COVID-19 and the Impact on Single Audits – Update
May 14, 2020
By James Connors
At the conclusion of our April 21, 2020 article COVID-19 and the Impact on Single Audits, we were left with various unanswered questions relating to the possible impact the funding received may have on the audit process.
As we know, the SBA Paycheck Protection Program (“PPP”) loans, administered under the 7(a) guaranty loan program, are being provided through local financial institutions. These loans have been made to for-profit entities as well as not-for-profit organizations. One of the most common questions that had arisen is whether SBA PPP loans obtained by not-for-profit organizations, and the expenditures supporting the eventual forgiveness, are subject to the single audit requirements. The good news is that the Government Audit Quality Center (“GAQC”) of the AICPA has recently received an answer to this question. Based on recent discussions between the GAQC and with the SBA, the GAQC has been informed that PPP loans made to not-for-profit organizations are not subject to single audit requirements. This is helpful information for not-for-profit organizations that received PPP loans. It eliminates the compliance burden of having the entity, and the related funding, subject to the single audit requirements. But the SBA further clarified that loans made to not-for-profit organizations under the Economic Injury Disaster Loan (“EIDL”) program are considered a direct loan program disbursed from SBA to loan recipients. Therefore, these loans are considered federal financial assistance and, accordingly, expenditures made using the proceeds of those loans are subject to the single audit requirements.
Although the SBA has shed some light on the questions raised by both auditors and auditees with respect to the COVID-19 funding, as of now there is still no clear cut guidance for auditors and auditees from the U.S. Office of Management and Budget (the “OMB”). The OMB has indicated that the 2020 OMB Compliance Supplement is still expected to be issued in June 2020, but only with the regular annual updates (unrelated to COVID-19 funding). The OMB is contemplating issuing a follow-up addendum to the Compliance Supplement in September 2020, to address guidance for the COVID-19 funding.
SBA funding may impact the audit process, depending on which loan was sought. However, the specific compliance supplement for testing of the expenditures related to such loans is not yet available, leaving everyone with more unanswered questions. EisnerAmper will continue to keep you informed as updated guidance becomes available.