Organizations that received COVID-19 funding face a myriad of new requirements. Understand how to navigate the audit and other critical compliance rules.
- Grant funding may subject organizations to new financial or compliance audit requirements.
- Provider Relief Funds and other programs distributed significant amounts subject to single audit.
- PPP and EIDL loans contain a number of restrictions that must be followed closely.
- From COVID-19 to grants, CLA’s experienced professionals can help you navigate the complexities of these different funding opportunities.
Have COVID-related funding questions?
The year 2020 may have brought your nonprofit several challenges, but various local, state, and federal funding streams have helped many organizations. However, this funding comes with additional requirements that may get overlooked, especially in a year when cash is king and survival mode is in effect. Review tips on how to sort through the requirements, and develop an action plan to remain compliant.
Where to start for grant funding
To begin, read through your grant agreements since the answer usually lies in the details. Then start looking for specific requirements. These requirements may come in a variety of forms.
- Funder requirements: Private foundations and other funders may require a grant recipient to have an independent financial audit.
- State requirements: Some states may also require a financial audit, or other assurance, for nonprofits that exceed a certain level of funding. The National Council of Nonprofits provides a helpful listing of state law audit requirements.
- Federal requirements: A single audit is required when a state or local government, Indian tribe, institution of higher education, or nonprofit organization is the recipient or subrecipient of a federal award and expends $750,000 or more of federal awards during their fiscal year. The $750,000 threshold includes assistance received in the form of loans. Federal funding requirements are often difficult to understand in a normal year, but understanding requirements during 2020 has been especially challenging for a few reasons:
- New funding: As part of the response to COVID-19, there were more than 20 new federal programs created, and dozens of existing programs received additional funding.
- Large amounts: Programs like the Provider Relief Fund, which allocated $175 billion, continue to distribute large amounts. Many organizations that never had a single audit are suddenly subject to many new requirements.
- Speed: Many programs prioritized speed as funding was distributed in 2020. Awards were not always made in a traditional grant agreement, so there could be confusion on funding sources. Especially this year, ask funders to determine if the source is federal in nature. This small step now can help you avoid surprises later. For example, food shelves may have received an award from the Coronavirus Relief Fund program through a city, but not know that they actually received federal funding.
The Governmental Audit Quality Center has an up-to-date listing of programs subject to single audit that is publicly available. See CLA’s related article for more information on single audits.
- State requirements: Each state and sometimes each department within a state has its own rules. For example, the laws in Wisconsin require audits if you receive funding in excess of $100,000 from the Department of Children and Families (DCF) or the Department of Health Services (DHS). These apply whether the funding is direct from DCF and DHS or indirect through another agency. To further complicate compliance, the audit requirements for DCF require the Provider Agency Audit Guide, and DHS requires the Department of Health Services Audit Guide. Given that there are 49 other states and myriad rules, it’s critical to understand your funding and the rules for each application location.
What to do if you require an audit
If you require an audit, the first step, always, is to contact your professional services firm sooner rather than later. From there, together you can:
- Consider if a waiver is available. While there is no waiver available for federal funding, there may be waivers available for state requirements depending on the amount of funding received.
- Review your grant costs and stay compliant. See this related CLA article for additional details.
- If an audit is required, consult with your professional services firm to talk through funding arrangements/agreements. This helps compliance with assurance engagement requirements (testing and reporting requirements) and can help prevent:
- Penalties/payments back to funding agencies
- Delays in assurance engagement finalization/deadlines
- Unexpected assurance fee increases
Make sure your auditors are qualified to perform a federal single audit or state-specific single audit, as these types of audits involve specific CPE requirements and knowledge. Engage a firm that understands the requirements and compliance environment to make the experience much easier on your organization.
Loan funding from PPP or EIDL
In addition to grants, many organizations relied on loans for help with cash needs during 2020. Two loan programs in particular were common: the Paycheck Protection Program (PPP) and Emergency Injury Disaster Loans (EIDL). Considering how quickly PPP was rolled out, and the high volume of EIDL applicants, you may not have noticed all the fine print.
If you have questions about PPP or EIDL, read the agreements and related regulations. Review some common restrictions that borrowers are facing.
- Single audit: While EIDLs were generally capped at $150,000, the funding is potentially subject to single audit. If you receive and expend other federal awards, it may also require a single audit.
- Collateral restrictions: Loans over $25,000 generally grant the Small Business Administration (SBA) a security interest in all tangible and intangible personal property. Borrowers were required to obtain permission from SBA if the collateral already secured other debt. Furthermore, the borrower must agree that it “will not sell or transfer any collateral (except normal inventory turnover in the ordinary course of business) described in the ‘Collateral’ paragraph hereof without the prior written consent of SBA.”
- Owner distribution restrictions: Although there’s little impact on nonprofits, it is worth noting that borrowers must also agree that they “will not, without the prior written consent of SBA, make any distribution of Borrower’s assets.”
- Accounting requirements: Borrowers are required to use EIDL funding for specific purposes, and they agree to retain accounting and other support for how funds were spent. Books of account must be kept until three years from the date of maturity, including extensions, or the date the loan is paid in full, whichever occurs first.
- Single audit: Let’s start with some good news: PPP is not subject to single audit.
- Other debt compliance: Many PPP borrowers have other outstanding debt. If those other debt agreements contain restrictive covenants, then be aware of PPP’s impact. Furthermore, understand that the flexibility to reflect GAAP income may not cure all covenant violations if the PPP loan has not been legally released.
- Other federal funding: In general, you cannot charge costs paid with PPP loans to other federal CARES Act programs or other current federal awards. This is considered double-dipping — in other words, the federal government would pay for the same expenses twice. Instead, consider these options:
- Charge payroll costs after the period covered by the PPP loan.
- Ask for a budget revision to transfer payroll costs to other direct costs allowable for the federal program.
- HUD-insured mortgages: Organizations with HUD-insured mortgages are subject to HUD’s subordinate financing rules. The Affordable Housing Association of Certified Public Accountants recently released a statement indicating that failure to obtain HUD approval for PPP loans may be a violation of HUD’s rules.
- Accounting requirements: Similar to EIDL, borrowers are required to use PPP funding for specific purposes, and they agree to retain accounting and other support for how funds were spent. You must retain supporting documentation for PPP for six years after the date the loan is forgiven or repaid in full.
Understand the requirements so you can appropriately account for and comply with regard to both PPP and EIDL funding. You can also contact your professional services firm to discuss in more detail.
How we can help
We have a team of experienced professionals who can help you navigate the complexities of COVID-19 funding opportunities. On the grant side, whether you need assistance to understand what funding opportunities exist, navigate the grant application process, or develop effective strategies to implement grant management policies and procedures, we can help you through the process now — and as you look to a future beyond COVID-19. Visit our grant compliance resources page for additional information.
CLA also performs more single audits than any firm in the country and is well-positioned to answer your questions or assist if you require one. Our experience in helping organizations navigate single audit requirements can allow you to focus your energy on your core business especially during this challenging time.
Additionally, we have resources dedicated to understanding PPP and EIDL that can help you with compliance requirements and accounting implications.