|Dear Center Members:
|On August 12, 2021, the U.S. Office of Management and Budget (OMB) released the 2021 OMB Compliance Supplement (Supplement). After reading this GAQC Alert you will be aware of the following:
- The effective date and how to access the 2021 Supplement;
- Key changes and updates made in the 2021 Supplement, including those related to the ongoing implications of the COVID-19 pandemic and the identification of certain programs as "higher risk;"
- Revised OMB plans for future Addenda to the 2021 Supplement;
- How to learn more, including an upcoming rebroadcast of our recently held GAQC Web event on the 2021 Supplement to be held on August 31, 2021; and
- A word of thanks to our GAQC Executive Committee members for their hard work and dedication over the past year and a half.
|Effective Date and Access
The 2021 Supplement is effective for audits of fiscal years beginning after June 30, 2020. It is available on the OMB Web site as one large PDF file. As a public service, the GAQC is currently working to post it on the GAQC Web site by individual section. We will send a follow-up GAQC Alert when it is available. As described in the "Future Addenda" section below, we are aware that OMB will be releasing two Addenda to the 2021 Supplement later this year, primarily to address new programs established by the American Rescue Plan Act (ARP). We will notify you upon issuance of OMB follow-up Addenda and will also post them by individual section on the same GAQC Web page as the original release.
Key Changes and Updates
We always recommend that auditors refer to Appendix V, List of Changes for the 2021 Compliance Supplement, to get a high-level overview of the detailed changes made. Appendix V identifies specific programmatic changes by Assistance Listing number and should be one of the first things you review. The following describes some of the key changes and updates that you should be aware of:
Part 2, Matrix of Compliance Requirements. Not many programs have modified the requirements subject to audit this year. Where there have been changes, Part 2 states that it identifies those requirements in the matrix in bold and yellow highlighting. The 6-requirement mandate and its related rules and exceptions continue for 2021.
Part 3, Compliance Requirements. There are several important changes to Part 3 this year including the following:
Programmatic Changes. There are several program additions and deletions in Part 4, as well as many programs with significant changes. The following summarizes key changes in the largest COVID-19 programs:
- Updates for Revised Uniform Guidance. Updates have been made throughout Part 3 to reflect the August 2020 Uniform Guidance revisions (see the archived GAQC Web event, Uniform Guidance Revisions: What You Need to Know for more detail about these revisions). Two provisions of the new Uniform Guidance became effective immediately and the remainder was effective for awards after November 12, 2020. The OMB's approach in Part 3 is different than that taken for the prior Uniform Guidance implementation. That is, old and new requirements are not separately identified in a Part 3.1 and 3.2. Instead, OMB takes an approach that is ultimately more challenging for auditors by instructing auditors to check the proper and applicable versions of the Uniform Guidance and the award terms and conditions depending on the occurrence date of the transactions reviewed.
- Procurement Threshold Changes. The 2020 Uniform Guidance revisions include changes to certain purchase thresholds for procurement. Unfortunately, some federal agencies have been late in adopting the new Uniform Guidance into their regulations or had not adopted them as of the date of the 2021 Supplement. The Procurement and Suspension and Debarment type of compliance requirement section was revised to provide a waiver related to this situation. It states that "due to the challenge and burden for an entity of adopting increased purchase thresholds policies for awards provided by certain agencies, but not for awards provided by other agencies, auditors are not expected to develop audit findings for entities that have implemented increased thresholds for all awards after November 12, 2020."
- Reporting Requirement Additions. Two key changes were made in the Reporting type of compliance requirement section. First, the Federal Funding and Accountability and Transparency Act (FFATA) requirements which were originally included in the 2020 Addendum, have been incorporated into 2021 Reporting section, along with guidance on when auditors must test FFATA. Second, clarifications have been made in the Performance and Special Reporting section in response to GAQC comments over the last several years regarding agencies that are not providing enough guidance for auditors to properly test such reports. As it relates to programs that do not identify key line items for a performance or special report in Part 4, Agency Program Requirements, and Part 5, Clusters of Programs, the new Part 3 guidance instructs auditors to only test that the report was submitted in a timely manner. No other procedures are required. Additionally, if key line items are outlined for a program for a performance or special report that would not be quantifiable and capable of evaluation against objective criteria (e.g., narratives, futuristic information, information that would require verification at the program beneficiary level, etc.), the new guidance states that auditors are not required to perform testing of such items. It will be important for auditors to document their consideration of these problematic performance and special reporting situations when they are encountered and to link the auditor response to the guidance in Part 3 to support not testing such items.
Part 5, Student Financial Assistance. This program has numerous compliance requirement changes. The more significant changes relate to the removal of the Matching, Level of Effort and Earmarking type of compliance requirement as subject to audit and in Special Tests and Provisions where several requirements were revised, and two new requirements added. Additionally, auditors are directed to an Excel spreadsheet on the U.S. Department of Education (ED) Web site for purposes of providing the detailed sampling information ED has been collecting the last few years.
