Auditing Pandemic Relief Funds: A Uniform Guidance Approach

Since March of 2020, many colleges and universities have been fortunate to receive millions of dollars of COVID-19 federal aid in the form of Higher Education Emergency Relief Funds (HEERF I, II and III), Coronavirus Relief Funds (CRF), Governor’s Emergency Education Relief Funds (GEER) and Federal Emergency Management Agency (FEMA) grants. Internal audit departments play an integral role in verifying compliance with the terms and conditions for each program, especially prior to the final report submission and before the arrival of external auditors. However, each program has unique allowability, timing and reporting requirements which can be challenging to audit. 

Non-federal entities that expend $750,000 or more in federal relief funds in one year are subject to a Single Audit, which focuses on ensuring compliance with applicable Uniform Guidance requirements. Creating an audit program based on Uniform Guidance requirements provides alignment with external auditors while testing internal adherence to program standards. The Uniform Guidance requirements most applicable to the majority of pandemic funds are outlined below, along with corresponding controls and test steps.

Activities Allowed/Unallowed and Allowable Costs/Cost Principles

The following audit procedures provide a methodology for testing federal award spending for allowability in compliance with program requirements and grant agreements:

• Assess the design and effectiveness of the invoice review process, budget-to-actual cost comparisons and controls that detect, correct and prevent unallowable costs.

• Select a sample of expenses and verify allowability and the existence of supporting documentation. HEERF expenses require a nexus to COVID while FEMA costs may be limited to Personal Protective Equipment (PPE). CRF expenditures must be necessary, COVID-related and not listed in the organization’s budget.

• Review the expense descriptions in the final report and investigate any that do not appear allowable.

• Review any payroll expenses and verify positions were substantially dedicated to COVID-related work.

• For HEERF I student awards, verify monies were issued directly to qualifying students.

Cash Management

Federal funds must be tracked and spent on immediate needs. While cash management may only be required for funds provided by HEERF, all institutions will benefit from verifying that federal program funds are appropriately tracked. Audit procedures should include the following:

• Determine whether the accounting method used to track the receipt and expenditure of funds is reasonable and consistent. 

• Confirm that there is an appropriate level of supervisory review over the cash management process.

• Run a transactions report and compare it to program reports for completeness and accuracy.

• Verify receipt of funds and agree amounts with the award notification.

• Test the controls in place to prevent “double dipping” amongst other pandemic funds.

• Verify a sample of expenses for the existence of approvals prior to purchase.

Matching and Earmarking

Matching pertains to a specified percentage of funds allowed to be used towards particular expenditures, while earmarking is the minimum or maximum spending permitted on specified activities. To test these requirements for HEERF programs: 

• Inquire how funds are tracked in the accounting system and whether there is an appropriate level of supervisory review of the matching and earmarking requirements.

• Verify student spending met the minimum requirements, as follows:

  • HEERF I - at least 50% of the institution’s allotment.

  • HEERF II - the same amount issued to students as in HEERF I; for-profit institutions must use 100% of their allotment on student grants.

  • HEERF III - at least 50% of the institution’s allotment; for-profit institutions must use 100% of their allotment on student grants.

Period of Performance

Federal funds must be used only during the authorized period of performance, which varies by fund. Note that extensions may apply. Audit procedures may include the following activities:

• Determine if there are controls in place to prevent expenditures outside the specified period, such as:

  • Accounting system limits

  • Review of disbursement dates and cut-offs

  • Timely management review of budget-to-actual reports

• For a sample of transactions, review invoices and other support to verify the occurrence of the expenditures during the period of performance.

• Review the dates of expenditures on the final report for appropriateness.

Reporting

Federal funds must be reported timely and accurately based on program requirements. Reporting may be financial or performance-based. Financial reporting captures program expenditures as prescribed, while performance reporting shares how goals and objectives were met. Consider performing the following procedures:

• Obtain the reports for each reporting period and verify they were submitted timely. For HEERF, verify your institution’s website included all the required public disclosures.

• Ensure reported amounts agree with the general ledger and accounting system records.

• Verify that the correct accounting method (cash or accrual) was utilized.

• Confirm required supporting documentation was submitted in the appropriate format.

• Ensure that the reports were appropriately reviewed prior to submission.

• Review CRF performance reports to ensure the underlying data agrees with the financial reports and stated achievements and that it accurately reflects progress towards goals.

Subrecipient Monitoring

All pandemic relief funds are also subject to Uniform Guidance requirements related to subrecipient monitoring, where applicable. Testing should be designed for programs or areas where subrecipients are utilized. 

Conclusion

By aligning pandemic fund audit programs with Uniform Guidance compliance requirements, you can test program requirements and add value by addressing areas that will be covered during the Single Audit. This model also saves time, as it can be applied to all pandemic funding programs. 

The Uniform Guidance sections applicable to each program are summarized below:

References

Department of Education:  https://www2.ed.gov/about/offices/list/ope/caresact.html 

NASFAA HEERF Comparison Chart: https://www.nasfaa.org/uploads/documents/HEERF_Funds_Comparison_Chart.pdf 

2 CFR Part 200, Appendix XI 2021 Compliance Supplement: https://www.whitehouse.gov/wp-content/uploads/2021/08/OMB-2021-Compliance-Supplement_Final_V2.pdf 

About the Author

Kara Hefner

 

Kara Hefner, CPA, CIA, CFE is the editor of the College and University Auditor Journal and an audit supervisor at the University of North Carolina, Chapel. Kara has 22 years of internal audit experience, is a frequent speaker...
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Kara Hefner

 

Kara Hefner, CPA, CIA, CFE is the editor of the College and University Auditor Journal and an audit supervisor at the University of North Carolina, Chapel. Kara has 22 years of internal audit experience, is a frequent speaker at ACUA events, and is a member of the Auditing and Accounting Principles sub-committee.

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