|Dear Center Members:
|This GAQC Alert informs you about the following important matters:
|American Rescue Plan Act
In early March, the ARPA was signed into law. The GAQC has been evaluating the Act and its potential implications from a single audit perspective. Due to the historical amounts of federal funding provided by the Act to both new and existing federal programs, we believe there could be significant implications. Similar to the time period after the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed, the federal agencies with new ARPA programs are currently in the process of establishing program policy, including whether the programs will be subject to single audit. The most significant of the new programs is as follows:
Coronavirus State and Local Fiscal Recovery Fund. This program (or programs) will provide over $350 billion to states, tribal entities, U.S. territories, and local governments. While some aspects of this program are similar to the Coronavirus Relief Fund (established by CARES), there are some key differences including that it provides far more direct funding to local governments including counties, cities, villages, and townships. Access a nonauthoritative summary of the funding breakdown to various local governments around the country. We have inquired of the U.S. Treasury Department about (1) whether this program will be subject to single audit, and (2) whether it will be one big program or broken down into two or more programs. These types of policy decisions are ongoing, and we will communicate as soon as we have more definitive information to share.
There are also numerous existing programs, many of which are subject to single audit, receiving new funding in areas such as disaster recovery, COVID-19 testing and treatment, childcare, mental health, nutrition, housing, transportation, and more. Two of the most significant funding additions went to the following existing programs that are subject to audit:
Emergency Stabilization Fund (ESF). This program is receiving approximately $165 billion in new funding with over $120 billion going to the Elementary and Secondary School Emergency Relief subprogram and $40 billion going to the HEERF subprogram (HEERF III).
Emergency Rental Assistance Program. This program is receiving over $21 billion in new funding.
The GAQC will be closely monitoring the policy decisions being made by OMB and the various federal agencies and will communicate developments as we have them, including specifics of new programs and single audit applicability. Due to the timing of the ARPA and resulting distributions, this new funding may not play as large of a role for some June 30, 2021, year-end single audits. But as the year progresses and later year-ends approach, its impact will only increase as this new funding is expended.
OMB Memo M-21-20
As with other OMB memos issued last year, OMB Memo M-21-20 is addressed to federal agencies and provides them with direction and expectations from OMB relating to the implementation of the ARPA. Key points include the following:
Single Audit Submission Extension: The memo instructs that awarding agencies should allow recipients and subrecipients that have not yet filed their single audits with the Federal Audit Clearinghouse as of the date of the issuance of OMB Memo M-21-20 (i.e., 3/19/21) that have fiscal year-ends through June 30, 2021, to delay the completion and submission of the single audit reporting package to six months beyond the normal due date. No further action by awarding agencies is required to enact this extension and individual recipients and subrecipients are not required to seek approval for the extension. However, as with previous extensions, recipients and subrecipients should maintain documentation of the reason for the delayed filing. Recipients and subrecipients taking advantage of this extension would still qualify as a "low-risk auditee."
So, for example, a June 30, 2020, year-end single audit that has not yet been submitted will have until September 30, 2021, to submit the audit (i.e., 6-months after the normal due date of March 31, 2021). Further, a December 31, 2020, single audit that has not yet been submitted will have until March 31, 2022, to submit the audit (i.e., 6 months after the normal due date of September 30, 2021). This new extension is longer than the previous extension provided in the OMB Compliance Supplement Addendum, which was only for 3 months, extends to later fiscal year-ends, and is not linked to the receipt of COVID-19 funding. Per a follow-exchange with OMB staff, OMB confirmed that its intent was to be more generous with this extension than previous extensions. However, OMB also asked us to remind auditees and auditors that the "30 calendar days after receipt of the auditor's report" aspect of the single audit due date continues to apply. Finally, on a cautionary note, last year OMB originally provided a 6-month extension that was later reduced to 3-months for certain year-ends. So, there is precedent for OMB to revise its current position in the future. The GAQC will closely be monitoring this.
Encouraged Application of Uniform Guidance to ARPA Funding. The memo states that to provide the highest integrity in the management of financial assistance, agencies must apply the requirements of Title 2 of the Code of Federal Regulations (CFR), Grants and Agreements (i.e., the Uniform Guidance) to federal financial assistance funded through the ARPA to the maximum extent authorized by law.
OMB Approval Process Established. The memo requires that for all new programs, agencies are required to submit their proposed implementation of 2 CFR part 200 to OMB for approval prior to program administration and award issuance (must be done prior to submitting an Assistance Listing).
For-Profit Recipient Guidance. The memo states that federal awarding agencies are expected to follow the requirements as directed by OMB in 2 CFR part 200 for financial assistance awards to for-profit organizations to the maximum extent authorized by law. It states that agencies should consider whether single audit or some other audit is most appropriate for for-profit entities.
