Many tribes are providing support to their tribal businesses, including casinos, using their Coronavirus Relief Funds (CRF) received from the Department of the Treasury (Treasury).
Below we explore audit requirements related to these funds your tribal businesses might need to consider.
Have you provided CRF to your tribal businesses?
A few tribes provided these funds to their businesses as part of the Treasury guidelines applicable to tribal governments, which focus primarily on assistance to cover costs directly related to responding to the COVID-19 pandemic.
Many tribes have structured grant programs to small businesses to fund costs from business interruption caused by the required closures. Those tribes have defined small business eligibility for the grant program such that many allow grants to their tribally-owned businesses and tribal member-owned businesses.
If your tribe is considering providing CRF to tribally-owned businesses, the funds could be subject to the audit requirements of the Single Audit Act. However, businesses owned by tribal members won’t be subject to these requirements.
What triggers audit requirements for using CRF?
Generally, if a tribal business that’s a legally separate entity—a blended or discrete component unit—of the tribe expends $750,000 or more in federal awards, which includes CRF provided from the tribe, the business must undergo either a single audit or a program-specific audit to meet the requirement of the Single Audit Act.
If the tribal business isn’t a legally separate entity of the tribe, it could be eligible to undergo its own audit—as described above—or it could be included as part of the tribe’s single audit, depending on the funding structure and the statement types the tribe submits for purposes of meeting the single audit requirements.
If included as part of the tribe’s overall single audit, the financial statements of that tribal business would need to be submitted to the Federal Audit Clearinghouse (FAC), discussed in more detail below.
A single audit typically includes an audit of a full set of financial statements for the entity in conjunction with a grant compliance audit. A program-specific audit is often narrower in scope and doesn’t require submission of the full set of financial statements to the FAC.
This is an important consideration as the Single Audit Act could require you to make these reports available for public inspection.
The program-specific audit requirements would apply if both:
- The business expends from only one federal program
- The program doesn’t have regulations or conditions that require a financial statement audit of the business
There are no such requirements in the Treasury’s guidance for the financial statements to be audited, and federal awards provided to tribal businesses are rare. As a result, it’s expected that most tribal businesses expending CRF in excess of $750,000 will opt for a program-specific audit to meet the requirements.
Regardless of the CRF amount provided to the business from the tribe, the tribe will be required to implement and document subrecipient monitoring oversight with the business to ensure the CRF was spent for allowed purposes.
This monitoring is required when CRF are provided to either tribally-owned businesses or tribal member-owned businesses.
What is a program-specific audit?
A program-specific audit’s scope is limited to:
- The CRF compliance requirements identified in the Treasury guidance and the Office of Management and Budget (OMB) Compliance Supplement expected to be issued in October or November of 2020
- The business’ internal controls over CRF compliance
- A schedule of expenditures of federal awards (SEFA) for the program and notes that would accompany the SEFA
The auditor reports, including findings if noncompliance was identified; the businesses’ SEFA; and notes to the SEFA would be submitted to the FAC within the earlier of:
- Thirty calendar days after receipt of the auditor’s reports
- Nine months after the end of the audit period
It’s important to note that the business’ financial statements wouldn’t be subjected to the program-specific audit and wouldn’t be submitted to the FAC.
The tribal business must document and implement internal controls over CRF compliance before spending CRF. Such controls are subject to the audit scope and would result in a finding if considered to be deficient.
It’s also important to note that the controls over CRF compliance may not be covered by the business’ typical accounting and financial reporting control processes.
For example, a key control over compliance would require someone well versed in the Treasury’s guidance to scrutinize expenses that might not be eligible to be paid from the CRF and approve allowable expenditures paid from the CRF. Such specific controls aren’t a typical safeguard for a for-profit business.
Treasury guidance allows the costs of a program-specific audit to be paid from CRF if incurred prior to December 30, 2020.
Program-specific audit procedures can be performed on an interim basis, after the Compliance Supplement is issued, but before December 30, 2020—ensuring the bulk of the audit costs could be incurred within the allowable time period.
Such interim audit work would also provide an opportunity for auditors to scrutinize your CRF-funded activities to identify potential noncompliance and correct such noncompliance before December 30, 2020.
Although noncompliance noted during an interim period can still be considered a finding, you could have an opportunity to reallocate and use the CRF for other eligible CRF activities before December 30, 2020.
We’re Here to Help
To learn more about program-specific audit requirements, documentation that might be required, and steps your tribal government and businesses need to take to be ready for these changes, contact your Moss Adams professional.
For regulatory updates, strategies to help cope with subsequent risk, and possible steps to bolster your workforce and organization, please see the following resources: