It’s difficult to overstate COVID-19’s impact on the health-care industry. These changes vary dramatically among individual entities, meaning that there is no one-size-fits-all approach to auditing them. The audit risks vary widely.
Any health-care entity audit should start with a client meeting that covers several COVID-19 variables. They should include whether the client received federal funding, related financial statement implications, remote work arrangements and any furloughs or layoffs.
Here are major considerations to keep in mind during your audits.
- Impact of federal relief funds
Most health-care entities received federal funding under the CARES Act, such as funding from the U.S. Department of Health and Human Services (HHS) Provider Relief Fund (PRF) program. It is important to understand and stay up to date on the audit requirements associated with new federal funding, as well as any potential accounting and compliance-related implications. This will involve reviewing the terms and conditions of awards and guidance documents posted on federal agency websites, which are regularly updated and revised. A document on the AICPA Governmental Audit Quality Center (GAQC) website identifies new CARES Act federal programs and details whether they are subject to single audits. The document also provides links to relevant agency guidance postings.
- Internal control
At many organizations, accounting employees are working remotely, while others have been laid off or furloughed. Health-care entities are no exception. As a result, longstanding internal control policies may look significantly different than they did a year ago. For example, you may see segregation-of-duties issues for the first time. Auditors must understand the system of controls in place for the entire period, including any changes, and identify areas of heightened risk.
- Accounting challenges
Certain nuances of relief funding — such as lost revenue, a new concept under the PRF program — have created accounting challenges in the health-care industry. Updates and revisions of relevant federal guidance that clients have relied upon to make accounting decisions exacerbate the challenges.
The AICPA’s Health Care Expert Panel developed a series of Technical Questions and Answers, CARES Act Provisions Specific to Health Care Entities, that discuss accounting matters for nongovernmental health-care entities. The Governmental Accounting Standards Board issued Technical Bulletin 2020-1, Accounting and Financial Reporting Issues Related to the CARES Act and Coronavirus Diseases, to provide accounting guidance for governmental entities. As things evolve, you should also keep an eye out for any new accounting releases.
- Uncertainty and new audit requirements
Many health-care clients receiving HHS funding of $750,000 or more will be subject to single audit requirements, perhaps for the first time. This will also trigger a requirement for the financial statements to be performed under Government Auditing Standards. The U.S. Office of Management and Budget (OMB) is expected to issue an addendum to the 2020 Compliance Supplement by late November, which will include federal expectations for single audits of new CARES programs, including the PRF program. This delay in audit guidance has kept many single audits on hold because of the uncertainty of what the guidance will include.
For auditors with limited or no experience performing single audits, consider referring a portion of the audit to another firm that has the requisite competencies. The AICPA Peer Review Program has a searchable database of subject-matter experts who can help. Otherwise, auditors must gain the needed competencies quickly. The GAQC has posted a no-CPE archive of a single audit fundamentals series of webcasts, and the AICPA periodically offers this series for CPE. The AICPA has many other single audit training programs that can assist.
As the pandemic’s economic impact evolves, the available information and policies may shift. As it relates to the PRF program, refer to this HHS guidance and periodically check the broader HHS PRF webpage.
There are also helpful resources from the AICPA:
- The COVID-19 Audit & Assurance toolkit
- The COVID-19 Accounting & Reporting toolkit
- A free risk assessment practice aid specific to health-care entities
- The GAQC is the place to look for information on single audits, including its COVID-19 Resources page.
- A recent Journal of Accountancy article on performing single audits during the pandemic offers other best practice tips.
Be sure to monitor these resources regularly, as they may be updated.
Importantly, from Nov. 30 through Dec. 4, the AICPA will offer a week of webcasts focused on the effects of COVID-19 on the health-care industry. If you practice in this area, you should consider participating to learn the latest.
These are unprecedented times, and there will be many audit challenges. We owe it to our health-care clients to help them navigate this landscape by staying as informed and up to date as possible.
Norman Mosrie, CPA, CHFP, FHFMA; Partner-in-Charge, DHG Healthcare Assurance Services. Norman Mosrie is the partner-in-charge of assurance for DHG Healthcare. He also is chair of the AICPA Health Care Expert Panel and the Healthcare Financial Management Association Principles and Practices Board. Norman has over 30 years of experience serving a variety of health-care clients across the continuum of care.