| Dear Center Members: |
| This GAQC Alert informs you about several key guidance documents and tools issued by the AICPA Governmental Audit Quality Center (GAQC) this week as follows:
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PRF For-Profit Practice Aid
The COVID-19 pandemic has resulted in an influx of funding from the U.S. Department of Health and Human Services (HHS) to for-profit hospitals and other for-profit healthcare providers, with the largest source of funding coming from the PRF program. HHS has extended audit requirements to these for-profit entities with $750,000 or more in HHS awards which is resulting in numerous for-profit healthcare entities needing an audit. The HHS for-profit audit requirements include options for either a single audit (or program-specific audit) or a financial audit under Government Auditing Standards (referred to as a GAGAS financial audit). For many for-profit entities, the December 31, 2021, year-end is the first time the HHS audit requirement becomes effective.
In response, the GAQC has issued a nonauthoritative practice aid, HHS Audit Requirements for For-Profit Entities with Awards for the Provider Relief Fund Program and Other HHS Programs. It is intended to assist auditors of for-profit entities subject to audit requirements related to awards from the PRF program and other HHS programs and their for-profit clients. The practice aid is comprehensive and provides:
- A discussion of the HHS audit requirements, with a focus on the GAGAS financial audit option.
- Audit scope considerations.
- A description of the complex nuances of the PRF program and how they impact the audit.
- Frequently asked questions, illustrative schedules, notes, and auditor reports.
- A primer on Government Auditing Standards.
- References to other GAQC and AICPA resources that may be useful.
We expect that many for-profit healthcare entities subject to the HHS audit requirements will not have had to undergo such an audit in the past. Further, some auditors will be new to performing these types of engagements. The GAQC cautions that auditors new to this area have a strong focus on the engagement acceptance process to ensure that there is the right experience, training, and resources available within the audit practice to carry out the audit. If not, strong consideration should be given to not accepting the engagement or partnering with another firm that has experience.
PRF General and Targeted Distributions Practice Aid
Health care entities with PRF funding, including not-for-profits and for-profits, often have complex ownership structures and/or financial relationships that may involve parent-subsidiary structures or common control relationships. One specific area of confusion by entities and auditors relates to the impact on the scope of the HHS audit (whether it be a single audit, program-specific audit, or a GAGAS financial audit) when management elects to have the audit cover less than the consolidated or combined entity. In these situations, questions have arisen due to the unusual PRF reporting requirements regarding General and Targeted Distributions and the HHS requirement to align the PRF amounts reported in the Schedule of Expenditures of Federal Awards (or Schedule of HHS Awards) to the PRF reporting that is submitted directly to HHS through its reporting portal.
In response, the GAQC has issued a nonauthoritative practice aid, Audit Scope Considerations for Provider Relief Fund General and Targeted Distributions in Parent-Subsidiary Relationships, which addresses audit scope considerations of PRF General and Targeted Distributions in parent-subsidiary relationships that are subject to HHS audit requirements. Topics covered include:
- Background of the HHS audit requirements.
- HHS PRF portal reporting requirements and how they are relevant to audit scope considerations.
- A decision tree to illustrate how having separate audits within a consolidated entity might impact the scope of the audit (whether it be a single audit, program-specific audit, or a GAGAS financial audit).
- What to do for scenarios not covered in the practice aid.
Single Audit Checklist Tool for Auditors
Pandemic funding and funding from other recent legislation (e.g., the Infrastructure Investments and Jobs Act) have resulted in a significant increase in the number of single audits performed. We expect this trend to continue for the foreseeable future. In response, the GAQC has developed a checklist tool, Tips for Auditors Taking on Single Audits, which provides tips for important aspects of conducting a single audit. While this tool is intended to help auditors new to single audits prepare for the audit, it can also serve as a good reminder for firms with single audit experience and as a resource that can be shared with newer staff. Among the topics included are:
- The importance of the engagement acceptance process.
- Auditor independence considerations.
- Major program pointers.
- Reporting reminders.
As noted earlier, it is critical that auditors taking on single audits have the right experience, training and resources available to carry out the audits. If a firm’s qualifications for performing single audits are not sufficient, the GAQC suggests partnering with another firm or not accepting the engagement.
Single Audit Checklist Tool for Auditees
Many organizations are also receiving federal funding and becoming subject to single audit rules for the first time. The GAQC has also developed a checklist tool, Tips for Organizations Subject to Single Audit Requirements, which is intended to provide tips and reminders to organizations becoming subject to single audit rules. It may also contain useful reminders for organizations normally required to have a single audit. The GAQC recommends that members consider sharing this checklist took with clients. Among the topics included in the tool are:
- How to know when an organization needs a single audit.
- Understanding federal funding and the related compliance requirements.
- Internal control considerations including where to look for guidance on examples of controls.
- Considerations when looking to engage a qualified auditor.
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Sincerely,
AICPA Governmental Audit Quality Center |
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| In This Alert |
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| GAQC Required Webcast Reminder |
| Designated audit quality partners and state audit designated audit quality leaders should mark May 3, 2022, from 1:00PM – 3:00PM (Eastern Time) on their calendars for our annual required webcast. Stay tuned for more information. |
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| Additional Resources |
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| Stay Informed |
We welcome any suggestions or questions - please send them by e-mail at GAQC@aicpa.org.
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