On July 27, 2021, the Government Audit Quality Center of the AICPA announced that the initial 2021 compliance supplement relative to federal awards is expected to be released in August 2021. This should resolve much of the ambiguity around major program determination and testing requirements for this year. The key take-away points are as follows:
- If you have a Higher Education Emergency Relief Fund (HEERF), or other COVID-19 related funding, over $750,000 reported on your June 30, 2021 Schedule of Expenditures of Federal Awards (SEFA), that program will be required to be audited as a major program this year.
- This is in spite of the program being audited in the prior year, even if there were no findings in that program.
- HEERF funds will need to be isolated on the SEFA by HEERF I, II, and III.
- We are guiding our clients to have a roll-forward of those funding elements in the notes to the SEFA.
- If you have Provider Relief Funds (PRF), which are common in human services entities, only the Period 1 funding will be included in the SEFA for fiscal year 2021. Period 2 and 3 funding will be included in the SEFA for fiscal year 2022, even though that funding was received during fiscal year 2021.
- Therefore, only if Period 1 funding exceeds $750,000 for fiscal 2021, will it be tested as a major program this year.
- Given the likely high dollars of Period 2 and 3 funding, the PRF program will be required to be tested as a major program in fiscal year 2022.
- This will create a conflict between generally accepted accounting principles (GAAP) revenue recognition and presentation on the SEFA, as directed by the Department of Health and Human Services (HHS).
- This is being done so tracking systems by HHS can trace back funds, ensure their proper audit and the like.
- We strongly stress including a crosswalk in the notes to the SEFA for amounts in the audited financial statements to the amounts in the SEFA so there is clarity given this difference.
- Notwithstanding Period 2 and 3 PRF funding not being on the SEFA for fiscal year 2021, entities will be recording revenue associated with these funds in their fiscal year 2021 GAAP financial statements.
- Entities will need to be able to provide auditors support for revenue recognition in 2021.
- Entities must isolate and designate COVID-19 funding on the SEFA.
- When COVID-19 funds are added to existing program funding, the portion of COVID-19 and non-COVID-19 funding must be reported separately, along with a total for the entire program’s funding, in the SEFA.
There are a number of other nuances expected in the new compliance supplement. We advise recipients to carefully review these requirements with their auditors to ensure consideration of those elements, as well as the above, as there is likely going to be important follow-up and monitoring that follows this major awarding cycle. Entities will likely incur incremental costs of their outside audits associated with the requirements of various funding flows resulting from COVID-19. Please contact us for more information.
Michelle Sylvia Spriggs is a Managing Director in the Not-For-Profit & Education Practice. She can be reached at 774.206.8336 or firstname.lastname@example.org.
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