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HHS Clarifies Provider Relief Fund Audit Requirements for For-Profit Healthcare Providers

Several months ago, the Department of Health and Human Services (HHS) announced that receiving distributions from the Provider Relief Fund (PRF) under the Coronavirus Aid, Relief, and Economic Security Act could impose an audit requirement for healthcare providers. Based on requirements, for-profit companies, called commercial organizations by HHS, are to include PRF in the basis for determining audit requirements. In addition, HHS has affirmatively stated that for-profit entities that meet the required threshold ($750,000 in a reporting period) will be required to have an audit completed. Now, HHS has provided more detail on a second option for commercial organizations.

Commercial Organizations

HHS has noted that commercial organizations can choose to have a financial-related audit (financial audit) under Generally Accepted Government Auditing Standards (GAGAS) instead of choosing to have a single audit or program-specific audit. HHS has yet to communicate its expectations for a financial-related audit under GAGAS, but it is expected that a financial audit under GAGAS will vary from a single or program-specific audit in a few key ways:

GAGAS Financial Audit

  • The commercial organization’s consideration of federal awards is limited to HHS awards. Note this is all HHS awards, not just PRF.
  • A statement of costs (including lost revenue) would be issued.
  • The auditor would consider compliance for its impact on financial reporting and issue a report under GAGAS.
  • The auditor would only be required to report findings as noted.

Single or Program-Specific Audit

  • Under a single audit, consideration would need to be given to all federal awards expended by the commercial organization (both HHS and other federal awards).
  • A Schedule of Expenditures of Federal Awards (SEFA) would be issued as a required supplemental schedule to the financial statements.
  • The auditor would perform a compliance audit of the entity’s major federal programs in accordance with the Uniform Guidance, which includes testing of the entity’s internal controls over compliance.
  • The auditor would issue a Schedule of Findings and Questioned Costs, regardless of whether any findings were noted.

In summary, the scope of a financial audit under GAGAS removes requirements to perform a compliance audit and limits the scope of the audit to consideration of HHS awards instead of all federal awards. Due to these differences, it is assumed a commercial organization would prefer a financial audit under GAGAS, though the ultimate determination is dependent on the facts and circumstances of the organization.

What Questions Remain?

Given that HHS has yet to communicate expectations for a financial-related audit under GAGAS, the following questions remain:

  • Currently, under Uniform Guidance, entities meet the audit requirement once they expend more than $750,000 of federal funds. HHS has not specified whether the same expenditure concept applies to financial-related audits under GAGAS or if the determination would be made on HHS funds received.
  • The accounting framework for the statement of costs is currently unknown. HHS needs to provide guidance on whether this would be reported on the basis of Generally Accepted Accounting Principles (GAAP) or if another framework would be acceptable.
  • PRF expenditures and lost revenues will not be included on an entity’s SEFA until Dec. 31, 2020, year-ends and later. The amount calculated will be based on the Dec. 31, 2020, PRF reporting to HHS. It is unknown whether this requirement will apply to the statement of costs.
  • Entities with year ends between Dec. 31, 2019, and June 30, 2020, that are receiving a single audit have received a six-month filing extension if they received funds under a COVID-19 relief program (such as PRF) for their filing requirements with the Federal Audit Clearinghouse. It is unknown whether this extension will be granted to commercial organizations’ filing requirements with HHS.

What Should You Do Now?

Even though there remains uncertainty around a commercial organization’s options to meet their audit requirement, you can start preparing now.

  • If it is possible that your entity will meet the $750,000 threshold during this or a subsequent reporting period, reach out to your KSM advisor now to start discussions on what would be required.
  • Begin to summarize federal awards received by awarding agency and grant. Make sure to include both amounts received and expended in the summary in order to delineate potential differences between SEFA and statement of cost reporting.
  • Familiarize yourself with information available on the HHS website and check for updates regularly to track any change or developments.

We’re Here to Help

Additional clarification and guidance is expected from HHS on this evolving issue, and we will provide updates as more information becomes available. If you need help navigating these compliance requirements or strategizing how you can best position your organization, our team stands ready to help. Please reach out to your KSM advisor or complete this form.

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