- Education Stabilization Fund (ESF). ESF is identified as a higher risk program (see Appendix IV section below) and continues to be broken down into two sections covering the various ESF subprograms. Numerous changes and updates have been made throughout the ESF section. The most important thing to note is that Section 1 was only updated for the implications of the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) but has not been updated for implications of ARP. Therefore, Education states that needed updates to Section 1 for ARP (relevant to 84.425U and 84.425X) will be provided in a future Addendum. On the other hand, Section 2 which includes numerous detailed Higher Education Emergency Relief Fund (HEERF) subprograms has been updated for the implications of both CRRSAA and ARP (i.e., HEERF II and HEERF III). Auditors will need to carefully consider whether they can proceed with single audits of entities where ESF is a major program. For example, for clients that expend funding only under the Section 2 subprograms, auditors can proceed with the single audit using the first release. The same would be true for clients that expend funding under Section 1 subprograms excluding 84.425U or 84.425X. However, for clients that have significant expenditures under 84.425U or 84.425X and where ESF is a major program, the GAQC recommends waiting for the Addendum for this program (see the "Future Addenda" section below for more about this GAQC recommendation).
- Coronavirus Relief Fund (CRF). This program, which is identified as a higher risk program, was updated to reflect provisions of CRRSAA that extended the CRF spend date from December 30, 2020, to December 31, 2021. Updates were also made to change program requirement references to the January 2021 Treasury Federal Register notice, Coronavirus Relief Fund Program Guidance. The CRF section also clarifies that FFATA does not apply to this program.
- Provider Relief Fund (PRF). PRF is also identified as a higher risk program. The "Other Information" section of PRF was revised to clarify the amount of PRF expenditures and lost revenue to be reported on the Schedule of Expenditures of Federal Awards (SEFA) and the timing of when such expenditures and lost revenue are to be reported. See GAQC Alert #429 for more details on this change. Further, the Reporting section has been expanded to include a detailed list of key line items in the PRF Reporting Portal submission that auditor will focus on and the Special Tests and Provisions requirement has been made subject to audit (i.e., the matrix changes from a "N" to a "Y") because a new special test is added that relates to Out-of-Network Patient Out-of-Pocket Expenses.
Part 5, Other Clusters. A new program (Assistance Listing 10.579) was added to the Child Nutrition Cluster and the Agriculture Foreign Food Aid Donation Cluster was deleted. Note also that Appendix VII, Other Audit Advisories, states that there will be no new other clusters formed by ARP Assistance Listing numbers nor will any ARP Assistance Listing numbers be added to existing other clusters.
Appendix II, Federal Agency Codification of Government-Wide Requirements and Guidance for Grants and Cooperative Agreements. This appendix has been updated to reflect which agencies have adopted the 2020 revision to the Uniform Guidance in their own regulations.
Appendix IV, Internal Reference Tables. This updated section of the 2021 Supplement has been greatly expanded to identify several programs as higher risk. In addition to ESF, CRF, and PRF (all discussed above), the following programs (with Assistance Listing numbers) are considered higher risk: COVID-19 Uninsured Program (93.461), Airport Improvement Program (20.106), Federal Transit Cluster (20.500/20.507/20.252/20.526), Emergency Rental Assistance (21.023) and the Medicaid Cluster (93.778/93.777/93.775). The appendix also explains the meaning of the higher risk designation which is critical for auditors to understand as it has major program determination implications. The following are key points from the appendix:
Appendix VII – Other Audit Advisories. Most of the changes and additions to Appendix VII are to provide additional guidance on COVID-19 funding. A summary of some of the key areas covered are as follows:
- A reminder that, generally, new ARP Type A programs will not have been audited in one of the two most recent audit periods subject to the 2021 Supplement and must be audited as a major program.
- For non-ARP type A programs, the higher risk designation will often result in the type A program being audited as major. However, the appendix provides that the auditor is not precluded from determining that a higher risk non-ARP type A program or other cluster qualifies as low risk if certain criteria are met (those criteria are further described in the appendix).
- For type B ARP and non-ARP programs and other clusters, there are no changes to the normal risk assessment process for higher risk type B programs. That is, the higher risk identification must be considered with other factors in section 200.519 of the Uniform Guidance. Further, the auditor is not required to prioritize the assessment of risk for higher risk type B programs over other type B programs.
- Single Audit Due Dates. The appendix includes information about the current single audit extensions provided in OMB Memorandum M-21-20 (see GAQC Alert #424).
- Donated Personal Protective Equipment (PPE). The guidance remains the same as the prior year (i.e., donated PPE provided without compliance or reporting requirements or assistance listing is not counted for purposes of determining the threshold for a single audit or determining the type A/B threshold for major programs). However, emphasis is added that some PPE must appear on the SEFA as a federal program (e.g., when the recipient uses funds provided under an Assistance Listing to purchase PPE).
- Agency Guidance Documents. In a section discussing the proliferation of agency guidance documents during the pandemic, the prior year guidance remains advising that auditors may consider guidance documents in effect during the period to understand the program requirements but that auditors should refer to a statue, regulation, or term and condition as criteria for audit findings.
