Now that we have made it through the initial impact of the COVID-19 pandemic, navigating the aftermath continues to prove to be a challenge. The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), established the Provider Relief Fund (PRF), which was used to provide aide to health care entities with increased expenses or lost revenue attributable to Coronavirus Disease 2019 (COVID-19).
According to the U.S. Department of Health and Human Services (HHS), payments related to PRF are subject to certain terms and conditions, including but not limited to:
- The funds are to reimburse the recipient only for health care-related expenses or lost revenues that are attributable to COVID-19.
- The funds may be used only to prevent, prepare for, and respond to COVID-19.
- Noncompliance with the terms and conditions is grounds for the recoupment of some or all payments by HHS.
- The recipient will not use the funds to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse.
Organizations who received PRF funds are required to submit information to HHS indicating the use of funds to aid in HHS auditing and anti-fraud measures. Another component of reporting for organizations is the inclusion of federal funding expended on an organization’s Schedule of Expenditure of Federal Awards (SEFA). Typically, expenditures are reported on the SEFA the same year they are reported as revenue/expense on the income statement or statement of activities. This is not the case with PRF. Guidance from HHS indicates that PRF revenue is recognized on the income statement or statement of activities when the expenses were incurred. However, funding is not to be included on the SEFA until the HHS reporting period has passed and/or reporting to HHS is completed.
This circumstance can complicate matters for auditors who give in-relation-to opinions on the SEFA. The in-relation-to opinion indicates that the SEFA reconciles to the basic financial statements in all material respects. This raises the question of whether the SEFA will still reconcile to the basic financial statements when amounts related to PRF are reported in a subsequent year. Thankfully, the HHS and the AICPA have weighed in on this complicated and very specific matter. Per both institutions, those who have prepared financial statements are allowed to consider this timing difference part of the reconciliation process, ultimately allowing unmodified in-relation-to opinions on SEFAs in the wake of PRF.
The dedicated non-profit team at Bowman & Company LLP are ready to assist their clients with these and similar issues.