Single Audit Compliance Considerations

Among the items to consider when it comes to COVID-19 relief provisions are compliance efforts. The AICPA Governmental Audit Quality Center recently released guidance indicating PPP loan funds will not need to adhere to Uniform Guidance Single Audit requirements. However, they may still be subject to an SBA audit if funds were in excess of $2 million.

We've developed resources to answer your questions related to single audit compliance and COVID-19.

What do I need to do avoid compliance issues?
We recently hosted a webinar outlining key considerations.

How do I account for funding with these relief provisions?
There are questions surrounding the accounting of funds and related loan forgiveness of these relief programs. While specific guidance for recording government assistance exists for nonprofits, United States generally accepted accounting principles (U.S. GAAP) does not currently contain specific guidance on how to record government assistance such as grants or loan forgiveness for business entities.

However, based on general guidance that is within other standards in U.S. GAAP as well as specific guidance relating to government grants in International Accounting Standards, we have developed a set of recommendations to help your business decide how to record the loan forgiveness of these relief programs.

We did not account for grant funded payroll costs in our PPP application. Will that affect our FTE comparison for determining the forgiveness?
There has been different guidance given depending on the bank; some included the grant funded employees, and some did not. As long as there is open communication and documentation, you should be able to work through these reconciling items with the bank and SBA. You should ensure the grant funded employees FTE count was excluded in the application if the related costs were excluded.

What if expenses qualify for both grant reimbursement and the PPP?
Does the double dipping issue apply to private grants as well, or just federal or state grants?

You can’t double dip. This means you can’t charge the same cost to two funding sources. Our recommendation is to consider grant budget amendments from payroll costs to other non-eligible PPP costs during the “covered” eight-week period to allow the payroll costs to become PPP eligible costs.

The concept of double dipping also applies to private grants. Your organization should make sure they are the funder of the employee payroll for which they are claiming forgiveness under the PPP.

How do you reconcile a restricted cash GL account if you don't have a separate bank account?
The bank reconciliation would need to combine the two GL accounts into one GL balance. If you normally use software to prepare the bank reconciliation, you would likely need to perform a manual reconciliation outside of the software or let the variances show in the software and prove that they offset and net to $0.

Are there extra considerations for exempt employees? Can we not include them because they would be "paid anyway" or can we allocate the percentage of federal time?
Regardless of the employee being exempt or non-exempt, the standards for documentation under Uniform Guidance are the same. Adequate records must be maintained to support the time charged to the grant. If you are applying for FEMA assistance, exempt employees are generally not allowable costs, as FEMA only reimburses for incremental costs.

What if the employee was working on multiple grants prior to being sent home? How do we allocate costs to each grant appropriately without time and effort because the employee is currently not working?
If you have extraordinary leave policies in place that allow for the employee to still be paid, you may continue to charge the payroll to the grant based on the historical average of time spent (assuming the federal agency has granted the extraordinary leave waiver). You will still need record retention and internal controls to support the charge (i.e. certifications, policies, etc.).

Does this time and effort tracking requirement only apply to government agencies, and if not, how do we apply this to our nonprofit organization?
The time and effort tracking requirements are cost principles to allow charging payroll to federal funding subject to Uniform Guidance. Therefore, time and effort is required for all organizations, including nonprofits, that charge payroll to their grants. However, if the PPP funds are the entity’s only source of federal dollars, time and effort tracking may not be required.

What are the formalities of the policies to continue paying employees for government agencies? Just an announcement? Approval from the board of trustees?
The policy should be approved by someone who has the authority to incorporate policies into the official records of the organization. Depending on your organization, that may be management or the governing board.

If the grantor approves an expense, is it allowable?
Non-competitive purchasing and allowable exemption criteria are found in 2 CFR 200.320(f).

When we setup the expense account(s) to record the COVID-19 expenses, do we need to separate based on categories (salary, benefits, utilities, etc.) and by functional classification?
Expenses should be coded with enough detail to ensure appropriate financial reporting (i.e. functional expenses) and reconciliation for grant management. For nonprofits, this likely would include recording expenses by function and nature.

