As of July 24, hospitals and other healthcare providers have accepted more than $64 billion in federal payments through the Provider Relief Fund, with the expectation of more information about reporting and audit requirements. As they begin to consider financial reporting and audit requirements, some will find themselves in unfamiliar territory.
The fund was created as part of the federal CARES Act. Health and Human Services (HHS) is charged with distributing a total of $175 billion in federal funds that have been allocated to this program. Provider Relief Fund payments are intended to be used for preventing, preparing for and responding to the coronavirus and may only be used to reimburse for health care-related expenses or lost revenues attributable to COVID-19. The Provider Relief Fund includes a general distribution of $50 billion to hospitals and other health care providers as well as targeted allocations to specific groups, including health care providers in high-impact and rural areas and skilled nursing facilities.
For the general distribution, recipients may not have applied for their allocations. Funds were distributed based on formulas driven by the provider’s 2019 Medicare Fee-For-Service payments and most recent annual gross receipts.
Historically, under most circumstances, only non-federal government agencies and nonprofit organizations have been subject to audit requirements under the Single Audit Act. However, Health and Human Services (HHS) recently clarified that for-profit entities that receive $750,000 or more of Provider Relief Funds during the entity’s fiscal year will be subject to an audit as described in section 75.216 of HHS’s adoption of the Uniform Guidance.
HHS is expected to release detailed reporting requirements on August 17, 2020.
What should health care organizations be doing to prepare?
Audit preparation should begin now, whether or not an organization has previously been subject to the single audit requirement. When it comes to expenditures, health care organizations should stick to the fundamentals of the purpose of the funding and document, document, document.
Follow accounting policies and procedures and retain records for COVID-19 expenses.
- As much as possible, stick to your policies and procedures and document any changes as a result of COVID-19. Manual processes are most likely to be affected. Communicate procedural changes to staff.
- Retain records for COVID expenses as if any of these expenses could be subject to audit, because they could. Good record keeping will reduce the possibility for claw-back of funds.
Maintain internal controls over compliance.
- Document any changes in internal controls caused by COVID-19 funding. Know what your review and approval process is, who is responsible, and how it is documented.
- Focus on internal controls in these key areas: payroll, non-payroll, and procurement. Payroll should include time and effort reporting requirements for all staff being paid with COVID-19 funding. For non-payroll expenditures purchase orders should reference COVID and be adequately supported by third party invoices or the like. For procurement ensure federal procurement requirements are being followed. Noncompetitive procurements should be well documented.
Understand compliance requirements
- Assign a Program Director to oversee the expenditures of the federal funds. Program Directors need to obtain an understanding of the grant(s) and the compliance requirements to ensure the entity is able to comply.
- With an influx of new money, be sure to obtain the necessary documentation from your granting agency: Also, keep an eye on your expenditures of federal awards. Keep in mind the $750,000 threshold for triggering an audit.
Provider Relief Fund money was intentionally distributed to create as little disruption as possible for health care providers as they work on the front lines of this crisis. The after effects of complying with audit and reporting requirements related to these funds will likely keep recipient providers busy long after the pandemic is over. As providers continue to accept these funds, it is important to keep future reporting requirements in mind.
Anna E. Stevens, CPA, is a partner at Weaver, a Texas-based national accounting firm. She has served clients in a variety of health care entities, including physician practices, ambulatory clinics, acute care hospitals and post-acute care facilities.