Category: Audit, Advisory and Assurance
The Coronavirus Aid, Relief and Economic Security (CARES) Act provided vital support to families and businesses during the pandemic. Health-care providers received funding from the Department of Health and Human Services (HHS) in the form of the Provider Relief Fund (PRF) and other COVID-19 distributions. The great news is that, as long as providers comply with the terms and conditions of the funding, the distributions do not have to be repaid to the government.
If you received a PRF distribution, you’re aware that there are reporting requirements. But did you know that you may also have to arrange for an independent audit for the use of these funds? If this is the first you’re hearing about it, you aren’t alone. It’s estimated that thousands of entities will undergo an audit like this for the first time because of this reporting requirement.
Who should Pay attention?
These audit requirements are common with non-profit entities, as they are often recipients of federal grants. With the PRF and some of the other COVID-19 distributions, the government has determined that for-profit entities are also subject to the audit requirements.
This doesn’t apply to everyone who received distributions; only those healthcare providers who expended $750,000 or more annually in federal awards. While the PRF is the largest of the COVID-19 health-care funds distributed from HHS, if you receive any other funds, you’ll want to make sure to take those into consideration.
A word of caution: If you don’t meet the $750,000 threshold you can still be audited by HHS or another governmental department, as per the conditions of the PRF. (For more on HHS’ terms and provisions, visit
You meet the $750,000 threshold requirement. What now?
Commercial entities that meet this requirement have two audit options.
• Option 1: Single audit. This is comprised of two main parts:
A company-wide financial statement audit.
A compliance audit. This consists of tests of internal controls, as well as certain aspects of compliance with the terms and conditions of the PRF.
• Option 2: Financial related audit of the HHS awards, performed under Government Auditing Standards. A few key points about this option:
The financial statement will likely be in the form of a Statement of Costs (much less comprehensive than a full financial statement).
As with Option 1, the auditor will look at internal controls and test compliance with the funding.
Within Option 1 is the program-specific audit. This type of audit is generally allowed when an entity expends federal awards under only one federal program.
Option 1 is the most comprehensive of the two. There are multiple layers of standards and guidance that an auditor will follow. Non-profit entities must select Option 1.
What can you do right now?
Stay informed. The timeline for Option 1 has been released. If your fiscal year ended on Dec. 31, 2020, the audit is generally due by Sept. 30, 2021. For Option 2, the timeline is not yet certain. Visit www.hhs.gov/coronavirus/cares-act-provider-relief-fund for updates.
Document. The crux of the financial part of the audit will center on the lost revenues and COVID- related expenses that you report to HHS. Make sure you have the records to support these amounts.
Review and document your internal control processes to ensure that they properly represent your operations.
Contact your CPA to begin planning; if they don’t perform such an audit, contact one who does.
Poor documentation and weak internal controls could mean a reporting of deficiencies and disallowed costs.
Employee Retention Credit
Finally, let’s discuss the Employee Retention Credit. The latest stimulus package not only included a new round of PPP funding, it also expanded use of what had been a very hard-to-use credit.
The Employee Retention Credit is a payroll tax credit and is very likely something that an ophthalmology practice can utilize because one of the requirements is that it is available to an employer that experienced a “full or partial suspension of operation of their trade or business because of a government order” during the period beginning March 27, 2020. When first created, employers were prohibited from taking the credit if they received PPP funding.
There are other requirements, but for many employers the period between March 27 and the initial funding of their PPP loan probably represents a great opportunity for taking advantage of this credit, which could amount to as much as $10,000 per employee for 2020. Slightly different rules apply for 2021, so be sure to check it out. OM
Additional contributions to this article made by James Dawes, MHA, COE, CMPE.
Sam Phillips, CPA, is an audit manager and Kathy Hargreaves, CPA, CFP, CPS, is a shareholder, both with Kerkering, Barberio & Co.
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