Many nonprofit and commercial organizations have received funding from the federal government in various forms since 2020, from the Paycheck Protection Program (PPP) to the Provider Relief Fund (PRF) to the Shuttered Venue Operators Grant (SVOG). While these funds have been well deserved and well received, much of this activity is expected to generate at least 10,000 new compliance audits — whether single audit, program-specific audit performed in accordance with 45 CRF 75 F, or financial audit in accordance with Government Auditing Standards — over the next few years.
Thankfully, one of the largest federally funded programs nonprofits and commercial organizations may have benefitted from, the PPP, is not subject to a compliance audit. However, funds from the PRF and SVOG are subject to one, if the organization reports expenditures and/or lost revenue of more than $750,000 in federal funding in one fiscal year.
Which Recipients of Provider Relief Funds (PRFs) May Need a Compliance Audit?
The PRF established in 2020 as part of the CARES Act supports American families, workers and healthcare providers in the battle against the COVID-19 outbreak. The Department of Health and Human Services (HHS) has distributed over $175 billion to hospitals and healthcare providers on the front lines of the pandemic response.
In July 2021, HHS opened the portal to accept PRF report submissions. Upon opening the portal, HHS established in its PRF FAQs that reporting will be based on when PRF payments were received.
Nonfederal entities will include PRF expenditures and/or lost revenues in the schedule of expenditures of federal awards (SEFA) for fiscal years ending on or after June 30, 2021. This new guidance supersedes previous guidance in the 2020 OMB Compliance Supplement Addendum that indicated PRF reporting was to begin for fiscal years ending December 31, 2020, and later. As a result of this new guidance, SEFA reporting will not coincide with GAAP reporting, and the SEFA may include expenses and/or lost revenue incurred in periods before and after the award existed and spanning more than one fiscal year of the entity.
What does this mean for recipients of PRF funds? Although the HHS has stated a compliance audit is required for entities that “expend” $750,000 or more in annual awards, the definition of “expend” takes on a new meaning here. Commercial organizations that have received over $750,000 in PRF will likely need a compliance audit even if the funds and lost revenue span more than one fiscal year.
Which Recipients of Shuttered Venue Operators Grant (SVOG) Funds May Need a Compliance Audit?
The SVOG was established in 2021 by the Economic Aid to Hard-Hit Small Business, Nonprofits, and Venues Act and amended by The American Rescue Plan Act of 2021. The SBA’s Office of Disaster Assistance has the ability to provide over $16 billion in grants to shuttered venues, which include live venue operators or promoters, theatrical producers, live performing arts organization operations, museum operations, motion picture theater operators and talent representatives.
Applications for the relatively new program are still being accepted, making it too soon to tell whether there will be similar complexities in relation to when recipients must report these funds on the SEFA. If the funding period spans over two fiscal years, and the award received is greater than $750,000, an organization can typically allocate federal funds to more than one fiscal year and likely not need a compliance audit. However, with regards to SVOG funds, organizations are receiving them in 2021 and can go back and allocate 2020 expenses to these awards. The question becomes, “What fiscal year should the SVOG expenditures be reported for purposes of the compliance audit?”
Organizations must also be mindful that if they have received other federal funds, all federal expenditures need to be considered to determine whether the $750,000 limit has been exceeded in any one fiscal year.
Contact Tina Dzik at firstname.lastname@example.org or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.