There’s a lesson found in COVID-19-related U.S. government loans to help for-profit and non-profit organizations grappling financially with the pandemic: When the government hands out money, make sure you’re prepared for what might come next. Many organizations that took government loans are going to find themselves for the first time dealing with a single audit, based on the amount of loan money they received to deal with COVID-19’s economic effects.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act and Paycheck Protection Program (PPP), enabled many thousands of businesses and non-profits to continue operating despite government-ordered lockdowns and a natural reluctance people had to engage in pre-COVID business activities. It also came at an enormous cost in new debt to the treasury, and ultimately is the responsibility of American taxpayers.
The Small Business Administration (SBA) is the agency in command of PPP loans. Loans of up to $150,000 are forgiven, meaning they don’t have to be paid back, if a simple form is filled out and submitted. The game changes at $750,000, for both businesses and non-profits.
An explanation of the single audit is found on the government’s Health and Human Services Dept. website: “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. Non-federal entities typically include states, local governments, Indian tribes, universities, and non-profit organizations.”
Organizations that have never before been the recipient of $750,000 or more of government money will now find themselves under the single-audit microscope. Receiving $2 million or more meant an audit in any case. But the $750,000 trigger is a new wrinkle for businesses and non-profits that believed COVID-19 and its effect put them in a category outside of the single audit requirements. A single audit isn’t like a financial statement audit; in the case of a single audit, reviewers are determining whether the recipient of government money has used it correctly, and can account for it being properly used.
Entities that have previously received government loans or contracts at least have experience in this arena. For those that haven’t, this is previously unexplored territory. And, while $750,000 is a lot of money, in the COVID-19 world it didn’t take long for a number of loan recipients to hit that threshold.
Furthermore, non-profit organizations that received an Economic Injury Disaster Loan (EIDL) are also subject to a single audit, as are non-profit entities that received funds through state and local governments if funding came from the federal government.
So, what to do?
Talk to an accounting professional, your auditing firm, or both, to ensure everyone understands the rules as they relate to exposure for a single audit. This applies to for-profit and non-profit organizations.
Check your records. Compile every document that validates how PPP loan money was spent, how much was spent, where it was spent, etc., to show the spending complied with federal rules.
On the Schedule of Expenditures of Federal Awards, separate COVID-19 related government loans and payments from other funding sources.
Keep abreast of rules changes; they’re frequent. Helpful sources are the U.S. Office of Management and Budget; the American Institute of Certified Public Accountants; the SBA.
When the government comes calling about a single audit, don’t be surprised. Be ready.
This article first appeared in KnoxNews.