Changes to Single Audit Compliance in the Wake of COVID-19

The single audit landscape is changing, thanks in large part to the uncertainties and changes brought on by COVID-19. From large quantities of relief funding triggering new compliance requirements to extensions of due dates, there’s much to consider when it comes to single audit requirements going forward.

In order to help organizations understand the changes related to single audits, the AICPA recently released a report on 2020 Single Audit Considerations. We’ve outlined key takeaways from that report below. Understanding how COVID-19 funds impact your audit is a great way to help your organization be prepared.

What is a single audit and why does it matter?

We recently broke down this key requirement and how it’s been impacted by COVID-19.

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OMB Memo M-20-26
Several memos have been issued surrounding single audit and the impacts of COVID-19. One of particular note is OMB Memo M-20-26, Extension of Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19) due to Loss of Operations.

Key provisions of M-20-26 are as follows:

• Six-month extension for certain single audits. Provides a six-month extension for single audits not yet submitted at March 19, 2020, with due dates from March 30, 2020, through June 30, 2020. Audits with due dates of July 30, 2020, and September 30, 2020, receive a three-month submission extension.
• 2020 year-end submission extensions rescinded. Normal audit submission dates related to 2020 year-ends are now in effect.
• Allowability of salaries and other project activities. Agencies may allow recipients to charge salaries and benefits to active federal awards consistent with the recipients’ policy of paying salaries (under unexpected or extraordinary circumstances) from all funding sources, federal and non-federal. The provisions also instruct awarding agencies to require recipients to maintain records/documentation to substantiate the charging of salaries and other project activities costs related to the interruption of operations or services.
• Double dipping not permitted. Payroll costs paid using PPP loans or any other federal CARES Act programs must not also be charged to current federal awards as it would result in the federal government paying for the same expenditures twice.
• Exhausting other funding sources. Awarding agencies must inform recipients to exhaust other available funding to sustain its workforce and implement steps to save overall operational costs during the pandemic period to preserve federal funds for the ramp-up effort. Recipients should retain documentation of their efforts.
• Separate schedule of expenditures of Federal Awards (SEFA) Identification. To provide additional oversight, recipients and subrecipients must separately identify the “COVID-19 Emergency Acts expenditures” on the SEFA and in the audit report findings.

2020 Compliance Supplement
The 2020 Compliance Supplement will be issued in two parts. The first part was developed prior to COVID-19 and contains limited information related to the COVID-19 pandemic, including a summary of new COVID-19 programs. The second part of the Compliance Supplement will be an addendum that will address the new COVID-19 programs in detail and is expected to be issued in early fall.

2020 Planning Considerations
Completeness and accuracy of the SEFA is critical, and high-level personnel may need to be involved. Auditors should familiarize themselves with the new COVID-19-related programs and programs generated by the CARES Act.

Communication with the client during planning is critical. Discussion on remote working may be necessary and dialogue on how the client is addressing challenges with new CARES money is key.

New COVID-19 Programs
New COVID-19 programs may be a high-risk type A program because they have not been previously audited. There’s currently no requirement to assess type B COVID-19 programs as automatic high risk; however, auditors’ assessment will need to consider the newness of the program and other factors.

Existing Federal Programs Receiving Additional Funding
Programs assessed as type A should not be assessed as high risk solely due to COVID-19 funding. Type A programs would be changed to high risk if the auditor determines that changes in personnel or systems due to COVID-19 significantly increased program risk. For Type B programs, an auditor would need to consider whether the additional funding received increases risk.

Existing Federal Programs with Changed Compliance Requirements
Auditors will need to determine if a client’s existing programs have compliance requirements subject to audit that have been relaxed or revised for part of the year due to COVID-19. Auditors should have discussions with clients to determine how they have been monitoring for changes in requirements. For example, is someone at the client monitoring federal agency websites to determine if the agencies are adopting the OMB memos? Is someone monitoring agency FAQ documents? Auditors should check the Compliance Supplement addendum (when issued) to determine if it includes revised sections for existing programs.

2020 Single Audit Performance Considerations
Below are some considerations related to 2020 Single Audits.

• Internal Control. Changes in internal control due to the pandemic may result in a need for more internal control testing and potential increased sample sizes for compliance if controls cannot be relied upon.
• Audit Evidence. Pandemic-related shutdowns or changes may result in difficulties obtaining audit evidence. These shutdowns may also cause issues related to client documentation evidencing compliance. Significant professional judgment may be required.
• Auditor Findings. It is expected that single audits will result in more findings than in prior years. Agencies will focus on these findings. Auditors should ensure the findings include all required elements.

Significant Federal Oversight Expected
Agencies are likely to perform direct engagements on recipients of COVID-19 funding. At this point, it’s unclear whether this will increase federal reviews of audit work.