Article updated on May 11, 2020
On March 9, 2020, the Office of Management and Budget (OMB) issued M-20-11, “Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19),” to provide agencies with additional flexibilities for grants that support their response to COVID-19.
Extension of Single Audit Submission
One of the key elements of this memorandum was the extension of the Single Audit submission date for fiscal year ends through June 30, 2020 to six months beyond the normal due date. Typically, an organization with a June 30, 2020 year-end would have had to submit its Single Audit to the Federal Audit Clearinghouse 30 days after the release of it financial audit or nine months after June 30, which in this case would be March 31, 2021. This due date of March 31, 2021 will now be extended to September 30, 2021. Fortunately, organizations can still qualify as Low Risk Auditees even if they submit the report during the extension period.
Additional OMB Guidance Needed
On April 10, 2020, the American Institute of Certified Public Accountants (AICPA) requested guidance from the OMB on various potential issues with reporting of Small Business Association (SBA) Loans and CARES Act Funds as federal funding under Uniform Guidance. The determination of the various SBA Paycheck Protection Program (PPP) Loans and Economic Injury Disaster Loans Program, specifically, whether they will need to be reported on a recipient organization’s schedule of federal expenditures, will need to be made by the OMB. It is also possible that organizations that were under the $750,000 federal program threshold could become subject to the Single Audit under Uniform Guidance, should these SBA Loans and CARES Act Funds be considered federal programs to be reported on a schedule of federal programs.
Major Program Determination
Major program determination is required by the auditor to select both the proper federal programs and an adequate amount of coverage from the federal programs of an auditee. Uniform Guidance states that an auditor must select at least 20 percent of the total federal awards for a low-risk auditee and 40 percent for a high-risk auditee. If these CARES Act Funds create new Catalog of Federal Domestic Assistance (CFDA) numbers, these new programs may be required to be selected or tested as major programs. For example, any new federal program that exceeds $750,000 (for an auditee with $25,000,000 or less in federal awards) would need to be selected and audited as a major program in the current year since it would be considered a High-Risk Program.
Other Features of M-20-11
In addition, the memorandum permitted organizations to automatically extend their approved indirect cost rates an additional year without requiring a submission of an indirect cost proposal. In addition, awarding agencies may extend period of performance on awards active on March 31, 2020 that were scheduled to expire prior to December 31, 2020. The extension period can be up to 12 months, and the purpose is to give organizations additional time to complete projects or spend according to the grant.
Another complication is if the new federal program under the CARES Act is added to a “cluster.” If so, the auditor may need to audit that cluster even if it was audited as a major program last year. The only exception to this requirement is if the new program is LESS than $187,500.
The release of 2020 Compliance Supplement is currently being delayed. This means that any potential updates relating to COVID-19 can be incorporated as questions regarding allowable costs, procurement, cash management, matching, reporting and special tests must be answered in the upcoming Compliance Supplement in order for auditors to properly plan and execute their procedures. Auditors are currently planning for audits with a year-end of June 30, 2020, so answers from the OMB are being anxiously awaited.
The intent of the CARES Act funds was to support recipient organizations, so it will be an important decision by the OMB to determine whether these federal programs will be subject to Uniform Guidance. As noted earlier, the AICPA Government Audit Quality Center requested guidance from the OMB on these matters. Our professionals at Sikich are closely monitoring news updates from the OMB and will provide information as soon as it is released.
The SBA issued guidance determining whether the PPP loans administered under the 7(a) guaranteed loan programs are subject to the Single Audit under Uniform Guidance. The SBA concluded that this funding is not subject to the Single Audit and, therefore, not reported on a not-for-profit organization’s schedule of federal expenditures.
On May 5, 2020, the Government Audit Quality Center reported this news to the not-for-profit community. The guidance addressed significant concerns among organizations, since additional major programs could have been required to be tested by the auditor if PPP loans were included as federal funding subject to Uniform Guidance. Further, not-for-profit entities not previously subject to the Single Audit threshold could have been forced to undergo a Single Audit for years ending in 2020.
Guidance also stated that the Economic Injury Disaster Loans (EIDL), administered under the SBA, are considered a direct loan program with the proceeds of these loans classified as federal funding subject to the Single Audit under Uniform Guidance. Not-for-profit organizations should report 7(b) disaster loans under the catalog of federal domestic assistance number, (CFDA) 59.008. Regulations for EIDLs are found in 13 CFR Part 123; “Disaster Loans for Homes and Personal Property,” “Physical Disaster Business Loans” and “Economic Injury Disaster Loans.”
If you have questions regarding the CARES Act funds and their impact on your organization, please reach out to us today.