OMB’s 2020 Compliance Supplement Details Pending COVID-19 Addendum

Jerry Ashworth
August 18, 2020 at 06:55:03 ET
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The Office of Management and Budget (OMB) on Aug. 18 issued the 2020 Compliance Supplement (2 C.F.R. Part 200, Appendix XI), which deletes the now-outdated Part 3.1 that was included in recent years’ supplements addressing audits of awards issued under the former OMB circulars, and provides initial information for auditees and auditors pertaining to federal funding released this year in response to the COVID-19 pandemic, stating that an addendum with more details on auditing these funds will be released later this fall.

Each year, OMB issues the Compliance Supplement for auditors to follow in determining the compliance requirements that could have a direct and material effect on the programs included in a single audit. The supplement identifies compliance information to help auditors understand each program’s objectives, procedures and requirements, and provides audit objectives and suggested audit procedures for determining compliance. The 2020 supplement replaces the 2019 version and applies to audits of fiscal years beginning after June 30, 2019.

Initial COVID-19 Guidance

In Appendix VII of the supplement, OMB provided initial information to auditors and auditees pertaining to COVID-19 funding. While Congress made available trillions of dollars in emergency funding in response to COVID-19 through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. 116-136) and other supplemental packages, OMB could not completely address the auditing of this funding due to the limited time between the issuance of the legislation and release of the supplement. OMB now is working with federal agencies on developing additional audit guidance for release as an addendum to the supplement later this fall. However, OMB did note that the addendum will not add any new clusters of programs to those listed in Part 5 of the 2020 supplement, nor will it revise the composition of any existing clusters listed in Part 5.

OMB explains that under §200.510(b) of the uniform guidance, auditees must complete the Schedule of Expenditures of Federal Awards (SEFA) and include Assistance Listing (formerly called CFDA) numbers of federal awards and subawards. “To maximize the transparency and accountability of COVID-19-related award expenditures, nonfederal entities should separately identify COVID-19 expenditures on the SEFA” and the Data Collection Form (SF-SAC), OMB added. It also provided an example of how auditees should include this information.

Federal awarding agencies are responsible for identifying COVID-19 awards and communicating the applicable compliance requirements to the recipient, while pass-through entities are responsible for communicating this information to their subrecipients. Although this information normally would be included in the award terms and conditions, some modified compliance requirements for COVID-19-related awards may not be included in original terms and conditions. For existing programs with incremental COVID-19 funding, auditors must perform reasonable procedures to ensure that the compliance requirements identified as subject to audit based on the Part 2 matrix are current. This would include asking the auditee’s management about communications from federal agencies modifying requirements and a review of any updated terms and conditions. “Auditors should be alert that the original terms and conditions may have been modified to include additional compliance requirements,” OMB notes. “Documentation of the procedures performed to identify the compliance requirements is important.”

Appendix VII also explains that consistent with identifying COVID-19 expenditures on the SEFA, auditors should identify audit findings that are applicable to new COVID-19 related programs or existing programs that COVID-19 funding. It further states that although OMB enabled federal agencies under memoranda M-20-11 and M-20-17 to allow for single audit reporting package extensions for auditees affected by COVID-19, both of these memoranda were rescinded by M-20-26, and thus there is no extension for single audits for federal fiscal years ending after Dec. 31, 2019.

Compliance Requirements

Part 3 of the Compliance Supplement in recent years has contained two separate portions. Part 3.1 covered auditor testing for major program awards received prior to Dec. 25, 2014, while auditors testing for major program awards received after that date was covered in Part 3.2 of the supplement. Since the vast majority of awards for testing are for awards received after Dec. 26, 2014, OMB has deleted Part 3.1 from the 2020 supplement. In the rare case that an auditor is still reviewing activities for awards made prior to Dec. 25, 2014, the auditor should refer to the 2019 Compliance Supplement. OMB also updated numerous links contained in the supplement’s Part 3.

OMB in the 2019 supplement reduced the number of required compliance requirements that auditors must test under Part 3 from a maximum of 12, as in past years, to a maximum of six for the programs in the Part 2 matrix, with the exception of the Research and Development cluster, which was permitted to identify seven compliance requirements as subject to audit. The 2020 supplement maintains the reduced number of compliance requirements for auditors to test. Federal awarding agencies administering the programs in the supplement select which compliance requirements are most important for auditor testing for each major program award (see ¶360 in the Single Audit Information Service).

