Am I Subject To Single Audit? A look at how federal funds, including PRF, may trigger additional audit requirements
This blog post is written by CLA’s Trent Fast and provides a high-level look at single/program audit requirements for those who receive federal funds, including Provider Relief Funds.
Significant amounts of money have been distributed to the health care industry through various stimulus bills, such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Consolidated Appropriations Act of 2021 (CAA, 2021). While receipt of these awards provided much needed relief for health care providers, they also come with specific requirements for their use that will eventually need to be justified.
While those receiving Provider Relief Funds (PRF) will have specific PRF reporting requirements, an additional audit requirement comes from the Office of Management and Budget (OMB) in the form of an audit of Federal awards in accordance with the Uniform Guidance (UG), commonly referred to as a single audit. This type of audit is typically required for not-for-profit organizations and state and local governments that have expended $750,000 or more in Federal awards in a fiscal year. With certain CARES Act or CAA, 2021 programs, such as PRF, a for-profit entity may be required to receive a single audit, or something like a single audit, as well.
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What is a single audit?
If you have not received a single audit in the past this might seem intimidating, so let’s look at some of the main components of the audit process.
To have a single audit performed, an organization must also receive an audit of their financial statements under generally accepted auditing standards. If you do not usually receive a financial statement audit that will be another change, but today we’re focusing on what is included in a single audit.
While the financial statement audit focuses on year-end financial reporting, an audit performed under UG standards focuses on compliance with the terms and conditions of a Federal award. There are many types of federal award programs (grants or loans) that health care organizations will routinely receive, such as Housing and Urban Development and Health Resource & Services Administration awards, and that are already subject to single audit. With the CARES Act and CAA, 2021, many new COVID relief programs, such as Department of Health & Human Services (HHS) PRF program, will also be subject.
All of these programs have their own guidance for complying with related terms and conditions, which are then compiled in the OMB Compliance Supplement issued annually. The Compliance Supplement then provides detailed requirements and related testing procedures for all these programs.
The types of compliance requirements tested for a program might include the following:
- Verifying expenditures were made only for allowed activities and purposes
- Cash disbursements received from the award were treated and accounted for appropriately
- Patients and residents served met eligibility requirements to receive certain benefits
- Award funds were only expended during an allowed period
- Reporting requirements for progress of the program were followed
- Any number of additional terms and conditions specific to an award program
What will be required of my personnel for the audit?
Like a financial statement audit, a single audit will require documentation to be provided supporting the use of award program expenditures. For example, the auditor may select a sample of expenditures to test payroll or expense disbursements. Support for the disbursements selected might include approved invoices, check requisitions, wage and time cards, or cancelled checks in order to test both that an organization has appropriate internal controls over its expenditures and that the expenditures met the purpose requirements of the award program.
How is the audit concluded?
The result of a single audit includes the auditor issuing reports on an organization’s internal control over financial reporting and compliance, as well as a report on internal controls over compliance and compliance with the requirements of the Federal awards program receiving the audit. If the results of the audit identify weaknesses in internal controls over financial reporting or the award program, or identify instances of noncompliance, these are included as findings in the final report. In the event a finding is identified, management must provide a corrective action plan identifying how the findings will be corrected in the future. If a finding identified includes questioned costs that may not be allowable under the award program, the awarding agency may require repayment of the questioned amounts.
My organization is a for-profit entity. Does the single audit requirement apply?
One of the most significant programs under the CARES Act for health care organizations is the Provider Relief Fund. The HHS has released a considerable amount of guidance through frequently asked questions (FAQ) document and General and Targeted Distribution Post-Payment Notice of Reporting Requirements document. Guidance is provided regarding both the HHS reporting portal and potential single audits, including that for-profit entities are subject to these audits with respect to PRF.
The most important item to note with for-profit entities, according to HHS FAQs, is that the audit threshold triggers when “total awards received are $750,000 or more. However, not-for-profit or governmental entities trigger the audit threshold when “total Federal awards expended exceed $750,000 or more.”
As included in the FAQ document, a commercial entity (also referred to as a for-profit entity) that receives in excess of $750,000 is required to have an audit under the UG or an audit of the Federal award program under Generally Accepted Government Audit Standards (GAGAS). A GAGAS audit is somewhat different than a single audit, however, the main concept of testing compliance with the Federal award requirements is consistent in both audits.
How can we help?
The prospect of receiving a single audit may be intimidating. The changing landscape of reporting guidance for the PRF has created additional uncertainty, as this will impact final testing requirements for a single audit or program audit.
Fortunately, the process doesn’t need to be difficult. Not only has CLA been intricately involved with PRF since its origination, but CLA performs more single audits than any professional services firm in the country. We are available to assist you in navigating potential single audit requirements as well as performing your single or program audit.
Please contact us with any questions. We’re here to know you and help you.
Jennifer Boese is the Director of Health Care Policy at CLA. She is a highly successful public policy, legislative, advocacy and political affairs leader, including working in both the state and federal government as well as the private sector. She brings over 20 years of government relations and public policy knowledge with her to CLA. Well over half of her career has been spent dedicated to health care policy and the health care industry, affording her a deep understanding of the health care market and environment, health care organizations and health care stakeholders. Her role at CLA is to provide thought leadership, policy analysis and strategic insights to health care providers across the continuum related to the industry's ongoing transformation towards value. A key focus of that work is on market innovations and emerging payment models. Her goal is to help CLA clients navigate and thrive in an increasingly dynamic health care environment.
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