On March 19, the Office of Management and Budget released Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus Due to Loss of Operations. This memorandum is set to have a major impact on how single audits are performed in the near term. To discuss this guidance, Maher Duessel’s Diane Edelstein addresses the six-month extension to the single audit due date, the amount of documentation needed to explain the delayed filing, and additional single audit matters that will likely require guidance in the near future.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor

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Podcast Transcript

With all the accounting updates and guidance coming out due to coronavirus, it can be difficult to keep up. But on March 19th, the Office of Management and Budget released a memorandum on administrative relief for recipients and applicants of federal financial assistance. Today we are talking to Diane Edelstein of Maher Duessel in Pittsburgh about what the guidance means for the world of single audits.

On March 19th, the U.S. Office of Management and Budget released memorandum M-20-17, and that's titled Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus Due to Loss of Operations. Can you give us some background as to their thinking in releasing the guidance and what are some of the highlights?

[Edelstein] The rationale behind this is obviously the unknown of what's coming. So trying to say, how am I going to function? What am I going to do? One of the secrets of this memorandum, which I've learned the lesson in the past, is it is to the heads and executive departments and agencies. It is not to the people running the programs.

If you go through and read this, it's saying the federal agency may, they may, they can, they may. So, this is not an automatic blanket for this stuff. The federal agency can give flexibility on registration, flexibility on deadlines, waivers of the notices of funding opportunities, can give extensions.

But this is not automatic. So, as a program provider who's getting the money, you have to go back to your agency and say, can I do this? Will you allow me to do this? And so it's very important to know that this went to the federal agencies from the OMB, which is good because the OMB then gave flexibility to the federal agencies.

There's a lot of times federal agencies would want to do something and they can't because the OMB is stopping them. The OMB said these are unique times. We are giving you power, federal agencies. We're not giving it directly to the program recipients.

How will the six-month extension on single audits that's contained here, how will it affect the CPA community and affected organizations? What are the ways and how will that take place?

[Edelstein] That's actually the only thing that you don't have to have federal agency approval for. No further action is needed by the awarding agencies or by the recipients. That one piece is an automatic six-month extension.

This came out on March 19th. We had a series of single audits that were due on March 31st. So, anybody who had a June 30th, 2019, year-end, their audits were due on March 31st and it is surprising how many go in just like individual tax time go in at the last minute.

So, now you're working remotely. Now you don't have your team together. The last of the audit evidence you need, the organization is not working and can't get it to you, so very big deal for those June 30ths that had not made it in yet. June 30th of 2019 were due March 31st, six-month extension.

We've also got the six-month extension on the December year-ends, which we were just getting started on auditing these December year-ends. When are we going to be back in auditing? Yes, we're doing some remote auditing, usually not as efficient and depends on the client. The client has to be able to get into the various stuff, whether it's remotely or into their office to send it.

And honestly, let's admit it, audits are important, but they're not life and death. We've got a lot going on now. So, the six-month and then this will roll through the June 30th, 2019, year-ends. I think that is critical because we're not sure what federal dollars extra these clients are going to be collecting through their June 30th year-ends. If they're June 30th and then December year-ends, there'll be a little different story.

So, if you were a June 30^th, 2019, year-end and not your single audit in, you've got the extension. December year-ends, there's a few March year-ends, that's pretty rare. Then June 30th of 2020, that's where this stops. June 30th of 2020 get a six-month extension. Now beyond the nine months, you get an extra six months. Automatic, don't have to ask for it. You do need to document.

The guidance says that auditors should remind clients of the requirement that they should maintain documentation on file that includes the reasons for the delayed filing. How extensive does that sort of documentation have to be at a time when the reason for the extension might be assumed or does that not really affect anything?

[Edelstein] We always need to document. Documentation is important. How extensive? No, very simple. Delayed due to coronavirus factors, and you might want to add in your documentation, is it more on the auditor's side or your side? You're not in, you're not available to work with the auditors, or the auditors only can work with so many clients at a time. Maybe the auditor is not available at the moment.

