The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and related federal programs provided crucial federal funding to state and local governments, not-for-profit organizations, and for-profit entities. Companies receiving any form of funding under the CARES Act or other federal funding programs should review the program to determine applicable reporting and audit requirements. Use the link below to access a summary of audit requirements by federal agency and program.

Covid-19 Related Federal Funding Audit Requirements

Based on an update from the U.S. Department of Health and Human Services (“HHS”) on July 22, 2020, and as noted in the summary referenced above, recipients of Provider Relief Fund payments, as well as other federal programs (including commercial entities), will be subject to Single Audit requirements if the entity expended $750,000 or more of federal funds received during its fiscal year.

Some for-profit companies may be subject to Single Audit requirements for the very first time. The information below provides further information on a Single Audit, how companies can begin to prepare, and how to maintain compliance while using the payments received. Single audits are due 9 months after an entity’s fiscal year-end.

What is a Single Audit?

A Single Audit is an audit of a non-federal entity that expends $750,000 or more of federal assistance during its fiscal year.  The audit is conducted under Subpart F of the Office of Management and Budget’s (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).  There are two main parts of a Single Audit: an audit of the financial statements and a compliance audit of the entity’s major federal award programs. The compliance audit of the entity’s major programs includes gaining an understanding and testing internal controls over compliance and testing compliance with the applicable requirements for each major program.

Historically, state and local governments and not-for-profit organizations expending $750,000 or more of federal funds annually have been subject to the Single Audit provisions.  Commercial (or for-profit) entities were previously not subject to Single Audit requirements under the Uniform Guidance.

What is a Compliance Supplement?

The OMB issues an annual Compliance Supplement which discusses compliance requirements and provides suggested audit procedures for several federal award programs. The Compliance Supplement is the primary source for identifying compliance requirements for federal programs. Auditors will use the Compliance Supplement, in conjunction with professional judgment, to determine which of the 12 types of compliance requirements may have a direct and material effect on each major program. The 2020 Compliance Supplement is expected to be issued in two parts. The first part, which was issued in August 2020, primarily related to what was developed prior to the COVID-19 pandemic. The second part is expected to address COVID-19 matters and related funding.  Part 2 of the 2020 Compliance Supplement is expected to be issued this fall and will address specific testing requirements for auditors.  The 2020 Compliance Supplement is applicable for audits of fiscal years beginning after June 30, 2019.

What internal control policies does a company need related to federal funding?

Management should develop and review policies and procedures for internal controls in place over federal funds received and gain an understanding of applicable compliance requirements.  There are 12 basic compliance requirements that are found in the Compliance Supplement; however, not all of the requirements listed below will be applicable for a given major program. Entities need to ensure they understand the specific requirements applicable to each federal award received.

Compliance requirements:

  1. Activities Allowed or Unallowed
  2. Allowable Costs/Cost Principles
  3. Cash Management
  4. Eligibility
  5. Equipment and Real Property Management
  6. Matching, Level of Effort and Earmarking
  7. Period of Performance
  8. Procurement, Suspension and Debarment
  9. Program Income
  10. Reporting
  11. Subrecipient Monitoring
  12. Special Tests and Provisions

For more information on preparing for your first single audit, read here.

Are there any cash management requirements related to federal funding?

Cash management policies require non-federal entities to minimize the time elapsing between the transfer of funds from the U.S. Treasury or pass-through entity and disbursement by the non-Federal entity for direct program or project costs.  In accordance with cash management compliance requirements of Uniform Guidance (2 CFR section 200.305(8)), in general, non-federal entities receiving advance payments of federal awards must maintain these payments in interest-bearing accounts.  Further, the Uniform Guidance (2 CFR section 200.305(9)) states that any interest earned on deferral advance payments in excess of $500 per year must be remitted annually to HHS’s payment management system. Cash management procedures and specific procedures will likely be tested as part of compliance requirements in the Single Audit.

What healthcare-related expenses or lost revenues are eligible for reimbursement related to Provider Relief Fund Payments?

The CARES Act Provider Relief Fund distributed $175 billion to hospitals and healthcare providers to assist in combating the COVID-19 pandemic. Funding is meant to be used for reimbursing hospitals and healthcare providers for healthcare-related expenses or lost revenues related to preventing, preparing for, or responding to COVID-19. See further information below regarding eligibility of applying Provider Relief Fund payments to healthcare-related expenses or lost revenues as obtained from HHS – https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/faqs/provider-relief-fund-general-info/index.html?language=en#auditing-reporting-requirements

Healthcare-related expenses

HHS provides further instruction regarding what healthcare-related expenses or lost revenues are eligible for reimbursement. Healthcare-related expenses include the following according to HHS:

  • supplies used to provide healthcare services for possible or actual COVID-19 patients;
  • equipment used to provide healthcare services for possible or actual COVID-19 patients;
  • workforce training;
  • developing and staffing emergency operation centers;
  • reporting COVID-19 test results to federal, state, or local governments;
  • building or constructing temporary structures to expand capacity for COVID-19 patient care or to provide healthcare services to non-COVID-19 patients in a separate area from where COVID-19 patients are being treated; and
  • acquiring additional resources, including facilities equipment, supplies, healthcare practices, staffing, and technology to expand and preserve care delivery.

Expenses could have been incurred prior to receipt of payment from HHS, as long as the expense is in accordance with the guidelines above.

Lost revenues

Lost revenues are defined by HHS as any revenue that a healthcare provider lost due to coronavirus. Lost revenues could be caused by factors such as fewer outpatient visits, canceled elective procedures or services, or increased uncompensated care. HHS has urged healthcare providers to use Provider Relief Funds to cover expenses that would have otherwise been paid from the lost revenue so that the healthcare entity can continue to provide healthcare services in response to the pandemic. However, expenses paid from Provider Relief Funds do not have to specifically relate to providing services to COVID-19 patients or possible COVID-19 patients. HHS included the below as suggested uses of Provider relief payments:

  • Employee or contractor payroll
  • Employee health insurance
  • Rent or mortgage payments
  • Equipment lease payments
  • Electronic health record licensing fees.

Lost revenue can be estimated using any reasonable method, such as a comparison of actual revenue to budget or the same period last year. It is expected that all Provider Relief Payments will be expended by July 31, 2021.

Are there any other reporting requirements related to Provider Relief Fund Payments other than the Single Audit discussed above?

Any entity that received $10,000 or more in the aggregate from the Provider Relief Fund will be subject to additional reporting requirements, which are intended to demonstrate compliance with the Terms & Conditions of the Provider Relief Fund. Instructions on these requirements are expected to be released by the HHS soon, the reporting system will open on October 1, 2020 and reporting will be no later than February 15, 2021 related to expenditures through December 31, 2020. Any expenditures through during calendar year 2021 should be submitted in a second report by July 31, 2021.