The requirements for certain programs under the 2020 version, however, may have changed compared to the 2019 version, so auditors should refer to the matrix to determine which requirements apply for each major program audited and follow the compliance requirement guidance in Part 3, and the program and cluster guidance in Parts 4 and 5, as applicable. Of note, because of the growing federal emphasis on program performance, federal agencies in this year’s supplement are now requiring auditors to test for performance reporting under Part 3.L for 29 programs.

As was true of last year’s supplement, the six-compliance-requirement mandate does not apply to programs not included in the supplement. Auditors should follow the guidance in Part 7 of the supplement in such cases. However, in the case when a compliance requirement has been removed from a program/cluster, and there was an audit finding related to that compliance requirement in an audit conducted using the prior year’s supplement, that finding must continue to be reported in the summary schedule of prior audit findings and considered in the major program determination (§200.518). The procedures to assess the reasonableness of the summary schedule of prior year audit findings must include all prior audit findings included in the summary schedule, regardless of whether the current Part 2 matrix identified a requirement subject to audit.

Other Changes

Auditors should be aware that Part 4 of the 2020 supplement contains major updates addressing the Medicaid program, Children’s Health Insurance Program, Community Services Block Grant program and Head Start program. Other programs with significant updates in Parts 4 and 5 of the supplement include the Hollings Manufacturing Extension Partnership (11.611); Transportation Infrastructure Finance and Innovation Act Program (20.223); Federal Emergency Management Agency Disaster Grants (97.036); and the Student Financial Aid cluster.

For example, auditors testing Student Financial Aid cluster programs must provide the Department of Education detailed sampling information for the Pell Grant and Direct Loan programs using sampling tables in Part 5 no later than 60 days after the Data Collection Form and reporting package are submitted to the Federal Audit Clearinghouse. Although this requirement was included in the 2019 supplement, the wording of the requirement has changed this year.

There were numerous changes to the “Other Clusters” section of the supplement in Part 5. The Enhanced Hunter Education and Safety Program (15.626) was added to the Fish and Wildlife Cluster; the Child Care Disaster Relief program (93.489) was added to the Child Care and Development Fund Cluster; and a new Head Start Cluster was added to include the new Head Start Disaster Recovery from Hurricanes Harvey, Irma and Maria program (93.356) and the Head Start program (93.600).

Three clusters were deleted: the CDFI Cluster, which included the Community Development Financial Institutions Program (21.020) and the now-deleted Native Initiatives program (21.012); the Maternal, Infant and Early Childhood Home Visiting Cluster, which included the Maternal, Infant and Early Childhood Home Visiting Grant Program (93.870); and the Temporary Assistance for Needy Families (TANF) Cluster, which included TANF State Programs (93.558) and the now-deleted ARRA — Emergency Contingency Fund for TANF State Programs (93.714).

New programs included in this year’s supplement include the Housing Trust Fund (Assistance Listing 14.275); Equitable Sharing Program (21.016); and the Ending the HIV Epidemic: A Plan for America program (93.686). Other deleted programs are the Recreation Resource Management program (15.225); Fish, Wildlife and Plant Conservation Resource Management program (15.231); Environmental Quality and Protection Resource Management program (15.236); Coastal Impact Assistance Program (15.668); and the Tribal Maternal, Infant and Early Childhood Home Visiting program (93.872).

Certain other provisions from the 2019 version were retained, such as the procurement discussion pertaining to the micropurchase and simplified acquisition thresholds in Appendix VII. The supplement maintains a provision from last year’s document explaining that auditors are not expected to develop audit findings for grant recipients that implemented increased thresholds based on OMB Memorandum M-18-18 after June 20, 2018, without federal approval as long as the entity documented the decision in its internal procurement policies.

For More Information

The 2020 Compliance Supplement is available at https://grants.complianceexpert.com/sites/grants/files/advisory_files/2020-Compliance-Supplement_FINAL_08.06.20_0.pdf.

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