Office Of Management And Budget Omb Circular A 133

The Audit Rule That Quietly Controls How Billions in Federal Money Flows

Here's the thing most people don't realize: if you work for a university, hospital, or nonprofit that receives federal funding, there's a good chance your organization's audits are governed by a single, dense document that most folks have never heard of. It's not exciting. It doesn't make headlines. But it determines whether your grant money is legitimate, whether your financial house is in order, and whether you're complying with rules that Congress itself wrote.

That document is OMB Circular A-133. And if you're in the federal grants world, you ignore it at your peril.

What Is OMB Circular A-133?

OMB Circular A-133 is the federal government's audit guide for recipients of federal awards. In plain English: it's the rulebook that says, "If you get money from the feds, here's how you prove you spent it correctly."

The circular was issued by the Office of Management and Budget — the same OMB that oversees the entire federal budget. That said, it applies to every non-federal entity that expends $750,000 or more in federal awards during their fiscal year. That includes state and local governments, colleges and universities, hospitals, and yes, nonprofits of all stripes.

The core requirement is simple in concept, complicated in execution: you must undergo a single audit (also called a "Single Audit") that examines both your financial statements and your compliance with federal requirements attached to those awards. Think of it as a financial checkup with a compliance exam tacked on.

The audit covers two major areas:

Financial statements: Are your books accurate and fairly presented?
Federal compliance: Did you follow the rules tied to your grants?

It's not just about math. It's about whether you hired eligible people, spent money on eligible activities, maintained proper documentation, and didn't, say, use federal funds for a luxury vacation (yes, that's happened).

Why It Matters / Why People Care

Here's why this isn't just bureaucratic busywork. Also, federal awards totaled over $600 billion annually before the pandemic. Worth adding: that money funds everything from university research labs to community health clinics to highway construction. And every dollar comes with strings attached.

When organizations receiving these funds fail to comply, the consequences ripple outward. Taxpayer money gets wasted, programs lose credibility, and future funding can be jeopardized. For the organization itself, a failed audit can mean repayment demands, loss of future funding eligibility, or even criminal referral.

But here's what most people miss: compliance isn't just about avoiding trouble. It's about protecting the mission. A school that properly tracks its federal research grants can focus on science, not scrambling during audit season. A nonprofit that maintains clean books can scale its programs confidently, knowing its funding is secure.

The circular also matters because it created a standardized system. Chaos. Even so, before A-133, every federal agency had its own audit requirements. The single audit replaced that patchwork with one consistent framework. Now, a university in Ohio and a housing authority in New Mexico follow the same basic audit process.

How It Works (or How to Do It)

Who Has to Comply

The threshold is $750,000 in federal awards during the fiscal year. This isn't per grant — it's the total across all federal awards. Many organizations think they're under the threshold, only to realize they've crossed it when combining multiple smaller grants.

Some entities are exempt:

Fiduciaries (like banks holding funds in trust)
Individuals (unless they're sole proprietors with significant federal awards)
For-profit organizations (unless they're acting as fiscal sponsors or pass-through entities)

The Audit Process

The single audit is a beast of two parts:

Part 1: The Financial Statements Audit This is a traditional CPA audit of your entire financial statements. The auditor checks whether your financial reporting is accurate and follows Generally Accepted Accounting Principles (GAAP). This part covers everything — not just federal funds, but all your money.

Part 2: The Federal Compliance Component This is where A-133 gets specific. The auditor tests compliance with federal requirements in one or more of these areas, depending on your awards:

Activities allowed or not allowed (did you spend money on eligible vs. ineligible costs?)
Allowable costs (were your expenses reasonable and properly documented?)
Cash management (did you follow proper procedures for drawing down federal funds?)
Competition (did you follow fair hiring and procurement practices?)
Conflicts of interest (did anyone with influence have a personal stake?)
Documentation requirements (can you prove what you spent and why?)
Eligibility (were you eligible to receive the award in the first place?)
Equipment and real estate management (did you track and account for major purchases?)
Matching, level of effort, or cost sharing (did you meet your promised contribution?)
Period of performance (did you complete work within the agreed timeframe?)
Program income (did you report and use any income generated by the program?)
Report submission (did you file all required reports on time?)
Renegotiation of cost principles (for educational institutions — did you comply with federal cost guidelines?)
Research and development (specific to research grants — did you follow research protocols?)
Subrecipient monitoring (if you passed federal money to subrecipients, did you monitor them?)
Termination provisions (did you follow proper procedures when ending awards?)
Treasury stafford act advances (specific to disaster relief funding)
Type of activity (was the work consistent with the award's purpose?)
Use of federal funds (were funds used only for authorized purposes?)
Wait period for equipment (did you wait the required time before disposing of equipment?)

The auditor selects which compliance requirements to test based on risk. High-risk programs get more scrutiny. Simple as that.

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Major vs. Non-Major Programs

At its core, where it gets nuanced. That said, not every federal award gets the same level of audit attention. The auditor identifies "major" programs — those with the highest risk or greatest dollar value — and tests those more thoroughly.

A program becomes major if it meets one of three criteria:

That said, Dollar threshold: The award is large enough relative to total federal spending
Risk assessment: The program has a history of compliance problems

Most organizations have between one and five major programs. The rest are "non-major" and receive minimal testing.

The Audit Report

The final deliverable is the audit report, which includes:

The auditor's opinion on financial statements
Findings related to federal compliance
A schedule of federal awards (detailing every award received)
The auditor's report on internal control over compliance

Findings are categorized by severity. A "material weakness" or "significant deficiency" in internal control is serious business. A "finding" related to compliance means the auditor identified a specific instance where requirements weren't met.

Common Mistakes / What Most People Get Wrong

Waiting Until the Last Minute

Basically the biggest mistake I see. But compliance is a year-round responsibility. Worth adding: if you're documenting costs, tracking equipment, and managing subrecipients properly throughout the year, audit season is just verification. Even so, organizations treat the audit like a tax deadline — something to panic about in March. If you're scrambling in February, you're already behind.

Misunderstanding the Threshold

The $750,000 threshold isn't a hard cutoff — it's a trigger. Some organizations hover right around it, thinking they're safe. But federal awards fluctuate. Now, a university might receive a large research grant in one year and suddenly find itself subject to the audit. Others think they're exempt because they're "just a pass-through," not realizing they're actually the primary recipient.

Poor Subrecipient Monitoring

If you receive a federal award and pass some of that money to another organization (a subrecipient), you're responsible for monitoring their compliance. This means site visits, financial reviews, and ensuring they're following the same rules you are. Too many organizations treat subawards like vendor payments and skip the oversight entirely.