The federal government responded to this crisis by providing financial assistance in the form of “federal awards,” which are subject to a Single Audit. Federal awards include direct awards from a federal agency and federal funds passed through to an entity from a state or local government or from another nonprofit.
Nonprofits and state and local governments are subject to a federal Single Audit if they expend $750,000 or more of federal financial assistance in their fiscal year. This includes COVID-19 assistance either in grants or loans and all their other non-COVID-19 federal financial assistance expended in their fiscal year. Loans obtained under the Paycheck Protection Program (PPP) are not subject to a Single Audit.
OMB Compliance Supplement
The guidance and requirements that auditors must follow to perform Single Audits are included in the U.S. Office of Management and Budget’s (OMB) Compliance Supplement. Although the Supplement is written for auditors, it is also a very good resource for organizations that received and expended federal awards. The Supplement has helpful information to assist recipients of federal grants with the regulations and requirements of the federal program.
The Supplement is an annual document, and the latest one was issued in August 2020 without coverage of the COVID-19 federal awards. An addendum was issued in December 2020 relating to COVID-19 funding.
Federal awards have a specific Catalog of Federal Domestic Assistance (CFDA) number. CFDA numbers are the system for identifying and sorting the more than 2,000 federal programs. Each CFDA number contains five digits in the following format: ##.### (e.g., 10.001). The first two digits signify the federal agency. Auditors must test compliance with the federal rules and regulations based upon the CFDA number of the federal program. Not all federal programs are included in the Supplement, but many of the largest and more common federal programs are. The Supplement includes specific audit programs for numerous federal programs that auditors must use to perform their Single Audit tests. It details the audit objectives and suggested audit procedures.
The Supplement consists of seven parts and nine appendices. The seven parts are as follows:
- Background, Purpose and Applicability. Part 1 contains general Single Audit information.
- Matrix of Compliance Requirements. Part 2 identifies which of the 12 types of compliance requirements are subject to audit for the federal programs included in this supplement.
- Compliance Requirements. Part 3 includes the generic program objectives and audit procedures pertaining to the 12 types of compliance requirements.
- Agency Program Requirements. Part 4 contains the specific program objectives and procedures by federal agency and CFDA number. When any of these five types of compliance requirements are applicable to a program (activities allowed or unallowed; eligibility; matching, level of effort, earmarking; reporting; and special tests and provisions), this part will always provide information specific to the program. The other seven types of requirements are not specific to a program and therefore are not included again in Part 4 as they are in Part 3.
- Clusters of Programs. Part 5 identifies those programs that are to be considered clusters of federal programs.
- Internal Control. Part 6 describes characteristics of internal control related to each of the five components of internal control.
- Guidance for Auditing Programs Not Included in This Compliance Supplement. Part 7 states that, for those programs not covered in the Supplement, the auditor must consider the applicability of all 12 types of compliance requirements described in Part 3.
The Single Audit compliance requirements are grouped into the following 12 areas:
Activities Allowed or Unallowed.
These are the activities that the federal program has determined the funds can be used for or cannot be used for. Since this is very specific to each federal program, it is therefore included in the audit program in Part 4.
This describes the types of costs that can be charged to a federal program. Generally, only necessary and reasonable costs qualify. There are, however, certain costs that are not allowed to be charged to a federal program, such as fines, penalties, bad debt, tobacco, and alcohol. Because this requirement applies to all federal programs, it is included once in Part 3. Part 3B of the Supplement has an extensive list of selected items of cost and whether they are unallowable, allowable or allowable with restrictions.
Most federal programs are either funded on a reimbursement basis, advances, or a combination of both. For advances, an organization must minimize the time that elapses between the receipt of the funds and the disbursements. For reimbursements, an organization must pay for the program costs with their own funds prior to requesting reimbursement. Because this requirement applies to all federal programs, it is included once in Part 3. The requirements are detailed in Part 3C.
This relates to beneficiary eligibility, not organizational eligibility. The specific requirements for eligibility are unique to each federal program. The eligibility requirements are detailed in Part 4.
Equipment and Real Property Management.
This requirement only applies if equipment or real property is purchased with federal grant funds of over $5,000 or more, or over the organization’s capitalization policy. Because this requirement is for all federal programs, it is included once in Part 3. The requirements are detailed in Part 3F.
