The rules and regulations around the completion of a single audit have changed dramatically over the past several months, mainly due to changes brought on by COVID-19.
Here are a few items to consider when it comes to preparing for a single audit of federal awards within a governmental entity this year:
- To provide additional oversight, recipients and subrecipients must separately identify the “COVID-19” expenditures on the Schedule of Expenditures of Federal Awards in the current year audit reports.
- The 2020 Compliance Supplement was issued in two parts. The first part was developed prior to COVID-19 and contains limited information related to the COVID-19 pandemic, including a summary of new COVID-19 programs. The second part of the Compliance Supplement was issued as an addendum and addresses the new COVID-19 programs in detail.
- Governmental entity staff should familiarize themselves with the new COVID-19-related programs and programs generated by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. New COVID-19 programs may be high-risk programs in the current year because they have not been previously audited. There is currently no requirement to assess these programs automatically as high-risk; however, single audit risk assessment will consider the newness of the program and other risk factors. Programs tested in the past will not be assessed automatically as high-risk, solely due to COVID-19 funding. These programs may be changed to high-risk if it is determined that changes in personnel, internal controls, or programming due to COVID-19 significantly increased program risk.
The impact of COVID-19 on your organization may have significantly changed procedures and internal controls that were in place in prior years. Because governmental entity operations and how employees are working have also likely changed, we have generally seen changes in how governments produce and deliver its services that also have affected internal controls. Due to these facts, auditors will be required to consider potential changes to the design and operation of internal controls when they obtain or update their understanding of the entity and the risks of material misstatements to the financial statements, and the Schedule of Expenditures of Federal Awards of the organization. As a result of this process, there may be new or changed risks as a result of COVID-19 that will affect specific audit areas, including the single audit of federal awards. Governmental entities should be aware that these risk assessments may make auditors change the nature, timing, and extent of audit procedures in the current audit cycle.
Auditors are finding it more difficult to determine whether controls have been designed and placed in operation while auditors and clients are working remotely. Walkthroughs and tests of internal control performed by auditors may be difficult to perform if clients and auditors aren't able to be at the client's locations, which may require more testing. Auditors will be modifying procedures to address changes in both internal controls and potential fraud frisks. Even if the client or auditors are working remotely, the engagement team will have a discussion of fraud risk factors, along with inquiries of management and others within the entity, related to audit risks resulting from the change in work practice.
During the 2021 calendar year, the look and feel of the annual audit and single audit will be dramatically different. We have been encouraging our clients to become informed of these and a variety of other changes that have occurred. If you are interested in speaking to one of our single audit specialists, leaning more about any of the topics discussed here, or have other questions not addressed here, please reach out to us directly. We will be glad to provide more information or help you with learning more about the revised rules and help you prepare for your upcoming single audit.