The large number of federally-funded programs created as part of the financial stimulus to offset COVID-19 pandemic losses have changed the single audit requirements immensely. 

In addition to many new programs, which started at the beginning of 2021, there are programs that started mid-year as well as older programs that added new requirements.  More than ever, the OMB Compliance Supplement is going to be a crucial tool in accurately testing federal programs as part of single audits.  Unfortunately, the 2021 Compliance Supplement has not been released yet, but it is expected to be released this month, with the Addendum to be released later this year.  This supplement will be for fiscal years ended June 30, 2021, and later.  The later release dates will likely cause some audit delays as auditors need the supplement and addendum to determine the types of testing needed.

Getting Started

First, auditors must communicate with their clients about the delayed supplement and how it may affect the timing of the audit, in comparison to previous years.  While formal testing may need to wait until the supplement is released, auditors can work ahead on familiarizing themselves with the programs they will likely be auditing for their clients.  Auditors can get program documentation as well as converse with the client to gain an understanding of the program.  It is important that client interactions are with both financial and program employees, as well as upper management and the board of directors.

Internal Controls Updating

It is important that auditors are gaining an understanding of how internal controls were designed and how they operated during the audit period.   It is likely that the controls in place at an organization have changed due to the changing work environment created by COVID-19.  Also, many of the COVID-19 related funding programs covered many different areas and could have been used in many different ways, making it a challenge for auditors to determine controls in place for the organization’s specific use of the funding.  With COVID-19 program funding there are a myriad of ways it could be applied and each organization will have different controls in place.  Because so many organizations were operating remotely, it is likely that holes have developed in some of the internal controls previously in place pre-COVID-19.  New tests will be needed to address these areas.

Major Program Determination

Many COVID-19 programs are being designated as ‘higher risk’ programs by federal agencies.  While the OMB Compliance Supplement does have a formula for determining the major programs for testing, the designation as higher risk will affect the OMB formula and increase the number of programs requiring single audit testing.  There is a higher chance that programs audited year to year may not be selected for audit this year.  Correct completion of the Type A and Type B program evaluation will be a significant step in the planning process.   

Conclusion     

COVID-19 has added challenges to the Single Audit process.  The programs funded by COVID-19 relief money are new to everyone and will require a lot of learning on the part of all of the audit team to ensure the planning and testing is performed correctly.