As a result of the Covid-19 pandemic, the U.S. government has implemented a number of programs to provide economic support to businesses. The most notable has been the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided $2.2 trillion of funding for individuals, Paycheck Protection Program (PPP) loans, unemployment benefits and direct aid to businesses and state and local governments.
The direct aid to businesses and state and local governments has increased the need for Single Audits to be performed for fiscal years ending in 2020 and 2021. Thousands of entities may now be subject to a Single Audit, which is required when an entity expends $750,000 or more of federal funds during the entity’s business year. These funds can be provided directly from the federal government or, more commonly, are passed through state and local governments or other not-for-profit organizations. Federal funds may also be in the form of loans. Also, entities are required to aggregate all sources of federal funds when determining whether they have met the $750,000 federal expenditures threshold.
A Single Audit includes a financial statement audit, and it also subjects the entity to Government Auditing Standards as well as Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (known as the Uniform Guidance). Government Auditing Standards require testing over internal controls over financial reporting and on compliance with laws, rules, regulations, contracts and grant agreements. The Uniform Guidance requires testing of internal controls over compliance and on compliance itself with federal regulations.
If you are already required to undergo a financial statement audit, this would require additional testing as described above and separate opinions from your auditors. There are requirements to maintain written policies and procedures for various documents and reporting. Finally, the financial statements and reporting package must be reported to the federal oversight agencies within the shorter of 30 days from the issuance of the entity’s financial statements or nine months of the entity’s year-end.
Two important things to note:
1) The Paycheck Protection Program and Employee Retention Tax Credits are not subject to the Single Audit requirement. This is a common question raised by recipients of funds from these programs.
2) The Single Audit requirement applies to non-federal entities. If you are a for-profit business or a not-for-profit organization, you need to evaluate whether you require this type of audit.
If you read this far and your entity is not required to undergo a financial statement audit, you may be thinking, “OK, good…this does not affect me.” Well, that depends! If your entity has expended over $750,000 in federal expenditures pertaining to one federal COVID relief program, you may be required to have what is referred to as a Program-Specific Audit. This would entail the detailed testing of internal controls and compliance mentioned above. There would also be a requirement to submit a reporting package for your Program-Specific Audit.
The guidance on all of this is ever changing; so, the best course of action is to discuss your situation with one of our Single Audit experts here at Tronconi Segarra & Associates. For more information, contact any one of the following Accounting & Auditing professionals at Tronconi Segarra & Associates:
They may also be reached at 1.716.633.1373.