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Shuttered Venue Operators Grant: Compliance Considerations and Non-Compliance Consequences

The Shuttered Venue Operators Grant (SVOG) program was created when the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Act) was signed into law on December 27, 2020. The Act provided much-needed capital to eligible governments, not-for-profits, and for-profit entities that include, among others, live venue operators, movie theaters, museums, zoos, and aquariums. In total, approximately $15 billion has been appropriated towards funding the SVOG program, which will be administered by the Small Business Administration (SBA), to help eligible organizations weather the pandemic.

In our previous article, entitled “The Curtain Rises on the SVOG,” certain considerations regarding the overall eligibility of costs, process for application, and other related tools (i.e., FAQ) for the program were provided. The SVOG program continues to evolve and the SBA is providing additional guidance through its website and FAQs.

What is a Single Audit?

The purpose of the single audit is to provide assurance to the federal government that a non-federal entity has adequate internal controls in place and is generally in compliance with program requirements. Under Subpart F of the U.S. Office of Management and Budget (“OMB”) Uniform Guidance (“UG”), an organization-wide financial and compliance audit is required if an entity expends $750,000 or more of federal awards received for its operations.

The most recent FAQ, dated July 22, 2021, clarified more questions regarding the program. One such topic surrounded the need for audited financial statements and/or single audits. While the SBA has been clear since inception that the SVOG program will be subject to audit for governments and not-for-profits, the following excerpts provided some additional insight:

FAQ #9. Will SVOG awards count toward the Single Audit Act threshold?

Yes. As a federal grant program, all funds awarded under the SVOG will count toward an entity’s requirement to comply with the Single Audit Act if it receives $750,000 or more in federal grant funding during a single fiscal year

FAQ #10. Will SBA consider audit costs to be an allowable expense?

Yes and no, depending on the audit threshold. Where an SVOG recipient is covered by the Single Audit Act, it may charge a reasonably proportionate share of the costs of audits required by, and performed in accordance with, the Single Audit Act to its SVOG. For SVOG recipients not covered by the Single Audit Act, audit expenses will not generally be considered an allowable grant expense.

FAQ #17. Will the SBA require audited financial statements as part of an SVOG application?

No. An audited financial statement is not required to apply for an SVOG award. However, where a for-profit SVOG grantee expends more than $750,000 in Federal funding in one fiscal year it will have the option of either providing a Single Audit Act audit or submitting an audited financial statement for that fiscal year. The SBA will direct grantees that expend more than $750,000 in federal financial assistance in one fiscal year to submit their single audit or audited financial statement during the post-award oversight, monitoring, and audit phase that SBA will conduct after SVOG awards have been issued.

The AICPA Government Audit Quality Center (GAQC) also continues to provide insight and information regarding all federal programs, including this Act. In regards to FAQ #17, the GAQC recently commented on the topic surrounding for-profit SVOG grantees expending more than $750,000 in federal funding in one fiscal year and the option of either providing a single audit or an audited financial statement for the fiscal year during the audit period. The GAQC alert stated that they have met with SBA staff to discuss the for-profit audit requirements at a high level and to communicate matters the SBA may want to consider for the for-profit audits, based on their experiences working with the Department of Health and Human Service on the Provider Relief Fund for-profit audits. However, the SBA staff is currently focused on getting the program up and running, and will likely meet with them in the future to further discuss the audit requirements.

As a result, recipients of these new awards may now find themselves being potentially subjected to the requirements of a single audit for the first time. For these entities, preparing for the added complexity and compliance requirements of a single audit may seem overwhelming, but it doesn’t have to be.

Single Audit Determination

Complete the following steps to determine if your organization is subject to a single audit:

  1. Compile all federal grant information, including grant award documentation and the Catalog of Federal Domestic Assistance (“CFDA”) number for each federal award. There are a vast number of federal awards programs being administered, which has only increased with the new COVID funding of programs such as the SVOG (CFDA 59.075) and Economic Injury Disaster Loan EIDL (CFDA 59.072). 
  2. Prepare a preliminary Schedule of Expenditures of Federal Awards (“SEFA”), which outlines the amount the entity expended for each federal program.

Internal Controls over Compliance with Federal Awards

A Single Audit requires grantees to establish and maintain effective internal control over compliance with federal awards. These internal controls should include maintaining written documentation of the organization’s significant policies and procedures as it relates to procurement, payroll, cash management and allowable costs. A careful review, and revision where necessary, of all existing policies and procedures should be conducted on a routine basis to ensure that internal controls appropriately address the compliance aspects of the federal program. These controls need to be put in place before you start spending federal funds, not after the grants have are already been spent.

Consequences of Non-Compliance

The consequences of not meeting single audit reporting deadlines or being noncompliant with programmatic requirements poses several potential risks and concerns for organizations. Noncompliance with the administration of the federal program and funds may lead to certain amounts being withheld, subject to potential take back by the granting agency, suspension or termination of the program in its entirety, and/or other legal actions. In addition, the results of a single audit must be submitted to the federal government. As such, any noncompliance matters noted, including internal control deficiencies, are available and accessible.

How We Can Help

The guidance related to the various forms of COVID-19 funding, including the CARES Act and the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, continues to evolve daily. Citrin Cooperman will continue to provide guidance and insight as additional information becomes available regarding the SVOG and/or other federal relief programs. Our professionals are ready and able to assist your organization navigate the complexities that surround the SVOG grant, including helping you understand the compliance requirements, as well as the potential audit and reporting matters. Please contact a member of Restaurant & Hospitality Practice and/or Not-for-Profit Practice with any questions.

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