHC can demonstrate that federal funds were used in alignment with the program’s purpose and approved budget. Internal control narratives that describe controls at a conceptual level but lack evidence of operating effectiveness are increasingly identified as deficiencies.
Q3: Coordinate Audit Paperwork and Board Involvement
Third-quarter work centers on auditor coordination.
To start:
- Issue the prepared-by-client (PBC) list early and in a format your audit team can work from directly.
- Evaluate which programs your auditor will likely identify as major programs given the current year’s expenditure profile and risk factors
- Verify that your SEFA draft reflects accurate ALNs, correct pass-through disclosures, and a proper cluster identification for each program.
This is also when you’ll want to formalize and document the FQHC board approval of the annual audit engagement, which typically happens through the Finance or Audit Committee. FQHC board approval of the annual audit is both a governance requirement and a HRSA compliance marker. Keep in mind that the board’s review and approval of audited financial statements needs to appear in board minutes with enough lead time to support the FAC submission deadline.
Q4: Proactively Work With Your Audit Team
In the fourth quarter, your role shifts from preparation to execution. Typically, fieldwork runs more efficiently and produces fewer findings when auditors arrive to a staged environment rather than a live assembly process.
The detail that separates well-prepared finance teams from reactive ones is the PBC list. Request it from your auditor early, map every item to a responsible owner internally, and set internal due dates that precede the auditor’s deadlines by at least a week. That buffer is where problems surface before they become findings.
The not-for-profit advisors at Rea work alongside FQHC finance teams at each phase of this process to close the gap between preparation and a helpful, honest result.
Work With an Advisor Who Truly Understands FQHC Audit Requirements
FQHC audit requirements carry a level of technical specificity that general accounting advisors are not positioned to address. Preparation done well is preparation done year-round, with advisors who know the federal framework and your organization’s risk profile.
Contact Rea’s not-for-profit team to discuss where your FQHC’s audit readiness process stands and how to build a preparation discipline that holds up to federal scrutiny.
About the Author
Evan Hamm is a Senior Associate at Rea, based in the Columbus, Ohio area. With experience supporting nonprofit organizations navigating federal compliance and financial reporting requirements, Evan brings a practical, detail-oriented approach to helping FQHC finance teams build the documentation practices and internal controls that support clean, confident audits — year over year.
Questions about your FQHC’s audit obligations? Contact Evan or the Rea not-for-profit team.
