In a preview of her presentation at the July 13-14 PICPA Not-for-Profit & Government Accounting Conference, available exclusively via webcast, Diane Edelstein, partner with Maher Duessel in Pittsburgh, joins us to dissect goings-on in the world of single audits. She shares changes to uniform guidance, the status of the 2020 compliance supplement, and alterations made necessary due to the coronavirus outbreak.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

Podcast Transcript

At the July 13-14 PICPA Not-for-Profit & Government Accounting Conference, Diane Edelstein, a partner with Maher Duessel in Pittsburgh, will present an in-depth session on developments in the single audit world. She'll cover changes to uniform guidance, challenging compliance areas, and more. She joins us to offer a sneak peek at what is sure to be an informative session.

Are there going to be substantive changes to uniform guidance pertaining to single audits?

[Edelstein] There are going to be changes. It's hard to believe: this has been five years. Uniform guidance became effective December 26, 2014. We did the first round of audits with the December 2015 year-ends. The government tends to relook at things in five years, so they put out a draft of changes they wanted to make. That came out on January 22. Everyone had until March 23 to respond to these revised changes and the AICPA responded with a pretty lengthy letter of things that they were questioning about the changes.

We haven't heard anything since, with COVID-19 coming up. The reply was March 23, so we haven't heard more, but it will happen. So, no rush. We'll just sit back and wait, but things will change.

Can you give us a bit of an overview about the 2020 compliance supplement and what that'll look like?

[Edelstein] That's the interesting question. The Government Audit Quality Center of the AICPA has vetted drafts of 54 programs and looked at other areas of the compliance supplement. That draft was getting fairly close and it got yanked back because of COVID-19. We have not seen a compliance supplement yet. We're not sure what changes are coming to that draft. One of the things they're potentially discussing is putting out a compliance supplement in late June, but not a full supplement in the fact that it won't address all the COVID-19 issues. There's going to be new CFDAs and new programs with COVID-19, so it may get an addendum to it. The question is, when the first part comes out, do you have to wait for the addendum? Is the first part going to be enough? Or are they going to wait and put the whole package out together? Don't really know.

In the draft, there were some new CFDA numbers that have been added. There's been significant changes to Medicaid and Head Start and other programs. We know there's definitely changes, but then there's going to be that added-on layer from COVID-19. We just have to stay tuned and maybe I'll know more in July. We'll see.

You mentioned coronavirus/COVID-19 and the many complications that has brought along. Are PPP loans and other CARES Act funds subject to single audit?

[Edelstein] Some of it, we know; some of it, we don't know. The PPP loans do not go on the SEFA and therefore they are not subject to signal audit. I think the philosophy there is the bank is going to look at an application, a lot of detailed information there, it doesn't need to be looked at twice. But other programs are definitely going to go on the SEFA, especially education, especially colleges and universities, and some of them already have CSDA numbers issued out there. There's other programs, and there's still more money coming. They're just starting to get out some of the government aids. Is it going to have a CFDA number? Is it going to be on the SEFA? We just have to stay tuned.

Are there any other … obviously, as we just said, so many complications arise from this … but are there any other particular impacts that jump out to single audit related to COVID-19?

[Edelstein] Two things. One, is the SEFA complete? That goes back to the last question. Is it subject to a single audit? So, a not-for-profit or a government got this federal money and they're not really realizing it belongs on the SEFA. If the SEFA's not complete, then the audit is not accurate and you're going to have a bad audit. The other issue's going to be the client is responsible for having internal control in place and the auditor is responsible for auditing internal control. We don't give an opinion on internal control, but we'll report on internal control and we are required to test internal control.

I can't imagine any organization's internal control stayed exactly the same in April, May, and June as it did pre-COVID. Now auditors are going to have to test two different internal controls and there may be real weaknesses. You may end up with more segregation of duties issues in internal control because of COVID-19.

Sounds like there's a lot of challenging areas that are going to be coming down the pike here, but does anything jump out as the most challenging area for compliance or for audit in 2020?

[Edelstein] Even before we talk about COVID-19, the biggest challenge we were expecting for audit is procurement. Procurement had a lot of issues around it and procurement got delayed for three years. Starting in January 2018, everyone was required to follow the new procurement rules. Well, then there was confusion in a memorandum that went out that raised the micropurchase to 10,000. That memorandum was meant for the federal agencies, not for the non-federal entities, but the non-federal entities latched on, they raised the procurement levels. Actually, there's an appendix in the compliance supplement. It was in there last year, it'll be there this year, that talks about auditors don't write a finding for procurement if they change the threshold improperly, as long as they noted they did it based on this memorandum.

People were following this memorandum that shouldn't have been, but the plan is it's going to be official one of these days. It's going to make it into the FAR, but we don't know when.

Another challenging issue is going to be the auditing around memorandum 2017, the administrative relief, again to federal agencies and we did the podcast back in April about this memorandum. More flexibility in some of your expenses that will be allowable because of COVID-19, but we're going to have to know what those are. What are those graces that were granted and therefore do not become question costs? We do have that six months delay as part of that memorandum in the audit. If your June 30, 2019, audit didn't make it in, in late March, you got the extension, your December year-end, your June 30, 2020, year-end. So far, this six-month grace goes through June 30, 2020. Well, we may need it for June 30, 2020, because we don't have a compliance supplement. We've got a lot of issues.

Another issue is how is your audit going to be done? We're not back fully open yet. So can the audit be purely remote? Is it going to be on-site? Does the non-federal entity have enough space? Because, obviously at this point, you still need the social distances in our offices, so you can't cram three auditors into a small space as you did in the past. So can we be on-site or can you upload everything we need as auditors so that we can do it remote audit?

The last thing is major program determination is going to be affected for this round of audits and into the future because programs that you were considering low-risk may become high-risk because of COVID-19. Are we going to end up auditing more programs than we would have in a normal environment? That's just some of the challenges and we're going to see more as we move along.