Single Audit Impact of the CARES Act

April 15, 2020 | Article

By Kurt Schlicker

The Corona Aid, Relief, and Economic Security Act (CARES) is intended to provide relief to individuals and businesses in need. There are two CARES Act programs that are available to nonprofit organizations that may subject your organization to a Single Audit under Uniform Guidance.

Nonprofits are impacted by the CARES Act.

At this time, there has been no guidance from the federal government to indicate these programs will be excluded from the Single Audit requirements.

Below are a couple of reminders and highlights for organizations to consider when receiving assistance under the CARES Act.

Paycheck Protection Program (PPP) and Economic Injury Disaster Relief Loans (EIDL)
There are many resources available to discuss these two programs in detail, including eligibility requirements and the pros and cons for each program. In general, the PPP program is intended to provide a loan to help cover payroll costs. The EIDL program is intended to provide relief for organizations that cannot meet their ordinary and necessary financial obligations.

Here’s what you need to know about the PPP and the EIDLs.

Supplement not Supplant
The PPP is intended to provide relief for payroll. However, if payroll is being reimbursed from other sources (i.e. another federal or state funding source), then the relief under PPP should not be used for those same employees’ payroll.

The relief should be applied towards payroll that is not already reimbursed from other governmental sources. The same principle applies for direct costs or obligations that the EIDL program is being used for. Due care must be exercised in ensuring costs are not duplicated. During this time, internal controls, specifically controls monitoring the application of costs to each funding source are key to ensuring future grant compliance.

Loans and Loan Forgiveness
Loan forgiveness is a possibility under both the PPP and EIDL programs. If amounts are forgiven, the amounts forgiven would then be deemed a federal grant . Thus, these dollars will be included in the schedule of expenditures of federal awards whether the amounts received retain the status of a loan or are converted to a federal grant. The same grant accounting and compliance policies and procedures relating to internal controls over compliance should be applied for these loans and grants as for any other loan or grant program your organization has. The expenditures being covered by the PPP and EIDL programs should be tracked in your accounting records.

Here’s how to ensure grant compliance in the wake of COVID-19.

Single Audit and Internal Controls
Federal loan programs and federal grants subject to a Single Audit are required to be included on the schedule of expenditures of federal awards. Organizations are subject to Single Audit requirements when their cumulative federal expenditures, including loans, exceed $750,000.

The AICPA Governmental Audit Quality Center announced that PPP funding will not be subject to Uniform Guidance single audit requirements. However, funding under the EIDL program will be subject to single audit requirements.

It is important to remember, that even though PPP funding is not subject to single audit requirements, PPP loans over $2 million are subject to an SBA audit. At this time, further guidance about what this audit looks like has yet to be released.

To prepare:

  • Track the costs for these programs
  • Ensure reimbursement is not being duplicated for the same costs
  • Document your secondary review process
  • Increase communication with your grantors and auditors

For general Single Audit requirements, please refer to our Single Audit Deficiency Series for general compliance recommendations.

COVID-19 is impacting several aspects of organizations and the way they operate.

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