Good News For Not-For-Profits on PPP Loans and Single Audit Requirements
By Avi Lazerowitz
May 6, 2020
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) passed by Congress and signed into law on March 27, 2020 created the Paycheck Protection Program (“PPP”) to provide loans to assist businesses and not-for-profit (“NFP”) organizations through the economic crisis created by COVID-19. However, many NFPs were concerned that if they received a loan and it was forgiven, the funds would be considered a federally-funded government grant and could potentially cause them to be subject to a Single Audit.
Under OMB Uniform Guidance, Single Audit requirements apply for an entity that expends $750,000 or more of federal assistance (commonly known as federal funds, federal grants, or federal awards) received for its operations within one year. This rigorous, organization-wide audit is required by the federal government to provide assurance that the entity has appropriate internal controls in place and is in compliance with program requirements. Accordingly, organizations would need to budget for increased compliance costs related to the audit.
The Small Business Administration (“SBA”) has brought joy to the nonprofit industry by concluding that PPP Loans issued to nonprofits do not represent federal financial assistance as contemplated by Uniform Guidance. Therefore, these loans will not be presented on the Schedule of Expenditures of Federal Awards (“SEFA”) and will not be subject to Single Audit requirements. However, SBA loans issued under the Economic Injury Disaster Loan program, which provided financial assistance to NFPs that suffered substantial economic injury, will be considered federal financial assistance and are required to be on the SEFA.
These updates were issued in response to a letter issued by the American Institute of Certified Public Accountants’ Governmental Audit Quality Center to the U.S. Office of Management and Budget.
Nonprofits with any questions about Uniform Guidance audits, PPP loans, the EIDL program or other finance or audit issues may reach out to Mazars USA LLP for further guidance related to their specific situation.