In a rapid emergency response to the global pandemic, the federal government rolled out the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide immediate need to small businesses and nonprofits that have been forced to close their doors. Until recently, it was unclear whether these loans would be subject to Single Audit requirements.
Under current guidelines, if a nonfederal entity spends $750,000 or more of federal awards, (including grants and loans) in a fiscal year, a Single Audit is required under Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).
The Small Business Administration (SBA) recently released clarification that states:
- Stimulus funds distributed through the Paycheck Protection Program (PPP) are not subject to Single Audit requirements.
- Stimulus funds provided through the Economic Injury Disaster Loans (EIDL) program will be subject to Single Audit requirements.
This clarification is especially important for nonprofits to take heed, as the combination of traditional federal financing combined with stimulus funds may move some nonprofits above the threshold and trigger the audit requirement.
A Single Audit requirement begins in the fiscal or calendar year that the nonprofit exceeds the $750,000 level. Nonprofits with a June 30, 2020 fiscal yearend will be the first to face an audit.
For-profit businesses may experience slightly different rules than nonprofits. If your business receives federal funding and already qualifies for a Single Audit, any loans or grants from the EIDL is combined and reported on your Schedule of Federal Expenditures of Federal Awards (SEFA). The EIDL stimulus funds would not be aggregated with the other federal funds to determine whether your company would be subject to a Single Audit if your business does not traditionally receive federal funding or has never been subject to a Single Audit.
Please note that while PPP loans are not subject to Single Audit requirements, they have their own set of guidelines. A business that accepts over $2 million in PPP loans is subject to an SBA audit.
In an effort to prepare your business or nonprofit, it is important to have streamlined accounting records, strong controls, and separate records and accounts for federal loans to track expenditures. Be sure to monitor costs associated with the EIDL and PPP loan programs, avoid duplicating reimbursement costs, record your secondary review process, and have open and consistent communication with your lenders and advisors.
If you have any questions regarding loan programs and audit requirements, please contact me at firstname.lastname@example.org or (805) 963-7811. I’m happy to help you through this process.