In an effort to reduce the burden of obtaining a full single audit or a program-specific audit by the recipients of Coronavirus State and Local Fiscal Recovery Funds (CSLFRF), the U.S. Department of Treasury has provided a less demanding alternative to the single audit of federal awards. Instead of requiring a single audit or a program-specific audit under Uniform Guidance, the Federal government has authorized using an alternative compliance examination engagement performed in accordance with Government Auditing Standards. The reduction in burden is achieved in several ways, including not having a formal schedule of expenditures of federal awards.
CSLFRF was part of the American Rescue Plan Act that delivered $350 billion to state, local, and tribal governments to help respond to and recover from the COVID-19 pandemic. Many recipients, including small governments, who have historically received little to no federal funding, received CSLFRF awards of $750,000 or more and are now subject to a single audit or a program-specific audit.
In response, the federal government has developed an alternative approach available for CSLFRF recipients that would otherwise not be required to undergo an audit if it were not for the CSLFRF funds directly awarded by Federal government.
Who Is Eligible to Use the Alternative?
According to the 2022 Compliance Supplement, CSLFRF recipients that spend $750,000 or more during the recipient's fiscal year in federal awards and who meet both criteria listed below have the option to follow the alternative CSLFRF compliance examination engagement:
- The recipient's total CSLFRF award received directly from Treasury or received (through states) as a non-entitlement unit of local government is at or below $10 million.
- The recipient's other federal award funds expended—not including their CSLFRF award funds—are less than $750,000 during the recipient's fiscal year.
What Does It Entail?
If a recipient qualifies based on the criteria mentioned above, the eligible recipient is permitted to engage a Certified Public Accountant (CPA) to perform a compliance examination engagement in accordance with the U.S. Government Accountability Office's (GAO) Government Auditing Standards. An examination engagement is much smaller in scope than a regular single audit engagement, which would also include a schedule of expenditures of federal awards.
Under the examination engagement, the CPA is engaged to test a narrow scope of compliance requirements relating only to Activities Allowed or Unallowed and Allowable Cost and Cost Principles as defined in Uniform Guidance. The objectives of the examination are to determine whether the recipients used CSLFRF funds for ineligible uses and whether the recipients significantly deviated from their established practices and policies regarding the incurrence of costs. The CPA does not need to test internal control over compliance. Instead, the CPA needs to obtain an understanding of relevant portions of internal control over compliance sufficient to plan the engagement and to assess control risk for compliance with specified requirements.
At the end of the engagement, the CPA will issue an examination opinion on compliance that will include the examination report and a schedule of findings and responses (if applicable) that includes findings required to be reported and the related finding elements.