Dec 24, 2020

Health Care COVID Relief Reporting: Clouds Beginning to Lift

Brandon HarlanTasha AnterockBy Brandon Harlan, CPA, and Tasha Anterock, CPA

When the World Health Organization labeled the coronavirus outbreak a pandemic on March 11, 2020, it created uncertainty and confusion relative to how the disease would impact each of us, our families, our communities, and our businesses. Though the government had a quick financial response, there were many twists and turns in the guidance relative to the utilization of, accounting for, and reporting of such government funding for businesses.

In the health care sphere, the most notable funding received included the Coronavirus Aid, Relief, and Economic Security (CARES) Act Provider Relief Fund and the Pennsylvania Act 24 Coronavirus Relief Funds (CRF). The Provider Relief Fund, provided by the U.S. Department of Health and Human Services (HHS), established $175 billion in relief funds to hospitals and other health care providers on the front lines of the COVID-19 response. Provider Relief Fund distributions began April 10, 2020, with an initial $30 billion general distribution, and continued with a variety of general and targeted distributions scheduled to continue into calendar year 2021 with nursing home infection control distributions. Pennsylvania CFR, established through Pennsylvania Act 24 of July 2020 and administered by the Pennsylvania Department of Human Services (DHS), allocates millions of dollars for Pennsylvania businesses, including nearly all types of health care providers.

Stethoscope on financial documents and keyboardWith the receipt and expenditure of these COVID-19-related funds, many nonprofit providers are finding themselves subject to a single audit in accordance with the Office of Management and Budget (OMB) Uniform Guidance (UG) since the UG requirements apply to these funds. If nonprofit providers expend $750,000 or more of federal awards, a single audit is required. Since many providers had never before expended $750,000 or more of federal awards or been subject to a UG single audit, this added to the uncertainty. Looking for clarity, providers awaited the issuance of the 2020 OMB Compliance Supplement. Although issued on Aug. 18, 2020, the supplement contained primarily what was developed prior to COVID-19, with the understanding that an addendum would be released in the fall of 2020 to address federal COVID-19programs.

As the fall of 2020 was coming to a close, the awaited addendum to the Compliance Supplement was issued on Dec. 22, 2020. Though detailed and specific instructions for testing of COVID-19 funding may not have been satisfied, at least final guidance is available with some specifics providing a better understanding of the parameters within which to proceed.

Based upon the addendum, the most important item to note as it relates to the Provider Relief Fund is the timing of the recognition of the funds on a provider’s schedule of expenditures of federal awards (SEFA). The addendum notes that Provider Relief Fund expenditures and lost revenue are not to be included on SEFAs until Dec. 31, 2020, and thereafter. Therefore, these amounts for noncalendar year-end providers in 2020 will roll forward to the 2021 SEFA and be subject to single audit at that time. This may mean that providers who anticipated having a single audit performed in 2020 will not be required to have one until 2021. Also, due to the timing of recognition of Provider Relief Funds on the SEFA, it is expected and accepted that the SEFA will not match the revenue recognized in the financial statements.

The UG compliance requirements that are considered direct and material to the Provider Relief Fund program and required to be tested are activities allowed or unallowed, allowable costs/cost principles, and reporting. The allowable costs and cost principles section in the addendum includes certain provisions of terms and conditions when discussing allowability and also refers auditors to the HHS website for review of the Provider Relief Fund general information, terms and conditions, and frequently asked questions (FAQs).

Special reporting requirements for recipient reporting to HHS is also applicable for audits of fiscal years ending on or after Dec. 31, 2020, as described in the General and Targeted Distribution Post-Payment Notice of Reporting Requirements (Reporting Requirements) issued Nov. 2, 2020. Please note the addendum refers to the Sept. 19, 2020, Reporting Requirements, but this document was updated on Oct. 22, 2020, and the final data elements were dated Nov. 2, 2020. By Feb. 1, 2021, a notice will be placed on OMB’s Office of Federal Financial Management website providing key line items and other information from the report that are subject to audit. Auditors will be required to test this special reporting requirement for Dec. 31, 2020, year-ends even though reporting is not required until Feb. 15, 2021.

Guidance for the Act 24 CRF is also provided in the addendum. As Pennsylvania Act 24 funds fall under this federal program, Pennsylvania recipients will need to ensure they also are accounting for these funds properly on the SEFA. If a single audit is required, these funds will need to be included on the SEFA in the period expended as there is no deferral of recognition like there is for federal Provider Relief Funds. In other words, fiscal year-end providers expending $750,000 in CRF funding would be subject to a UG audit prior to the Dec.31, 2020, year-end.

The UG compliance requirements that are considered direct and material to the CRF program and required to be tested include activities allowed or unallowed, allowable costs/cost principles, period of performance, reporting, and subrecipient monitoring. The activities allowed and allowable costs sections refer auditors to the Treasury Department’s CRF guidance and FAQs. It is also important to note that the UG cost principles do not apply to the CRF, and auditors should use Treasury’s guidance and FAQs as the criteria when testing the allowability of costs requirements.

Other notable items within the addendum include a three-month extension for recipients and subrecipients that received COVID-19 funding with original due dates from Oct. 1, 2020, through June 30, 2021. However, if no COVID-19 funding was received, an extension is not provided. Additionally, the addendum notes that nonfederal entities that received donated personal protective equipment (PPE) should include the fair market value of the PPE at time of receipt in a stand-alone footnote to the SEFA that can be marked “unaudited.” However, this donated PPE should not be included on the SEFA and counted for purposes of determining the threshold for a single audit.

Though we recognize some uncertainty will drift into 2021 -- when and how will a vaccine be distributed and is another round of PPP or other government grants coming -- it seems that the accounting and reporting requirements surrounding government funding has become clearer, which is hopefully a foreshadowing of bluer skies in 2021.

Brandon Harlan is a partner with Arnett Carbis Toothman LLP’s health care services team and has been a member of the firm for more than 14 years. He can be reached at brandon.harlan@actcpas.com.

Tasha Anterock is a senior manager with Arnett Carbis Toothman LLP and has been with the firm for more than 18 years. She can be reached at tasha.anterock@actcpas.com.

Sign up for weekly professional and technical updates from PICPA's blogs, podcasts, and discussion board topics by completing this form.  

Leave a comment

Follow @PaCPAs on Twitter
Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.