Higher Risk Program Identification. The memo addresses auditing requirements for "higher risk" programs by saying: "Consistent with 2 CFR Subpart F section 200.519, agencies must perform a risk analysis of ARP programs and request OMB to designate any higher risk programs as Single Audit major programs, i.e., programs which must be tested in a particular year. OMB will use the 2 CFR Subpart F Compliance Supplement to notify auditors of compliance requirements that should be tested for ARP programs."
Waivers, Flexibilities, and More. The memo also encourages the agencies to provide various waivers and flexibilities to reduce burden for federal financial assistance. There is also a strong emphasis on transparency of spending and performance.
This memo’s focus on the expected application of the Uniform Guidance, along with all of the new funding coming from the ARPA, further supports the points made earlier about the significance of this new funding on the recipients that receive it and likely on future single audits. Again, stay tuned as the GAQC continues to learn more.
HEERF II Guidance
The Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSAA) provided a second round of funding to HEERF (referred to as HEERF II), a subprogram of the ESF program, which established new requirements for the funding. Numerous questions have been raised by recipients and auditors about those changed requirements, especially about a change that would permit the charging of lost revenue. In response, ED posted a guidance document on March 19, 2021, titled, New HEERF Guidance on Expenses Through the Pandemic and Calculating Lost Revenue. A full list of the new guidance issued can be found at the bottom of the ED HEERF II Guidance Web page. Of particular interest on that Web page are the following:
Other COVID-19 Funding News
- An FAQ document on calculating lost revenue which includes examples;
- A notice of interpretation of award dates including clarification that the allowable time period for which grantees may charge costs and lost revenue to their HEERF grant is from March 13, 2020, onward (i.e., the two HEERF award cycles are retroactive to March 13, 2020);
- A notice of modification to the Grant Award Notification (GANs) supplemental agreement to amend the allowable period of expenditures back to March 13, 2020;
- Conforming updates to previously issued questions and answers to allow for expenditures incurred back to March 13, 2020, as well as the addition of new FAQs on how HEERF funds may be used.
- A letter discussing HEERF grant audit requirements which responds, in part, to several questions the GAQC had previously submitted to ED relating to challenges auditors were experiencing when attempting to perform procedures outlined in the Supplement addendum on publicly posted reports, as well as questions around wording placed in HEERF II Terms and Conditions that implied HEERF would have to be considered a high-risk major program in the 2nd year of auditing. The letter clarifies that ED has not identified HEERF as an automatic high-risk program at this time and provides examples of what ED will accept as evidence of compliance for the public reporting requirement. Finally, the letter informs that for-profit proprietary institutions expending $500,000 or more in HEERF funding during the entity’s fiscal year will be required to have those funds audited under a new ED audit guide that is currently being developed and is expected soon.
PRF Update. There are no new substantive updates to report for PRF since our last Alert (see GAQC Alert #423). In response to our recent attempts to set up a follow-up meeting with staff of the U.S. Department of Health and Human Services (HHS), they responded that they are still considering all of the questions and issues we raised previously and are working to refine their strategy and plan for additional guidance. So, for now, December 31, 2020, fiscal year-end and later single audits including PRF and for-profit audits of PRF funding continue to be on hold.
Shuttered Venue Operating Grants. The SBA updated its FAQ document on this program on March 22, 2021. Access the latest FAQs. This program will be provided to eligible governments, not-for-profits, and for-profit entities that include, among others, live venue operators, movie theaters, museums, zoos, and aquariums. While SBA has been clear from the beginning that this program will be subject to audit for governments and not-for-profits, SBA recently clarified the audit requirements for for-profit grantees in updated FAQ 17. It states that an audited financial statement is not required to apply for an SVOG award. However, it clarifies that for-profit SVOG grantees expending more than $750,000 in federal funding in one fiscal year will have the option of either providing a single audit or an audited financial statement for the fiscal year during the audit period. The GAQC met with SBA staff recently to discuss the for-profit audit requirements at a high level and to communicate matters SBA may want to consider for the for-profit audits based on our experiences working with HHS on the PRF for-profit audits. For now, SBA staff is focused on getting the program up and running and we will likely meet with them again to further discuss the audit requirements as things progress. In the meantime, the SBA expects to begin accepting SVOG applications on April 8, 2021, and will hold a Webcast on March 30, 2021, from 2:00 PM – 4:00 PM (Eastern Time). Access registration information for the SBA Webcast. Also, read a recent Journal of Accountancy article on SVOG from March 19, 2021. Finally, periodically check the SBA SVOG Web page for further news and updates.
As noted in GAQC Alert 421, the AICPA DIEP issued an FAQ document to address the implications of a GNMA announcement that the Bank of New York Mellon (BNYM) is no longer an approved GNMA Document Custodian. The DIEP has just updated the FAQ to address an exemption recently issued by GNMA to certain custodial compliance testing requirements relating to BYNM. The updated FAQ is dated March 17, 2021, and has been revised to change the answer to question 3. It also adds a new question 3a to address that the auditor does not need to report noncompliance or a scope limitation in its report and also provides an "Other Matter" paragraph that the auditor may consider including in the report on compliance.
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AICPA Governmental Audit Quality Center