CARES Act Provider Relief Fund recipients may be subject to Single Audit requirements

Background: Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program and Health Care Enhancement Act (PPPCHE), a $175 billion Provider Relief Fund was established to support healthcare providers amidst COVID-19.  In April 2020, the U.S. Department of Health & Human Services (HHS) distributed $50 billion of this funding to Medicare providers in a Phase 1 general distribution.  HHS is currently accepting applications from Medicare, Medicaid, CHIP, and dental healthcare providers for a Phase 2 general distribution (application deadline has been extended through September 13, 2020).  Eligible providers can expect to receive up to 2% of their annual patient revenues in a Phase 2 general distribution of Provider Relief Funds.  HHS will continue distributing funds in various targeted and general distributions until all are distributed over the coming months.

On July 30, 2020,HHS updated the Provider Relief Fund FAQs on their website to address the question of whether or not Provider Relief Fund distributions count towards the Single Audit threshold.  These FAQ responses are repeated below in their entirety.

Are Provider Relief Fund payments fund payment to non-Federal entities (states, local governments, Indian tribes, institutions of higher education, and nonprofit organizations) subject to Single Audit? (Modified 7/30/2020)

Provider Relief Fund General and Targeted Distribution payments (CFDA 93.498) and Uninsured Testing and Treatment reimbursement payments (CFDA 93.461) to non-Federal entities are Federal awards and must be included in determining whether an audit in accordance with 45 CFR Part 75, Subpart F is required (i.e., annual total federal awards expended are $750,000 or more).

Audit reports must be submitted electronically to the Federal Audit Clearinghouse.

(Requirements for audit of payments to commercial organizations are discussed in a separate question.)

Are Provider Relief Fund payments to commercial (for-profit) organizations subject to Single Audit in conformance with the requirements under 45 CFR 75 Subpart F? (Modified 7/30/2020)

Commercial organizations that receive $750,000 or more in annual awards have two options under 45 CFR 75.216(d) and 75.501(i): 1) a financial related audit of the award or awards conducted in accordance with Government Auditing Standards; or 2) an audit in conformance with the requirements of 45 CFR 75 Subpart F.

Provider Relief Fund General and Targeted Distribution payments (CFDA 93.498) and Uninsured Testing and Treatment reimbursement payments (CFDA 93.461) must be included in determining whether an audit in accordance in accordance with 45 CFR Subpart F is required (i.e., annual total awards received are $750,000 or more).

Audit reports of commercial organizations must be submitted directly to the U.S. Department of Health and Human Services, Audit Resolution Division at AuditResolution@hhs.gov.

Who does this apply to?

• Non-federal healthcare entities who received a Provider Relief Fund distribution: state/local government, Indian tribe, institute of higher education, nonprofit organization, and commercial healthcare providers.
• Any non-federal healthcare provider who spends $750,000 or more of federal awards in their fiscal year, will be subject to a Single Audit. Provider Relief Funds received from HHS qualify as federal award funding and will count toward the $750,000 threshold for a Single Audit.

What is a Single Audit?

• The HHS website has a good definition:

Single Audit, previously known as the OMB Circular A-133 audit, is an organization-wide financial statement and federal awards’ audit of a non-federal entity that expends $750,000 or more in federal funds in one year. It is intended to provide assurance to the Federal Government that a non-federal entity has adequate internal controls in place and is generally in compliance with program requirements.

• Single Audits are administered by independent CPA firms. They typically include a financial statement audit plus additional procedures to ensure the organization has adequate internal controls and is in compliance with federal funding requirements specific to each award.  However, a Single Audit may be limited to just the federal programs that qualify for testing under Single Audit guidance if the organization only has one federal program and the granting agency approves a program specific audit, and, thus, the financial statement audit may be excluded.
• Professional fees paid to CPA firms for Single Audits vary widely in cost. These fees will depend on the size and complexity of the organization, the condition of the accounting records, and whether an annual financial statement audit is already performed.

What is a federal award?

• Federal grants, cost reimbursement contracts, cooperative agreements, direct appropriations, loans and loan guarantees, donated property, surplus property, food commodities, interest subsidies, and insurance. Recipients of federal awards are subject to Single Audits while vendors or contractors are generally not. Determining how your organization will be classified is important prior to accepting an award.

Are Medicare and Medicaid reimbursements federal awards that count towards the $750,000 threshold?

• No. Medicare and Medicaid reimbursements are considered exchange transactions in which the federal government is paying for a specific service.  Medicare advances received in 2020 will be repaid through future services provided. This is unlike the Provider Relief Funds which are not received as payment for a specific service.

Do the Paycheck Protection Program (PPP) loan, the Economic Injury Disaster Loan (EIDL), and the Main Street Lending program loans count towards the $750,000 threshold?

• PPP: No. The American Institute of Certified Public Accountants (AICPA) has had discussions with Small Business Administration (SBA) staff that have confirmed PPP loan proceeds will not be subject to Single Audit.
• EIDL: It appears so. The AICPA has confirmed with SBA staff that “loans made to NFPs under the EIDL program are considered a direct loan program disbursed from SBA to loan recipients. Therefore, these loans are considered federal financial assistance and are subject to the Uniform Guidance Single Audit requirements.”
• Main Street Lending program: At this point, we have not seen anything to indicate that the Main Street Lending program is considered a federal award.

If an entity receives more than $750,000 of Provider Relief Fund money (and other federal awards) but expends less than $750,000 in a single year, is a Single Audit required?

• No.
• Providers have until July 31, 2021 to fully expend their Provider Relief Fund money. This means a calendar year provider could potentially not be subject to a Single Audit if funds were expended during both 2020 and 2021 and less than $750,000 was expended in either year.
• A provider’s method of accounting, its increased expenses due to COVID-19, and its lost revenues due to COVID-19 will determine how much Provider Relief Fund money must be reported as expended in either year.