| Dear Center Members: |
The purpose of this GAQC Alert is to inform you of the following important developments:
- A definitive answer has been provided by the U.S. Department of Health and Human Services (HHS) regarding the audit requirements for non-federal entities and for-profit entities expending funds under the new Provider Relief Fund (PRF) program;
- The GAQC has updated its nonauthoritative summary of new COVID-19-related federal programs to reflect the PRF decision and for other updates (note that if you open this link and see the June version, refresh the web page);
- A reminder about the Uniform Guidance provisions for the allowability of audit fees;
- A new alert issued by the Government Accountability Office, COVID-19: GAGAS Audit Alert; and
- The Governmental Accounting Standards Board (GASB) has updated its Emergency Toolbox.
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PRF Update
The PRF program (CFDA 93.498) is the second largest new federal program established by the Coronavirus Preparedness and Response Supplemental Appropriations Act. HHS has provided funding under this program to thousands of hospitals and other healthcare providers that are non-federal entities (i.e., states, local governments, and not-for-profits), as well as for-profit entities. There have been many questions about whether non-federal entities expending these funds will be subject to single audit and what, if any, the audit requirements will be for for-profit entities. HHS has been deliberating these questions internally and has recently informed the GAQC of its final decision for both non-federal entities and for-profit entities.
Non-Federal Entities. The assistance listing for the PRF program at https://beta.sam.gov has indicated that subparts B, D, and E of the Uniform Guidance apply and that the program will be subject to single audit. However, we were aware that HHS continued to deliberate that conclusion internally. HHS has now confirmed to the GAQC that the information in https://beta.sam.gov is correct and that these funds will be subject to single audit for non-federal entities. Per discussions with HHS staff, we also believe this program will be addressed in OMB's expected addendum to the 2020 Compliance Supplement which is expected this Fall.
For-Profit Entities. HHS had not previously made a determination about the for-profit entity audit requirements for the PRF program. However, HHS has recently informed the GAQC that for-profit entities that expend $750,000 or more of these funds during the entity's fiscal year will be subject to an audit as described in section 75.216 of HHS's adoption of the Uniform Guidance. That section discusses two options for audits of commercial organizations: (1) A financial related audit of a particular award or multiple HHS awards in accordance with Government Auditing Standards; or (2) A full single audit that meets the requirements contained in subpart F of the Uniform Guidance. The GAQC Executive Committee is currently discussing best practices for performing these for-profit engagements and will consult with HHS as well. Watch for more information from the GAQC in the coming weeks.
GAQC Summary of New COVID-19 Programs
The GAQC has updated through July 21, 2020, its previously released nonauthoritative summary of information about federal programs that have been established as a result of the COVID-19 pandemic, including whether they will be subject to single audit. Access the updated summary (note that if you open this link and see the June version, refresh the web page). See also GAQC Alert #408 for more background on the summary. Updates are identified throughout the document and include:
- Changes to the PRF section to reflect the updates described in the section above.
- Updates to the agency information links for the Coronavirus Relief Fund (CFDA 21.019) including new and updated guidance issued by Treasury and a notation that we believe the addendum to the 2020 Compliance Supplement will include a section for this program.
- An update to the Education Stabilization Fund (CFDA 84.425) to include a notation that we believe the addendum to the 2020 Compliance Supplement will include a section for this program.
- A change in position by the Federal Communications Commission such that subparts B and E of the Uniform Guidance apply to the COVID-19 Telehealth Program (CFDA 32.006), and that the program will be subject to single audit requirements.
- Other miscellaneous updates.
The GAQC may again update this document as matters evolve. Therefore, if you print the document, be sure to check the GAQC Web site regularly and refer to the "as of" date on the first page. We will notify you via a GAQC Alert when changes are made as well.
Allowability of Audit Fees
In light of the significant influx of new COVID-19 federal funding, many non-federal entities are expected to be subject to single audit requirements for the first time. We have received several questions from members that have been asked by clients about whether the related audit fees for these new single audits would be considered allowable costs that can be charged to a federal program. Members are reminded about section 200.425 of subpart E of the Uniform Guidance which indicates, with certain caveats, that a reasonably proportionate share of the costs of single audits are allowable.
Many of the questions that have come in have related specifically to the PRF program. The GAQC has confirmed with HHS staff that the provisions of 200.425 of the Uniform Guidance apply to single audits of non-federal entities expending PRF funds. On a separate note, the GAQC has also inquired with HHS about the allowability of audit fees for the audits that will be required of for-profit entities (described above). We have not received a response to this inquiry but will communicate via a future GAQC Alert once we hear back.
GAO Alert
GAO has issued nonauthoritative guidance, COVID-19: GAGAS Audit Alert, which provides information on engagements performed under Government Auditing Standards, including financial audits, performance audits, and attestation engagements. It does not amend Government Auditing Standards but instead highlights audit considerations and reminders, including those for audits of new government programs arising from the pandemic response, as well as ongoing audits. Topics covered include:
- Identifying risk, including inherent risk and risk of fraud
- Internal control
- Professional skepticism
- Evidence
- Quality control
GAO has informed us that this is the first alert of several and that the next alert will apply to financial audits conducted under Government Auditing Standards.
GASB Toolbox
As further described in GAQC Alert #403, the GASB issued an Emergency Toolbox to address the COVID-19 pandemic. The topic listing in the toolbox has been updated to add new issues and related references to GASB's literature. New topics include donated inventory, extension of property tax due dates, disclosures relating to outflows of resources incurred in response to COVID-19, and more.
You can also access GASB's recent Technical Bulletin 2020-1, Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Diseases, and the AICPA staff document, FAQs – State and Local Government Financial Statement Accounting and Auditing Matters and Auditor Reporting Issues Related to COVID-19, for additional guidance on COVID-19 matters relevant to state and local government financial statement audits.
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Sincerely,
AICPA Governmental Audit Quality Center
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