Unanticipated Impact of the CARES Act – Preparing for a Single Audit

After the passage of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act into law, small businesses, including not-for-profit organizations, applied for and received billions of dollars in new federal funding under various programs offered under the CARES Act.  The purpose of these federally funded programs was to help recipients remain sustainable during the pandemic. 

The program that has received the most press has been the Paycheck Protection Program (“PPP”), through which over $600 billion has been disbursed to recipients. Other programs such as the Provider Relief Fund (“PRF”) and the Educational Stabilization Fund (“ESF”) have given out approximately $175 billion and $30 billion, respectively. In addition, under the Economic Injury Disaster Loan program (“EIDL”) of the CARES Act, $10 billion was given to the U.S. Small Business Administration (“SBA”) to provide small business owners and nonprofits with low interest rate loans. 

With all of this new federal funding being awarded/loaned by the federal government, many of the recipients may find themselves requiring a Single Audit for the first time. In the United States, the Single Audit, Subpart F of the U.S. Office of Management and Budget (“OMB”) Uniform Guidance (“UG”), is a rigorous, organization-wide audit or examination of an entity that expends $750,000 or more of federal assistance (commonly known as federal funds, federal grants, or federal awards) received for its operations. The Single Audit is applicable for federal loan programs in excess of the threshold as well.  The purpose of the Single Audit is to provide assurance to the federal government that a non-federal entity has adequate internal controls in place, and is generally in compliance with program requirements. Non-federal entities typically include states, local governments, Indian tribes, universities, and nonprofit organizations.

For the recipients of federal funds or loans under the CARES Act, it may be difficult to determine if the Single Audit is required.  For those entities that exclusively received PPP funds, there is no requirement for Single Audit.  However, for those that received EIDL, PRF, or ESF funds under the CARES Act, the Single Audit may be required if the funding was in excess of the $750,000 threshold, or if the threshold is reached by aggregating the amounts received under the CARES Act together with other federal funds expended by the organization.

Recipients who find themselves needing a Single Audit for the first time may be uncertain as to what this entails.  There will be certain complexities in determining what to report on the Schedule of Expenditures of Federal Awards (“SEFA”). In addition, the federal guidance has been trickling out and continuously changing. Recipients are seeking bright-line guidance as to whether they are spending the funding in accordance with the intended purpose, yet such guidance is delayed and evolving.   

Another challenge for recipients this year relates to changes in internal controls.  With most organizations now in a hybrid working-from-home (WFH) environment for their employees, this necessitates changes in the internal control structure, as well as the internal controls over their federal award programs.  Auditors will need to update their understanding of these changes and it will most likely change their approach in performing the audit procedures.

If you are subject to Single Audit, you may be wondering “what is the timeline for completing this engagement?”  There has been a delay in the release of the addendum to the Compliance Supplement by OMB that would expand on the requirements for all of the new programs and provide the required audit roadmap for performing Single Audits.  For June 30, 2020 year-end organizations, the Single Audits are due March 31, 2020.  Due to the delayed release of the addendum to the Compliance Supplement, such testing will need to occur January-March, thereby creating a shorter window for completion.

All recipients of funding from these new programs under the CARES Act should be in constant contact with their accountants for guidance and updates.  We will continue to keep you informed as changes occur in the Single Audit environment.