Organizations who expend more than $750,000 in Federal monies during a fiscal year are required to undergo a Single Audit. A Single Audit is vastly different than a financial statement audit. a Single Audit requires the auditor to test internal controls over compliance as well as compliance with major Federal programs. Auditors use the Compliance Supplement (the Supplement) released by the Office of Management and Budget (OMB) to gain an understanding of the program as well as the compliance requirements that are subject to audit.
On August 18, 2020, the OMB released the 2020 Compliance Supplement. Federal agencies review the Supplement each year for updated requirements and changes to programs.
The Coronavirus crisis resulted in Congress making appropriations under the following Acts:
- Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020
- Families First Coronavirus Response Act
- Coronavirus Aid, Relief, and Economic Security (CARES) Act
- Paycheck Protection Program and Health Care Enhancement Act
As a result of these Acts, several new Federal programs have been created along with additional funding issued to existing programs. Because the Supplement was in the review process when the COVID-19 appropriations occurred, the Supplement does not address the audit guidance for these programs outside of an Audit Advisory in Appendix VII. Instead, the OMB plans to publish an addendum to the Supplement in the fall of 2020.
The 2020 Compliance Supplement is effective for fiscal years beginning after June 30, 2019 and is available on the OMB website as one large PDF file, OMB Compliance Supplement. However, the AICPA Government Audit Quality Center has broken down the supplement by individual sections to make it easier to navigate – GAQC Compliance Supplement.
Key Changes to 2020 Compliance Supplement
There are several sections to the Compliance Supplement that provide guidance to auditors. This can also be useful for auditees to understand how it is affecting their Single Audit. Key changes to the 2020 Compliance Supplement are noted below by section:
Part 2, Matrix of Compliance Requirements – This section lists out the 12 possible compliance requirements and identifies which requirements are subject to audit for each Federal program. In the prior year, Federal Agencies were mandated to limit the requirements subject to audit to six for each program. Agencies are still limited to six; (A. Activities Allowed and Unallowed and B. Allowable Costs and Cost Principles are treated as one requirement) however, some agencies have changed the requirements subject to audit. The matrix in Part 2 identifies those that have changed, applying bold type and yellow highlighting to the respective requirements. It is important to note that while a requirement might not be subject to audit, the compliance requirement may still be applicable to the Organization.
Part 3, Compliance Requirements – This section is a broad summary of the 12 possible compliance requirements. Following the issuance of the Uniform Guidance, Section 3-1 and Section 3-2 were created to separate Federal awards made prior to December 26, 2014, and after December 26, 2014. Section 3-1 has since been removed, as that section was used to audit awards made prior to December 26, 2014, and should now be very minimal.
Part 4, Agency Program Requirements – This section describes compliance requirements in more detail for specific programs. There are several new programs added as well as changes to existing programs. Appendix V of the Supplement provides a summary of those changes by program.
Part 5, Clusters of Programs – This section identifies programs that are considered part of a cluster, as well as describes the compliance requirements applicable to clusters in more detail. There were some changes to the list of clusters. Additionally, there were many changes, once again, to the Student Financial Assistance program.
COVID-19 Impact and Audit Advisory
As noted above, an Audit Advisory was issued regarding the impact of COVID-19 awards. Some of the key impacts are noted below:
- COVID-19 funding may be incorporated into an existing program or may have been set up as a separate COVID-19 program with its own unique CFDA number. For purposes of the Schedule of Expenditures of Federal Awards (SEFA), COVID-19 expenditures should be separately identified by adding the prefix, COVID-19, before the program name. See below for example:
- COVID-19 – Temporary Assistance for Needy Families – 93.558 – $1,000,000
- Temporary Assistance for Needy Families – 93.558 – $3,000,000
- Total Temporary Assistance for Needy Families – 93.558 – $4,000,000
- While the addendum is yet to be issued, there will not be any new clusters of programs in addition to those listed in Part 5. Furthermore, there will be no revisions to the composition of existing clusters listed in Part 5.
- Consistent with identifying COVID-19 expenditures on the SEFA, audit findings that are applicable to COVID-19 new or existing programs should be separately identified as COVID-19. This will assist Federal Agencies in identifying those findings that are the direct result of COVID-19 funding.
- Some agencies made changes to existing programs in response to the pandemic but did not receive additional COVID-19 funding. These programs include Student Financial Assistance Cluster, the Child Nutrition Cluster, etc. The Supplement may not have been modified for those changes but auditors and auditees should be aware of them.
As a result of the uncertainty surrounding much of the COVID-19 funding, single audits have become increasingly complex. As you plan for your Organization’s upcoming audit, please contact any of our Single Audit team experts for guidance.
Stephanie Allgeyer
sallgeyer@vlcpa.com
