August 25, 2021
Organizations that spent $750,000 or more in federal funds with fiscal year-ends beginning after June 30, 2021, may need to abide by updated requirements from the Office of Management and Budget (OMB). The agency’s recently issued guidelines, the 2021 Compliance Supplement, supersede previously issued guidelines from November 2020. Given the increase in the number of organizations that have accepted funding from federal programs, an update was needed to ensure the proper reporting, testing, and compliance is occurring. Many of the most notable changes include three major funds including the Provider Relief Fund, Education Stabilization Fund, and Coronavirus Relief Fund. This includes details on how expenses, lost revenue, program requirements, and other updates arising from the American Rescue Plan should be treated. In other words, it is loaded with important changes that need to be carefully reviewed. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
A single audit, previously known as the OMB Circular A-133 audit, is required for any organization that accepts $750,000 or more in federal funds during the fiscal year. They are meant to ensure that federal funds are spent in accordance with compliance requirements, and unfortunately, these requirements are typically different between programs.
Federal funding comes in many different forms, like grants, contracts, loans, insurance, direct appropriations, non-cash aid, indirect state, or local funding, and more. The diverse types of applicable funds combined with a sharp increase in federal funding programs mean that more organizations are undergoing a single audit for the first time. These first-time organizations may have trouble understanding the process in a normal year, let alone at the end of a pandemic.
There are three different layers of compliance within a single audit, which basically means there are more considerations, tests, and reporting requirements to meet. Generally, single audits must be performed annually, and documentation is paramount. A program fund is a high risk if it has never been audited before or within the past two audit periods or has had a material weakness identified.
With trillions of dollars in pandemic financial aid issued since March 2020, more organizations are subject to single audit requirements than before. It’s not just direct federal funding, either: many organizations may have accepted money from a state, but if funds originated from the federal government, then a single audit is required.
Single audits, which are already more complex engagements due to the varying reporting requirements, became more complicated than ever. Most notably, the Provider Relief Fund and Education Stabilization Fund are subject to single audits.
Each year, the Office of Management and Budget (OMB) usually issues updated guidance during the summer. Leaving auditors and program recipients with time to plan. Last year, OMB didn’t issue COVID-related guidance until November 2020. This caused a three-month delay to file single audits for the fiscal year ends through June 30, 2021.
Even after the November 2020 guidance, lingering questions about cost allowability and the Provider Relief Fund remained.
In mid-August, the Office of Management and Budget (OMB) released its 2021 Compliance Supplement, which provided more guidance on single audits for fiscal years beginning after June 30, 2020.
Among other changes, the new guidance focuses on the following areas.
Several changes to Part 3 of the November 2020 guidelines will either take effect immediately or for awards after November 12, 2020. These include updates for revised uniform guidance, two of which are now effective and a third that is effective for federal funding awards made after November 12, 2020. The new approach is different than before and harder to interpret because old and new requirements are identified in the same place in Parts 3.1 and 3.2. It will take extra time and a more thorough evaluation to reach accurate conclusions about transactions under Single Audit guidance.
Also in Part 3, procurement thresholds have been revised to account for federal agencies’ delay in adopting new Uniform Guidance. Practically speaking, this means that certain entities that adopted higher purchase thresholds after November 12, 2020, due to COVID-19, have a waiver to exclude the audit findings for the increased thresholds.
Finally, there are two new additions to reporting requirements under FFATA, including when FFATA must be tested. These were part of the 2020 Single Audit Addendum and now are officially part of Single Audit guidelines. Further, only special reports for key line items that were submitted on time are required to be tested under FFATA. If these line items are not quantifiable and could not be evaluated against program objectives, then they don’t have to be tested. Organizations with key line items in performance or special reports will need to consider how auditors may evaluate them according to these new FFATA requirements. It should also be noted that FFATA does not apply to the Coronavirus Relief Fund.
The Education Stabilization Fund, Coronavirus Relief Fund, and Provider Relief Fund were all identified as higher-risk programs. The 2021 Compliance Supplement clarified certain aspects of how expenses, lost revenue, program requirements, and updates for the American Rescue Plan Act should be treated.
Regarding the Education Stabilization Fund, some of these ARPA updates will be released in the later OMB guidance. In some cases, organizations will be subject to different guidance depending on the nature of the funding type. Single audit reporting requirements for the Provider Relief Fund are now clarified and specify the number of expenses and lost revenue that should be reported on the Schedule of Expenditures of Federal Awards (SEFA) and when they should be recorded.
Despite these revisions, there will be two more OMB updates later this fall. Those are expected to cover, among other areas, how three more funds fall into single audit guidelines. They are the Capital Projects Fund, Homeowner Assistance Fund, and Local Assistance and Tribal Consistency Fund. More programs could also be added. It’s important to remember that even with updated guidance, program recipients and auditors still need to take their time to evaluate all the requirements.
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The details of the 2021 OMB Compliance Supplement contain important information that Atlanta nonprofit organizations should carefully consider. It is almost certain that the reporting, testing, and compliance rules have been updated since last year. If you have questions about the information outlined above or need assistance with your Single Audit, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.