If an organization claims the 10% de minimis rate, does claiming administrative salaries as direct for PPP cause any issues?
Potentially yes. The 10% de minimis is the minimum estimate of central service (indirect) costs. The same risk exists with the 10% de minimis as a negotiated indirect rate, which is claiming those central service costs in duplicate. In this situation, you should work with your grantor about this concern and follow the direction provided by the grantor. It is likely that the 10% rate should be reduced during the eight-week PPP loan forgiveness period. Be sure to retain any grantor documentation or direction provided.

OMB 20-11 and OMB 20-17 both address extension of single audit submission, but 20-11 says 12 months and 20-17 says 6 months. Which timeframe should we go with?
OMB Memo 20-11 was directed to federal agencies to allow up to 12 months. OMB memo 20-17 was an automatic six-month extension, assuming that documentation was maintained to support the delay was due to COVID-19.

Industry Specific Questions

Healthcare
If a for-profit healthcare provider/organization is awarded in excess of $750,000 but only spends $300,000, would that trigger a single audit (if and when OMB/the government states the funds are subject to it?)
For-profit entities are not subject to Uniform Guidance. However, that does not preclude the federal government from imposing other requirements on for-profit entities. The SBA has indicated that PPP loan recipients in excess of $2 million will be subject to an SBA audit.

Does Medicaid funding get figured in as federal funds?
Medicaid is included on a state’s Schedule of Expenditure of Federal Awards. Each state administers its own state Medicaid plan. Depending on this plan, there may be direction to include Medicaid dollars on the SEFA. Depending on your type of organization (local government, healthcare provider, etc.), you may be treated as a subrecipient or a vendor/provider. If you need clarification, you may need to seek guidance from your state Medicaid agency.

Under 2 CFR 200.502(h)-(j) the following are not considered to be federal awards expended under the Uniform Guidance:

  • Medicare payments to a nonfederal entity for providing patient care services to Medicare-eligible individuals.
  • Medicaid payments to a subrecipient for providing patient care services to Medicaid-eligible individuals, unless a state requires the funds to be treated as federal awards expended because reimbursement is made on a cost-reimbursement basis.

If you are receiving Medicaid as a provider (thus the funds are not subject to single audit), then the Medicaid funding is not a grant and thus does not include the PPP double dipping risk. If your organization receives Medicaid as a subrecipient (in the form of a grant), then you will need to consider PPP double dipping.

Higher Education
What about Higher Education Emergency Relief Fund (HEERF) Act?
There are many grant programs impacted as a result of COVID-19. We’ve developed a few specific resources to address those particular situations.

Is there a federal catalog # for CARES Act?
There has been supplemental funding that has been added to certain CFDAs. The Department of Education has assigned CFDAs to their funding, but many other federal agencies are still evaluating which, if any, CFDAs the CARES Act assistance will relate to.

Government
If our county spends money for cities and hospitals and receives reimbursement from FEMA/CARES Act, are we required to review internal controls in place for cities and hospitals?
It depends. If the county is acting as a pass-through entity and passing through funds to the cities/hospital for relief, the county would be subject to the requirements under subrecipient monitoring and appropriate monitoring would be required. If the county is not passing through funds and is administering everything itself (but for the benefit of other organizations), the internal controls at those organizations would likely not be pertinent since the cities/hospital have no management of the funds.

Our local government received stimulus funds that state it can replace loss in revenue. In terms of an audit, what documentation do I need to have to support the funds received, and do I need to assign eligible expenses to that use of funds or just show loss of revenue?
If an allowable use of the funds is lost revenue, there would be no expenses that need to be assigned. In this case, the audit documentation needed would likely be the calculations and support to show the replacement of lost revenue. How this calculation is performed should be based on direction from the grantor (i.e., what year to use as a basis, budget vs. actual, etc.).

Can local governments get PPP loans?
No. Local governments are not businesses defined by the SBA. Separate funding streams under the CARES Act are provided for local governments.

What Other Compliance Issues Do I Need to Be Aware of?
There are several important audit compliance issues to take into consideration, including:

Ensure You’re Prepared
Compliance for these relief provisions is crucial. It’s important to understand what’s needed and how to ensure you have proper documentation.

We’ve developed resources to help you make sense of COVID-19 implications on your organization.

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