Matching, Level of Effort, Ear-marking.
The specific requirements for these are unique to each federal program. The specific requirements for each federal program are listed in Part 4.
Period of Performance.
Federal grants may specify a time period during which the organization may use the federal funds. If a funding period is specified, the organization may charge to the award-only costs resulting from obligations incurred during the funding period and any pre-awards authorized by the federal awarding agency. The requirements can be found in Part 3H.
Procurement, Suspension, and Debarment.
Organizations must use their own documented procurement procedures, provided that the procurements conform to applicable federal statutes and the procurement requirements identified in Uniform Guidance as set out in Title 2 CFR sections 200.318–200.326.
Organizations are prohibited from contracting with, or making subawards under covered transactions to, parties that are suspended or debarred. “Covered transactions” includes contracts awarded under a grant or cooperative agreement that are expected to equal or exceed $25,000. All non-procurement transactions entered into by a pass-through entity, irrespective of award amount, are considered covered transactions. Because this requirement is for all federal programs, it is included once in Part 3. Part 3I has the full details of the requirements.
Program income is the gross income earned by an organization that is directly generated by a supported activity or earned as a result of a federal award. It generally represents fees charged to participants in the federal program. It can also be interest earned on loans made with federal award funds. Program income does not include interest earned on advances of federal funds or the proceeds from the sale of equipment or real property acquired with federal funds. Because this requirement is for all federal programs, it is included once in Part 3. Part 3J has the full details.
This requirement relates to the reporting required to the federal agency or the pass-through agency. It includes financial reporting (requests for advances or reimbursements), performance, and special reporting. The specific requirements for reporting are unique to each federal program. The reporting requirements for each federal program are listed in Part 4.
This requirement is applicable if an organization passes the federal funds through to another organization that will be running the federal program on their behalf. The organization that passes through the funds must identify the award and applicable requirements to the other entity, evaluate the risk of their noncompliance, and monitor their activities. Because this requirement is for all federal programs, it is included once in Part 3. Part 3M has the full details.
Special Tests and Provisions.
The specific requirements for Special Tests and Provisions are unique to each federal program. The specific requirements for each federal program are listed in Part 4.
Compliance Supplement Addendum
The Compliance Supplement Addendum was issued in December 2020 and must be used in conjunction with the 2020 Compliance Supplement. It is effective for all Single Audits for organizations that have fiscal year-ends ending on June 30, 2020, and thereafter.
The COVID-19 awards are funded under the following acts:
- Coronavirus Aid, Relief and Economic Security Act (CARES)
- Coronavirus Preparedness and Response Supplemental Appropriations Act
- Families First Coronavirus Response Act
- Paycheck Protection Program (PPP) and Health Care Enhancement Act (PPP loans are not subject to a Single Audit).
A full list of the federal COVID-19 awards, categorized by whether they are subject to a Single Audit and listed in the Addendum, appears in the Sidebar.
Additional COVID-19 funding can also be added to existing federal awards by a pass-through entity such as a state or local government.
The Addendum is structured the same as the Supplement and needs to be used in conjunction with it. The Part 2 matrix includes the 12 compliance requirements subject to audit for each of the COVID-19 programs included. Part 4 has the audit programs for each of the COVID-19 programs. Auditors and auditees should start with Part 2, find their program to determine which of the 12 requirements is subject to audit and then use Part 4 for the specific requirement and Part 3 for the generic requirements.
Reporting Compliance Requirement.
If the compliance requirement “Reporting” is subject to audit, then an entity must use the reporting requirements in both the Supplement and the Addendum. The Addendum has an additional reporting requirement related to the Federal Funding Accountability and Transparency Act (FFATA). This Act requires direct recipients of federal awards who make subawards of $25,000 or more to register in the Federal Funding Accountability and Transparency Act Subaward Reporting System (FSRS) and report subaward data through FSRS. Information input to FSRS is available at USASpending.gov (https://www.usaspending.gov/search).
Waivers and Changes.
The Addendum includes information regarding U.S. Department of Agriculture (USDA) programs impacted by COVID-19 waivers. Because of the exceptional circumstances of this public health emergency, the USDA granted waivers for several of their programs to ease operations at the state and local levels and minimize the potential exposure to COVID-19 (see https://www.fns.usda.gov/coronavirus).
