Single audits: Deliver high quality in a challenging time

February 11, 2021

Published: Journal of Accountancy

The release of the Office of Management and Budget’s (OMB’s) Compliance Supplement addendum for single audits right before Christmas gave practitioners long-awaited guidance for these specialized audits that are especially complicated because of the surge in government funding related to the coronavirus pandemic.

But the release also created expectations for practitioners who perform single audits.

“Once the addendum was out, many clients expected us to issue [audit reports] right away because now we could complete the work,” said Erica Forhan, CPA, a partner in the Moss Adams Professional Practice Group and the firm’s director of audit and attest. “There was pressure to act fast and make decisions fast.”

Despite clients’ eagerness, Forhan said it’s important for auditors to take their time, understand the rules, make sure they are doing the right things, and come to the right conclusions. It has been a challenging time because the pandemic happened, new federal funding made single audits more complicated, and the addendum was delayed until late December. In addition, the rules haven’t answered all the questions that some clients and auditors have.

That’s why auditors need to make sure they are deliberate and still delivering audits of the highest quality.

“Make sure you have done or are doing the right things and coming to the right conclusions,” said Forhan, a former chair of the AICPA Governmental Audit Quality Center’s (GAQC’s) Executive Committee. “And get your documentation in line before you rush out and issue a report because your client is pressuring you or they have deadlines. You don’t want to delay. You want to be responsive. But you have to do your work and be diligent about it.”

Forhan’s advice on quality is particularly important in perhaps the most challenging single audit environment in history. Fortunately, the OMB provided a three-month audit submission extension for single audits of 2020 year ends through Sept. 30 year ends for clients that received some form of COVID-19 funding.

That reduces the deadline pressure on auditors, but single audits are challenging this year because of:

The sheer numbers. Single audits are compliance audits of recipients that expend $750,000 or more in federal funding, conducted to provide the federal government with key information about whether recipients are spending funds in compliance with program rules. Pandemic-related economic relief programs have dramatically increased the number of recipients of $750,000 or more in government funding. Therefore, many more clients need single audits. In some cases, these recipients have a lot to learn about single audits because of their inexperience with the process.

The delayed addendum release. Typically, the OMB releases its annual Compliance Supplement during the summer. But 2020 wasn’t a typical year. The OMB released the annual Supplement as usual, but it did not address the new COVID-19 programs that many recipients received. So the OMB began work to develop an addendum to the Supplement to address the new funding and to provide instructions for auditors because of the many new types of funding provided in response to the pandemic. This caused thousands of single audits for year ends earlier in 2020 to be delayed.

Lingering challenges. Even with the release of the addendum, auditors continue to have challenges and questions. In many cases, the addendum points auditors to guidance on federal agency websites to determine cost allowability for the new federal programs. This involves auditors wading through detailed guidance on federal agency websites and, in some cases, the use of judgment. Certain new programs, such as the Provider Relief Fund (PRF), which went primarily to health care providers, also have many open questions. The Compliance Supplement addendum said that PRF expenses and lost revenue shouldn’t be place on the Schedule of Expenditures of Federal Awards (SEFA) until Dec. 31, 2020, year ends or later to provide more time for some of the open questions to be addressed. While this helped for auditors of those earlier 2020 year ends, clarifying guidance has not yet been issued and now even the Dec. 31, 2020, year-end audits for recipients of PRF funding are on hold.

Amid these challenges, auditors must persevere. Here are eight tips for single auditors in this challenging environment.

–        Carefully consider client acceptance

–        Consider clients’ infrastructure and internal controls

–        Understand what belongs on the SEFA

–        Document, document, document

–        Communicate effectively with clients

–        Be prepared to test Federal Funding Accountability and Transparency Act (FFATA) reporting

–        Choose major programs appropriately

–        Keep standard best practices top of mind

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