- Identification of COVID-19 Awards. New information added to this section of the appendix states that OMB is currently working to issue a new summary to identify new ARP programs, as well as which existing federal programs received COVID-19 funding from ARP. OMB states it will post this information on https://www.cfo.gov/ as soon as it is available.
- Separate Identification of COVID-19-Related Awards. The appendix again includes instructions for how recipients should separately identify COVID-19-related awards on the SEFA and the Data Collection Form. The appendix also states that auditors should include the COVID-19 identification for audit findings.
- ARP Programs. The appendix includes a listing of programs that are expected to be made available later. Although Appendix VII states it is providing a complete list of programs, it is important to know that this list may not be a complete list. See the "Future Addenda" section below for more information.
- Identification of Compliance Requirements for COVID-19-Related Awards. This section explains that the first release of the Supplement does not include new COVID-19 related programs funded under ARP or CRRSAA or information on modified compliance requirements relevant to the types of compliance requirements in Part 3 that are unique to COVID-19 for existing programs. It states that for new COVID-19 related programs that will not be included in the Addendum that the auditor must use the framework provided by Part 7, Guidance for Auditing Programs Not Included in This Supplement. It also states that for existing programs with incremental COVID-19 funding, the auditor must perform reasonable procedures to ensure that the compliance requirements are current and suggests what reasonable procedures may include.
Since our July 27, 2021, Supplement Web event we have learned that OMB will likely issue two Addenda. The first will be issued in the early Fall and likely include two programs─the Coronavirus State and Local Fiscal Recovery Fund (21.027) and the update to ESF (see programmatic section above for details on which parts of this program will be updated in the Addendum). Then a second Addendum will be issued later in the Fall. Among the programs expected to be included in the second Addendum are three Treasury programs (Capital Projects Fund (no Assistance Listing yet); Homeownership Assistance Fund (21.026); and the Local Assistance and Tribal Consistency Fund (no Assistance Listing yet). However, we have also learned that the second Addendum may include additional new programs. OMB is still working on identifying the full list.
Members should note that the decision to issue two Addenda was made by OMB after the first release of the 2021 Supplement was finalized. Thus, Appendix VII of the 2021 Supplement indicates that there will be one Addendum and that a complete list of the programs has been provided. This is now incorrect due to OMB’s recent decision to issue two Addenda and also to potentially expand the list of programs included the second Addendum. We will be strongly advocating that OMB publish a complete listing of programs to be included beyond those identified in Appendix VII as soon as possible so that auditors are aware of what is coming and whether there will be implications on their single audits. Watch future GAQC Alerts for updates.
The Addenda are eventually expected to be posted on cfo.gov. OMB has clarified that although the Addendums will not be posted on the OMB Web site that they will still be reviewed by OMB prior to issuance and be considered an official part of the 2021 Supplement. Like last year, the GAQC recommends that auditors wait for the Addenda when auditing one of the programs included as a major program (see above ESF section for situations where it may be appropriate to proceed for that program). We believe that waiting for the Addenda is the best course of action as it provides time for the agencies to finalize program rules and it also provides auditors with a much better understanding of agency expectations for the audits of these new programs.
How to Learn More
The GAQC team will continue to analyze the new Supplement over the coming weeks and communicate any developments. Further, the July 27, 2021, GAQC Web event, 2021 Compliance Supplement and Single Audit Update, is now available in a no-CPE archive. We strongly recommend you and your staff view this event to help you more fully understand the changes made in the 2021 Supplement. We will also hold a CPE rebroadcast of the 2021 Supplement event for those of you that missed it on Tuesday, August 31, 2021, from 1:00 PM – 3:00 PM (Eastern Time). Look for a future GAQC Alert with member registration information.
An Overdue Thanks
This year has presented single audit practices around the country with significant challenges due to the many complications associated with COVID-19 funding and we do not expect this to change anytime soon. The GAQC team would like to publicly thank our GAQC Executive Committee members (both current and recent former) for the many hours put in to date on reviewing the numerous draft sections of the Supplement, meeting with agency representatives, and many more behind-the-scenes efforts. The committee has been meeting weekly since the pandemic started and much of the information discussed ultimately is shared with the entire membership. Every auditor performing a single audit has benefitted from their work. So, on behalf of all of us, we say thank you to the following members:
Kimberly McCormick (Chair), Grant Thornton LLP
Brian Archambeault, Crowe LLP
Stephen Blann, Rehmann Robson LLC
Amanda Blomberg, Baker Tilly US, LLP
Ralph Deacetis, PricewaterhouseCoopers LLP
Christina Dutch, PricewaterhouseCoopers LLP
Jodi Daugherty, Eide Bailly LLP
Rachel Flanders, CliftonLarsonAllen LLP
John R. Good, Ernst & Young LLP
Lindsey L. Kennimer, Snow Garrett Williams CPAs
Amanda E. Nelson, KPMG LLP
Lindsey Oakley, BKD
Kris Oliveri, Kern & Thompson LLC
Troy Rector, Clark Nuber P.S.
Reem Samra, Deloitte & Touche LLP
Thomas Sneeringer, RSM US LLP
George D. Strudgeon, Auditor of Public Account, Commonwealth of Virginia
Amanda Ward, Plante Moran.
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