The Addendum also includes U.S. Department of Education (DOE) waivers and changes to the 2020 supplement for the Student Financial Aid cluster (see https://fsaconferences.ed.gov/2020buffer.html). The DOE also developed a comprehensive website for COVID-19 issues that may affect audits of the Student Financial Aid cluster which can be found at https://www.ed.gov/coronavirus?src=feature.
Provider Relief Fund.
Included in Part 4 of the Addendum is the audit program for the Provider Relief Fund (PRF) program 93.498. The Addendum states that for fiscal years ending on or before December 30, 2020, organizations should not include the PRF expenditures on their Schedule of Expenditures of Federal Awards (SEFA) and therefore they should not be included for purposes of determining the threshold for a single audit or determining the Type A/B program threshold for major program determination. Starting with an entity’s fiscal year ending on or after December 31, 2020, the PRF expenditures must be included on the entity’s SEFA and are subject to a single audit.
Donated Personal Protective Equipment.
Because donated personal protective equipment (PPE) was mostly provided without any compliance reporting requirements or assistance listing (CFDA numbers), nonfederal entities that received donated PPE should not include the value received on their SEFA and therefore should not include it for purposes of determining the threshold for a Single Audit or determining the Type A/B program threshold for major program determination. The nonfederal entities that received donated PPE should provide the fair market value of the PPE at the time of receipt as a stand-alone footnote accompanying their SEFA. Because donated PPE has no bearing on the Single Audit, the donated PPE footnote may be marked “unaudited.”
Single Audit Due Dates.
Normally, single audits are due nine months after an organization’s fiscal year-end or 30 days after the auditor’s report is issued, whichever comes first. Due to the late issuance of audit guidance for the COVID-19 programs, the Single Audit due dates have been extended by three months beyond the normal due dates if the entity had expenditures of COVID-19 funding. The extension is for original due dates between October 1, 2020, and June 31, 2021. For example, a single audit for an organization with a fiscal year-end of June 30, 2020, would normally be due on March 31, 2021, but is now due by June 20, 2021. It is worth noting that organizations that did not receive any COVID-19 funding that is subject to a Single Audit cannot take advantage of this extension.
The Office of Management and Budget (OMB) issued OMB Memo M-21-20, which instructs federal agencies to allow for a six-month extension for all Single Audits that have not filed been filed with the Federal Audit Clearinghouse as of March 19, 2021:
- Entities that have a fiscal year end of June 30, 2020, their Single Audits were due March 31, 2021 and now can be issued until September 30, 2021 without being considered to be late
- Entities that have a fiscal year end of December 31, 2020, their Single Audits were due September 30, 2021 and now can be issued until March 31, 2022 without being considered to be late
- Entities that have a fiscal year end of June 30, 2021, their Single Audits were due March 31, 2022 and now can be issued until September 30, 2022 without being considered to be late
These extensions are for all entities who have Single Audits, regardless if they have received COVID-19 funding.
Proper Presentation of COVID-19 Funding on the SEFA and the Data Collection Form
Expenditures of COVID-19 funding on an organization’s SEFA must specifically indicate “COVID-19” in the name of the federal program, such as in the following:
|“COVID-19—Coronavirus Relief Fund”||21.019||$x,xxx,xxx|
For COVID-19 funding that was added to an existing federal program, such as Temporary Assistance to Needy Families (TANF), the COVID-19 funding should be on its own line as follows:
|COVID-19—Temporary Assistance for Needy Families||93.558||$x,xxx,xxx|
|Temporary Assistance for Needy Families||93.558||$x,xxx,xxx|
|Total—Temporary Assistance for Needy Families||93.558||$x,xxx,xxx|
On the Data Collection Form, COVID-19 expenditures need to be on a separate row by CFDA number with “COVID-19” included in the additional award identification column.
Crucial for Auditors and Recipients
The Compliance Supplement and Addendum are important documents for both auditors and organizations that receive federal funding. The Supplement must be utilized by auditors to perform their single audits along with the Addendum for COVID-19 funded programs. Recipients of federally funded programs should also utilize the Supplement and Addendum to understand and comply with those requirements.