Certain Factors to Consider for the Fiscal 2020 Year-end Audit Cycle
By Damion Cogle, Director, Assurance Services
As the fiscal 2020 year-end audits begin, both auditors and organizations have accepted the fact that the audit process will not be the same as in years past, due to the impact of COVID-19 on the overall auditing environment. COVID-19, among other things, will impact the nature, timing and extent of the audit procedures performed. This article identifies some of the areas that will be impacted, as well as some of the considerations that organizations and auditors should keep in mind when preparing for their upcoming audits.
Traditionally, audits are conducted onsite at the organization, within timeframes ranging from one week to five weeks, depending on the size of the organization. However, as a result of the COVID-19 pandemic and particularly in the healthcare industry, onsite auditing has been reduced significantly from prior years. Many organizations are limiting access to essential personnel in their facilities in order to minimize the risk of patients’ or residents’ potential exposure to COVID-19. Understandably, organizations–especially nursing homes and skilled nursing facilities–are not allowing auditors and other outside vendors to perform services in the usual manner, which presents a new set of challenges for both the auditor and the client.
As a result, the client and the auditor will need to work together to ensure that the audit continues as planned. Management and the auditor should establish clear and frequent lines of communication to ensure that required information is transferred, requests are fulfilled, and documentation is readily accessible on both sides. Ultimately, a greater emphasis will be placed on the use of secure data portals to transmit audit information and the quality of the information being uploaded to the portals.
Internal Control Processes
Due to COVID-19, many organizations transitioned their employees to working remotely as permitted by the infrastructure of the organization. As a result of this change, internal control processes that were originally performed in-person/on-site at the organization are now being performed remotely. Therefore, organizations should document the change in these processes and procedures, with pre-COVID-19 and post-COVID-19 controls. The auditor will then need to ensure that key internal controls were appropriately modified, designed and implemented. In addition, the auditor will need to gain an understanding over such internal controls and perform a walk-through, as deemed appropriate.
Organizations are encouraged to have appropriate internal control documentation that addresses both pre- and post-COVID-19 processes, with key controls clearly identified. Lack of adequate documentation of such internal controls could result in auditors identifying and reporting significant deficiencies or material weakness in internal controls over financial reporting, in accordance with AU-C Section 265, Communicating Internal Controls Related to Matters Identified in an Audit.
Additional Revenue Stream – Telehealth
With the growing number of organizations and individuals facing restrictions regarding onsite operations as a result of the pandemic, another area to consider is telehealth medicine. This segment of the healthcare industry has seen a significant increase in utilization since mid-March 2020, with many organizations switching over some or all of their services to this model. In certain situations, the increased telehealth utilization will result in this revenue stream being considered significant for this year’s audit. As such, both the auditor and the client need to ensure that the revenue recognition processes and methodology is appropriate. Refer to the article in the August 2020 edition of Trending in HealthCare for further discussion on this area.https://www.marcumllp.com/insights/telehealth-effectiveness-from-a-business-process-standpointCoronavirus Aid, Relief and Economic Security (CARES) Act Funding
To add to the challenges identified above, organizations are now faced with the impact of the COVID-19 funding received from both state and federal agencies on State and Federal Uniform Guidance single audits. Organizations not previously subject to single audit may now be subject to such. This is further complicated by the fact that the Uniform Guidance compliance supplement related to the various sources of funding has not yet been released, and as a result, both auditors and organizations are uncertain of all the audit requirements needed to fulfill the compliance requirements of the respective awards.
As auditors, we continue to encourage organizations to maintain detailed records to support the use of funds from all funding sources, which will ensure a smoother audit process once the updated compliance supplement is released. This updated release is expected in October 2020.
As we continue to navigate the intricacies of auditing in this new environment, we encourage organizations to consider both factors noted above, as well as potential noncompliance; the effect of noncompliance on the organization’s financial liquidity, including going concern; and debt covenant compliance. This year’s audit cycle will provide many challenges and may require thinking outside the box, but in the end, we will all emerge as better professionals, meeting and surpassing expectations.
Coronavirus Resource Center
Have more questions about the impact of the coronavirus on your business? Visit Marcum’s Coronavirus Resource Center for up-to-date information.