Billions in Federal Provider Relief Funds Have Been Distributed. Now Come Auditing and Compliance.

Anna E. Stevens, CPA, is the Partner-in-Charge of Health Care Services at Weaver, Of the $175 billion in federal Provider Relief Funds (PRF) allocated to healthcare providers, $125 billion has been accepted by hospitals and healthcare providers. The cash infusion was designed to cover costs related to COVID-19 related care. These targeted payments were earmarked for preventing, preparing for, and responding to the Coronavirus, solely for reimbursement of healthcare-related expenses or lost revenue directly attributable to COVID-19. 

Early on, providers who received PRF funds had to accept or reject the money without information about reporting and auditing requirements. However, Health and Human Services (HHS), the administrator of all PRF funds, has since established reporting and auditing requirements to ensure proper compliance. 

Thousands of hospitals and other providers have received and accepted payments from the Provider Relief Fund. As they begin to consider financial reporting and audit requirements, some will find themselves in unfamiliar territory.

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 expend  $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. 

Reporting requirements

Recipients will report the use of their funds in two categories. The first allows the recipient to report any healthcare-related expenses due to COVID-19 that were not reimbursed from another source. The second is for any PRFs received in excess of the healthcare-related COVID-19 expenses. The entity may be allowed to attribute funds in the second category to lost revenue.

Healthcare-related expenses may include supplies, equipment information technology, and facilities. Allowable general and administrative expenses could include rent, insurance, personnel, fringe benefits, lease payments, and utilities. Lost revenue is allowed up to the difference in 2019 and 2020 net patient service revenue.     

The HHS reporting system also will require certain non-financial data. Demographic information will include the reporting entity, the tax identification number, the national provider identifier, the fiscal year-end date, and the federal tax classification. Recipients will need to provide, by quarter, personnel metrics, patient metrics, and facility metrics. The personnel metrics may include labor by category, hires and rehires, and terminations. Patient metrics will require information such as a number of patient visits, patients admitted, and resident patients. 

If there was a change in ownership for the reporting entity, certain details around the acquisition or divestiture must be disclosed. Finally, the entity should disclose whether it is subject to a Single Audit and whether the auditors have selected PRF to be within the scope of the Single Audit.

The reporting system will become available to recipients in early 2021. Recipients that have expended all funds prior to Dec. 31, 2020, may submit one report. If a recipient has expenditures subsequent to Dec. 31, 2020, a second and final report will be required.

HHS will continue to provide information and updates in webinars and FAQ guidance leading up to the reporting deadlines.

What should healthcare organizations be doing to prepare?

Preparation should begin now. When it comes to expenditures, healthcare organizations should stick to the fundamentals of the purpose of the funding and document, document, document.  

1. 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.

2. 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.

3. 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 a third-party audit.

Provider Relief Fund money was intentionally distributed to create as little disruption as possible for healthcare providers as they work on the front lines of this crisis. However, as providers continue to accept these funds, they can help reduce future headaches by keeping current and future reporting and audit requirements in mind.

Anna E. Stevens, CPA, is the Partner-in-Charge of Health Care Services at Weaver, a Texas-based national accounting firm.

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