As governmental and not-for-profit entities begin to receive and spend funds provided under the CARES Act, many unanswered questions related to the administration and treatment of the myriad funding sources remain. Auditors and auditees are looking ahead to determine the effect of these programs on upcoming audits. While there is very little conclusive information available regarding the eventual audit treatment–this includes potential inclusion in the Schedule of Expenditures of Federal Awards (the SEFA) and the Single Audit–it’s essential to start planning for future audit requirements.
Out of the programs that are available for use by governmental entities, several will be subject to Single Audit requirements, including the Education Stabilization Fund, which is reported under CFDA Number 84.425. This program encompasses funding provided to many different types of entities, including state and local educational agencies, institutes of higher education, and even tribal governments. Similarly, costs related to unemployment expansion and Pandemic Emergency Unemployment Compensation are expected to be included on the SEFA for state agencies administrating the funds. Whether these funds will be combined with the existing unemployment insurance program under CFDA Number 17.225 is not clear. In any case, entities administering these funds should prepare for inclusion in the Single Audit.
The CARES Act also established a Provider Relief Fund to assist healthcare providers with expenses related to the COVID-19 outbreak. Out of the total $50 billion provided under this program, $30 billion has been allocated on a formula basis. The remaining $20 billion includes amounts targeted to specific activities and providers, such as providers in rural areas and areas disproportionately affected by COVID-19. These remaining funds will also include amounts set aside for reimbursement for the treatment of uninsured individuals. These funds will begin distribution in late April and early May. Funds provided under each part of this program will likely be considered federal expenditures for Single Audit purposes when provided to entities that are subject to the Single Audit requirements, like not-for-profit and governmental healthcare entities.
The $150 billion Coronavirus Relief Fund for state and local governments is likely to be included in the SEFA, but the federal government has not confirmed this. Entities receiving these funds directly from the Coronavirus Relief Fund, or on a pass-through basis from individual states or local governments, are encouraged to treat these funds as federal expenditures. With this mindset, organizations can ensure the establishment of appropriate internal controls and documentation retention for all expenditures.
For larger governments, the Municipal Loan Facility is available to purchase short-term debt instruments to provide liquidity as tax revenues fall and expenses increase. No guidance is available as to whether these will be considered loans reported on the SEFA, but it is still a possibility. Governments should be aware of this potential and the potential effect on the Single Audit.
Larger nonprofit organizations are eligible to participate in the Mid-Size Loan Program. Details of the program design have not yet been released as of April 28, 2020. It is possible than any funds borrowed through this program would be considered to be federal expenditures under the definition of “loans and loan guarantees” in 2 CFR 200.502(b).
Specific smaller nonprofit organizations are eligible for potentially-forgivable loans under the Paycheck Protection Program (PPP) through the Small Business Administration (SBA). The SBA has announced that PPP funds will not be subject to Single Audit requirements, although loans over $2 million will be “audited.” This audit appears to refer to the internal review of the loans by the SBA before disbursement of funds, and not a formal audit conducted by an independent auditor, such as a single or program-specific audit. Similarly, certain private nonprofit organizations are eligible for the Economic Injury Disaster Loan of up to $2 million and a related grant of up to $10,000. The SBA, which has announced that these funds, both the loan and the grant portion, would be considered federal expenditures for a Single Audit. Also, the loan balances will be included as federal expenditures in subsequent years until paid off. All documentation should be retained, and nonprofit organizations should prepare to work with their auditors to determine the treatment of these funds when more information is available.
In the meantime, all entities should track COVID-19 related expenditures and expenditures specific to each funding source in detail, and assume that any funds provided under the CARES Act will be subject to audit or federal agency review. As more information on each of the funding opportunities from the CARES Act is released, CRI will continue to monitor and communicate relevant information. If you’re unsure about these sources of funding and whether or not you qualify, reach out to a CRI advisor for more information.