On April 10, the Governmental Audit Quality Center (GAQC) of the American Institute of Certified Public Accountants (AICPA) issued a letter to the U.S. Office of Management and Budget (OMB) to offer assistance to the OMB and other federal agencies, and share many questions that have been identified relating to the Coronavirus Aid, Relief and Economic Security (CARES) Act funding. A summary of the questions and comments raised by the AICPA are as follows:
- Many small businesses, including not-for-profit organizations, recently received forgivable loans through the Paycheck Protection Program (PPP), a program established through the CARES Act. Are PPP loans and other CARES Act funds subject to single audit?
- Is the CARES Act funding received by “for-profit” entities applicable to federal compliance or attestation requirements – similar to audits under the Housing and Urban Development (HUD) Consolidated Audit Guide (for multifamily housing and lenders) or the Department of Education Audit Guide for Proprietary Schools and Services?
- At this time, federal guidance has not exempted CARES Act funds from single audit requirements, which means your organization should be prepared for a single audit if accepting funds awarded under the CARES Act. Not-for-profit organizations that haven’t had single audits in the past should be aware that expenditures of federal funds over $750,000 in a fiscal year require an audit of those federal funds.
- How should the funding be reported on the Schedule of Expenditures of Federal Awards (SEFA) and how will it impact the single audit? There is a lack of clarity surrounding award terms and conditions, as many of the new funding programs do not make reference to the Uniform Guidance, Catalog of Federal Domestic Assistance (CFDA) numbers or clusters. Other impacts may include
-There will be potentially more high-risk Type A programs for 2020 single audits and impacts to Type B risk assessments as well.
-Internal controls over federal programs will likely be altered during various stages of the COVID-19 pandemic. There may be a need for increased sample sizes for internal control and/or compliance testing. In addition there may be an uptick in findings resulting from breakdowns in controls.
- Is there an extension for filing the single audit report? At this time, the OMB extended the single audit deadline to six months. Clarification was requested in regards to a 12-month extension allowed to be granted from awarding agencies.
- Will the 2020 Compliance Supplement provide guidance on what will be required to be tested? The letter comments on the status of the 2020 Compliance Supplement and recommends that each agency making updates should have a uniform approach to emphasizing COVID-19 items within their program sections.
- Finally, the GAQC raises many questions that have come to light regarding specific compliance requirements. Notable questions summarized from the letter are as follows:
-If an employee is not working, although being retained and paid as an employee, is their salary an allowable cost?
-Is the portion of the employee payroll costs claimed under the employee retention credit an allowable cost?
-If a not-for-profit has other grants that cover payroll but also receives a SBA PPP loan that is ultimately forgiven, will they need to deduct the amount of the loan forgiven and used for payroll from their other grant reimbursements?
-Will there be changes to procurement requirements specific to the CARES Act relief? Several of the programs under the CARES Act allow the recipient to charge costs that were previously incurred, prior to the receipt of the funding. Thus, when these costs were incurred, appropriate federal procurement policies may not have been followed, as the recipient was not initially planning to use federal funds when they were initially expended.
-Will agencies reduce or waive matching requirements?
-What will the reporting requirements be?
The full letter from the GAQC to the OMB can be found here.
Unfortunately, there are more questions than answers at the present moment, but it is important for your organization to be aware of the potential impacts that the CARES Act funding may have on your audit requirements and the additional documentation that is required. See the article previously released summarizing what supporting documentation is required when an organization is receiving federal awards. Your Value Architects™ at Baker Tilly will continue to keep you informed as information is available.