The CARES Act was enacted in response to the COVID-19 pandemic. The act was specifically designed to provide funding to hospitals and health care providers that are not federal entities. Then, on July 22, 2020, the Department of Health and Human Services changed the auditing rules for entities that received funding under the program. Now all nonfederal health care entities that received more than $750,000 in funding under the CARES Act may be subject to either (1) a “single audit” or (2) a financial audit of a particular program or programs. This puts a new burden on entities that received CARES Act funding.
The two types of audits are quite different:
- Program-specific audits are financial audits of one or more specific programs. Usually, they require only a statement of revenues, expenditures and changes in funds balance, including notes.
- In contrast, single audits cover the entire organization’s financial operations and are much more detailed than are regular independent audits. In addition to presenting fair and accurate financial statements, these audits need to show the organization has an adequate internal control structure and is in compliance with all relevant laws and regulations relating to the specific federal government funding program under which it received funding.
Prior to the HHS rule, only nonfederal government agencies and not-for-profit organizations were subject to the audit requirements under the Single Audit Rule.
While it is always advisable to get professional advice if you believe your organization may be audited, there are some general guidelines for companies to follow in preparation for an audit. Note that it is a good idea to implement the policies and procedures relating to these guidelines as soon as possible since it is always best to keep records and develop policies and procedures as though an audit is imminent.
Following these six guidelines will ensure you are prepared for an audit:
- Assign one person to oversee the company’s CARES Act funding and all activities related to it. Centralizing these duties ensures that all COVID-19 compliance rules and regulations are met and all required documentation is readily available.
- Be sure CARES Act money is used for mandated COVID-19-related expenses only.
- Keep the $750,000 threshold in mind; you may decide it is advantageous to stay beneath that limit.
- Note that the threshold amount includes all federal funds (with the exception of certain Medicare and Medicaid payments), whether they are received directly from federal agencies like the HHS or from state and local agencies.
- Retain all relevant records. Document all COVID-19-related expenses, including third-party expenses and even nonrelated expenses. Make sure all third-party orders and receipts reference COVID-19.
- Be sure the right internal controls are in place in all departments, especially the payroll and procurement departments. Any changes to company policies and procedures in these departments should be clearly documented.
As we have been doing with all coronavirus legislation and IRS and SBA guidance during these past several months, we will be sure to update you with any additional insight as soon as possible. Continue to check back here for the most up to date tax information and changes in response to coronavirus. If you have questions about this or related topics contact an MCB Advisor at 703-218-3600 or click here.
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