In response to the unprecedented challenges posed by the COVID-19 pandemic, the Office of Management and Budget (OMB) took a significant step by issuing the Compliance Supplement Addendum in December 2020. This Addendum serves as a crucial companion to the August 2020 Compliance Supplement and aims to provide guidance specifically tailored to COVID-19 programs. It is paramount for auditors performing single audits to integrate this Addendum into their procedures to ensure compliance with new funding requirements. This article breaks down the key aspects of the Addendum, shedding light on compliance requirements, audit procedures, and noteworthy changes that financial professionals need to be aware of.
Unveiling the Compliance Supplement Addendum
The core purpose of the Compliance Supplement Addendum is to address the intricate web of compliance requirements stemming from COVID-19 funding. To navigate this landscape effectively, auditors must adopt a nuanced approach, leveraging the Addendum in tandem with the 2020 Compliance Supplement. Let's delve into the significant aspects outlined in the Addendum:
1. Matrix of Compliance Requirements
A foundational element of the Addendum is a comprehensive matrix of compliance requirements. This matrix serves as a guide, delineating what falls under the ambit of audit scrutiny for both new programs and existing programs incorporated into the Addendum. Crucially, the auditor plays a pivotal role in determining whether a specific requirement is direct and material to the program. For existing programs not covered in the Addendum but impacted by COVID-19, additional guidance can be found in Appendix VII of the 2020 Compliance Supplement.
2. Provider Relief Fund (PRF) Expenditures
A notable inclusion in the Addendum pertains to Provider Relief Fund (PRF) expenditures. It delineates that PRF expenditures and lost revenue should not be included in the Schedule of Expenditures and Federal Awards (SEFA) until the year-ends on or after December 31, 2020. This temporal distinction underscores the need for auditors to align their assessment of PRF-related financials with this revised timeline.
3. Valuation of Donated Personal Protective Equipment (PPE)
The Addendum introduces clarity on the treatment of donated personal protective equipment (PPE). According to the guidance, the fair market value of donated PPE should be incorporated into the SEFA at the time of receipt. Importantly, this valuation should be presented in a stand-alone footnote, clearly marked as "unaudited." Auditors, however, should exercise caution and refrain from including this valuation when determining single audit and major program thresholds.
4. Three-Month Audit Submission Extension
Recognizing the challenges posed by the late issuance of the guidance, the OMB has extended a helping hand in the form of a three-month audit submission extension. This extension is applicable to single audits of 2020 year-ends through September 30, 2020, provided the grant recipients received some form of COVID-19 funding. For instance, a single audit with a June 30, 2020 year-end, which would normally be due on March 21, 2021, is now extended to June 30, 2021. Notably, this extension does not apply to December 31, 2020 year-ends. While pre-approval is not mandated for eligible recipients or subrecipients, maintaining adequate documentation substantiating the reasons for delayed filings is imperative.
Implications for Financial Professionals
Understanding the nuanced changes introduced by the Compliance Supplement Addendum is imperative for financial professionals engaged in single audits. The heightened scrutiny and evolving compliance landscape necessitate a proactive approach. Here are some key takeaways:
1. Proactive Integration
Auditors must seamlessly integrate the Addendum into their audit procedures, considering it an indispensable tool for navigating the intricacies of COVID-19-related funding compliance. A proactive stance in aligning audit processes with the guidance ensures thorough and accurate assessments.
2. Temporal Considerations
The temporal nuances introduced, such as the delayed inclusion of PRF expenditures in the SEFA and the valuation of donated PPE, underscore the importance of temporal considerations in the audit process. Financial professionals must recalibrate their timelines and reporting practices accordingly.
3. Documentation and Compliance
Given the extension granted for certain audits, financial professionals need to meticulously document the reasons for any delayed submissions. Adequate documentation serves not only as a compliance requirement but also as a valuable resource for internal record-keeping and future reference.
4. Communication and Collaboration
Effective communication between auditors and their clients is paramount. Financial professionals should engage in transparent communication regarding the implications of the Addendum, ensuring that clients are informed about the changes and potential adjustments toIn navigating the amended guidance for single audits, financial professionals play a pivotal role in upholding the integrity and compliance of financial reporting. The OMB's Compliance Supplement Addendum is not just a set of rules but a roadmap to navigate the evolving terrain of COVID-19-related funding. As the financial landscape continues to adapt, staying informed, proactive, and communicative will be the pillars of success for financial professionals engaged in single audits. This article serves as a compass, guiding you through the intricate details of the Addendum and providing insights to empower your audit endeavors. Remember, this content is for informational purposes only, and for tailored advice, consulting a tax advisor is recommended.