HHS Funding for Healthcare Entities is Subject to Audit and the Guidance is Not New

Advisory | Scott Davis | Mar 26, 2021

2020 created disruption in ways that were inconceivable before the pandemic.  And probably more so for healthcare entities than any other industry.  As our hospitals and healthcare providers have focused on caring for us, the Federal government has provided funding in the form of the CARES Act to ensure they can achieve that task.  The Department of Health and Human Services (HHS) provided 2 new programs as part of the CARES Act.

Provider Relief Fund (CFDA 93.498)

COVID-19 Testing for the Uninsured (CFDA 93.461)

This funding was provided to non-federal entities including commercial organizations, who may have received one or both of the above awards from HHS.  Nonprofit organizations are accustomed to receiving such federal awards and have more likely than not been subject to an audit under the Uniform Guidance.  Commercial healthcare organizations that have previously never received HHS funding may find themselves subject to audit requirements.  This article focuses on the requirements for commercial healthcare organizations.

The good news is that these audit requirements are not new and have been part of the Code of Federal Regulations for a number of years.  Specifically, 45 CFR 75.216 provides guidance for commercial organizations receiving HHS awards.  Under 45 CFR 75.216, commercial organizations that receive awards (including for-profit hospitals) have two options regarding audits:

  • Option 1:  45 CFR 75.16 (d)(1)(i) A financial related audit of a particular award in accordance with Generally Accepted Government Auditing Standards issued by the Comptroller General of the United States (GAGAS), in those cases where the commercial organization receives awards under only one HHS program; or, if awards are received under multiple HHS programs, a financial related audit of all awards in accordance with GAGAS.
  • Option 2:  45 CFR 75.216 (d)(1)(ii) An audit that meets the requirements contained in the Uniform Guidance (a single audit or a program specific audit).

In either case, commercial organizations that expend less than $750,000 of HHS awards are exempt from the above audit requirements for that year (45 CFR 75.216 (d)(2)).  For example:

  • Healthcare Entity A has an October 31 year end and receives $800,000 of Provider Relief Funds in July 2020.  At October 31 Entity A has spent $700,000 of Provider Relief Funds.  Considering Entity A did not spend $750,000 of the funds during its fiscal year, they are not subject to the audit requirements noted above.
  • Healthcare Entity B also has an October 31 year end and receives $800,000 of Provider Relief Funds in July 2020.  At October 31 Entity B has spent $800,000 of Provider Relief Funds.  As Entity B spent more than $750,000 during its fiscal year, Entity B is subject to the audit requirements noted above.

Healthcare Entity B must decide which audit option to pursue.  Should Entity B decide on Option 1, the auditor would perform a GAGAS audit over a statement of revenue and expenses related to the Provider Relief Fund for the year ending October 31, 2020.

If Entity B decides on Option 2 an audit under the Uniform Guidance is required (either a single audit or a program specific audit).  However, as noted in the 2020 Compliance Supplement Addendum such an audit is not required for Entity B’s 2020 fiscal year end.  The section specific to Provider Relief Fund states the following, “For fiscal years ending in 2020 on or before December 31, 2020, the entity reports no PRF expenditures (including no lost revenue).”  In this case Entity B will need to wait until the issuance of the 2021 Compliance Supplement for guidance on how to report its Provider Relief Fund expenses and any applicable audit requirements.

The above examples pertain to an entity receiving one award, Provider Relief Fund. However, an entity must take into consideration all expenditures of HHS awards received from HHS to determine whether or not it is subject to audit.  Another example:

  • Entity C also has an October 31 year end and receives $500,000 of Provider Relief Funds and $1,000,000 of COVID-19 Testing for the Uninsured.  Please note that the COVID-19 Testing for the Uninsured is a reimbursement basis award.  At October 31 Entity C has spent $400,000 of Provider Relief Funds and $1,000,000 of COVID-19 Testing for the Uninsured funds.

Entity C also must choose between Option 1 and 2 above.  Under Option 1, Entity C would report revenue and expenses under both awards ($400,000 of Provider Relief Funds and $1,000,000 of COVID-19 Testing for the Uninsured) and subject them to a GAGAS audit.

Under Option 2, Entity C must perform an audit of the COVID-19 Testing for the Uninsured.  The 2020 Compliance Supplement Addendum does not provide for such relief for this award.  As a result, if Entity C determined an audit under Uniform Guidance was the best approach, $1,000,000 of federal expenditures under the COVID-19 Testing for the Uninsured program would be reported on Entity C’s Schedule of Federal Expenditures for the year ended October 31, 2020.  As described in the above example for Entity B, Entity C would not report the $400,000 of Provider Relief Funds.  Further, as Entity C will only expend $100,000 of Provider Relief Funds in its next fiscal year, it may not be subject to audit.  Remember, the expenditures for determining the audit requirement are by the audited entity’s fiscal year.

The above examples focused on fiscal year ends within 2020.  A commercial organization with a December 31, 2020 year end will need to report all Provider Relief Fund expenses for 2020 and if above $750,000 choose between Option 1 or Option 2.  Again, the determination of expenditures to meet the $750,000 threshold should include all funds received by HHS and subject to these audit requirements.

If your commercial organization received HHS funding in 2020, don’t fret, the audit requirement is not new and we here at Prager Metis are waiting to make Your World. Worth More.


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