Every year the Office of Management and Budget (OMB) releases one Compliance Supplement which is typically used by auditors to perform single audits. But for 2020, there were two. On Dec. 22, 2020, the OMB released the Addendum to the 2020 Compliance Supplement, which is effective for audits of fiscal years ending June 30, 2020, and after. This supplement is to be used in conjunction with the August 2020 Compliance Requirement, with a specific focus on addressing COVID-19 implications. As the auditee, you must have wondered how this addendum benefits you.
What are the Key Takeaways?
Due date extensions – Single audit report due dates were extended three months for organizations with 2020 year-ends through Sept. 30, 2020, but only if the organization received COVID-19 funding. This means, for a June 30 year-end auditee, the due date will extend 3 months, from the normal due date of March 31, to June 30, 2021.
PRF SEFA reporting – Many of our Valley non-profit organizations are providing behavioral health care, which are covered under this reporting requirement. PRF stands for Provider Relief Fund. The Schedule of Expenditures of Federal Awards (SEFA) reporting for PRF, with a CFDA number 93.498, requires that expenditures and lost revenue be reported on the SEFA starting on or after fiscal years ending Dec. 31, 2020. For those organizations with fiscal years ending June 30 or Sept. 30, 2020, expenditures including lost revenue will be reported on your SEFA in fiscal 2021. Although PRF expenditures, including lost revenue, may be excluded from the SEFA prior to Sept. 30, 2020, it’s important to evaluate whether your fiscal-year aggregate remaining federal expenditures exceed the single audit threshold, i.e. $750,000.
Donated personal protective equipment – The pandemic led federal agencies and recipients to donate PPE that was purchased with federal funds. During the emergency period, donors/funders didn’t provide Assistance Listing information or compliance or reporting guidance. If you received donated PPE, here’s what you need to know: the value of donated PPE is NOT reported on the SEFA. Instead, you’re required to include the fair market value of the PPE at the time of receipt in a stand-alone footnote to the SEFA that can be marked unaudited. Also, the donated PPE will not count for the purpose of determining whether the single audit threshold is met or in determining the type A/B threshold for major programs, nor is it required to be audited as major. However, remember that considerations under generally accepted accounting principles for reporting these donations within your financial statements will still need to be addressed.
Allowable activities – For all distributions, except for the Skilled Nursing Facility Infection Control Distribution, the 2020 Compliance Supplement Addendum includes the following broad provision to define allowable activities:
“Payment will only be used to prevent, prepare for, and respond to coronavirus, and the payment shall reimburse the recipient only for healthcare-related expenses or lost revenues that are attributable to COVID-19”.
Don’t forget the integrated part of single audit – internal controls – Your organization must establish and maintain effective internal controls over federal awards in order to provide reasonable assurance that you’re managing such awards in compliance with federal statutes, regulations, and the terms and conditions that apply. As you consider any increased funding your organization is receiving, including COVID-19 funding, in combination with changes as a result of the work-from-home environment, the organization’s processes and controls are likely to be affected. As your organization prepares for a single audit, you should evaluate and monitor compliance so that you can assess the effectiveness of internal controls and take prompt action when noncompliance matters arise.
Finally, although this addendum placed its focus on COVID-19, it is not meant to be all inclusive. Just as the pandemic is evolving, so has our response to it. The pandemic led many federal agencies to issue implementing guidance (FAQs and memos, etc.) outside of the normal regulatory process to address new and existing programs receiving COVID-19 funding. The newly passed $1.9 Trillion American Rescue Plan of 2021 brings further changes to applicable federal programs. With many unknowns, your organization should consider the newer provisions of federal statutes, regulations, and terms and conditions of the award. It’s important that you maintain the guidance documents in effect during the period of the award that supports your decision-making and ensure that all staff are trained and stay updated on the current development of implementation guidelines.
Julia Kang, CPA