But you need to document, and I always like to say if you think it, ink it. I mean, we don't use pen and paper as much as we used to, but if I thought about why I have an extension, why wouldn't I write it down? You may not be the person around talking to the auditor six months, nine months from now. Documenting anything is critical. Everything should be documented and it can be one sentence. That counts.

There's some other pinpointed, specific guidance in the memorandum. What does it say about the allowability of payroll costs when recipient operations have been affected by coronavirus?

[Edelstein] Two key points when it comes to the allowability of payroll. One is again it says awarding agencies may allow, so it's not an automatic.

And the other key point is, you as an organization have to treat everyone the same. Even if the agency says you're allowed to charge payroll to this program, even though the program's not truly functioning because we understand you can't function.

If you would lay off your non-federal people and keep your federal people because you're going to charge federal program, that's not allowed. Consistency is critical, consistent between federal grants and non-federal grants. You cannot treat federal grants differently and pile them up with costs.

There's also another part that addresses the allowability of costs not normally charged to awards. What's the guidance there?

[Edelstein] Some of this stuff we don't have a lot of guidance, it's very simple what they're saying. Again, awarding agencies may allow recipients to charge the full costs of, and the things they're looking at is where you've already started. You're canceling an event, you've got deposits, and maybe you're not going to get that money back. You're going to have some costs with canceling an event. You're going to have some extra travel to take care of something that's partially enacted or has changed because of the coronavirus and other activities.

They're pretty much saying, if you have these set costs, the agency may allow, and I don't know why the agency wouldn't allow. If you have legitimate costs that you cannot stop from having and you need to charge it somewhere. Yes, I didn't have my event, but I had some set costs prepping for the event. I printed up flyers, I did programs, I've got things I can't get my money back, might be able to get my deposit back on space, but you don't know.

Now they do caveat and say, well you may not get extra funding when you go around and try and finally do what you were planning to do. There might not be extra money after we covered these reasonable costs that you could not avoid.

Let me first say that I think it's awesome when I see a piece of guidance like this and I see a word like “may,” I just think, “Oh well, the word ‘may.’” You see it, and you see a world of difference or flexibility that people can see in the guidance. It's your experience, of course, taking a look at it.

[Edelstein] Yes. The awarding agency may so OMB has given them the power, but the program people do not necessarily have that already. They've got to ask their awarding agency.

Are there additional considerations regarding single audits that this memorandum doesn't touch on that you think are going to end up having to be addressed in the near future?

[Edelstein] Yes, one of the things is these SBA loans, these paycheck protection loans, and these EIDL loans. They are going to hit your SEFA as far as I would understand it at this point. They're federal awards. So, if you're a nonprofit and you're getting these, that's going to add onto your SEFA.

So, maybe you weren't getting a single audit in the past. Maybe you're a June 30th, 2020, year-end and you typically had $600,000, $650,000, even $700,000, and you did not have to have a single audit. Now you get this paycheck protection loan and you are now going to have a single audit. Now you've got another level of auditing that you haven't been doing in the past.

The other thing is auditors, we use a compliance supplement and the compliance supplement typically comes out in May. Number one, is it going to come out in May and it's pretty well drafted? I talked to the quality center yesterday of the AICPA. It's pretty well drafted, they work on it well in advance. It can't have anything in it about these SBA loans.

Are they going to hold production of the compliance supplement and get it out late? Or are they going to do an addendum for that part? So, definitely some audit impact, so that's for the auditors to learn and be up to date, and really for clients that weren't going to have a single audit, and now all of a sudden they're going to have a single audit.

But at least June 30th, 2020, year-ends will have that six-month extension, so you'll have over a year. You'll have 15 months to be doing that.

The one caveat I say is things are ever-changing. The quality center alerts are a great thing, great tool, and a lot of resources are out there. Finding those key websites, the PICPA, the AICPA, the IRS. There's a couple of key websites we all need to get focused on, checking in on.