Health care entities have received, or will receive, funds to combat the effects of COVID-19 from a variety of sources such as: Coronavirus Aid, Relief, and Economic Security (CARES) Act; the Federal Emergency Management Agency (FEMA); the Payroll Protection Program (PPP) through the Small Business Administration (SBA); and the Centers for Medicare and Medicaid (CMS) Accelerated and Advance Payment (AAP) Program.

In many cases, an entity will receive funds from multiple sources. These funds come with compliance requirements.

For example, the CARES Act grant requires an attestation within 30 days of receiving funds, which includes agreeing to specific terms and conditions. One aspect of the terms and conditions is adherence to requirements of 45 Code of Federal Regulations (CFR) Section 75.302 and Sections 75.361-75.365. The CFRs outline requirements surrounding financial management and standards for financial management including record retention requirements. In addition, many funding streams may allow for similar expenditures, so one must understand and properly track each funding stream and associated expenditure.

The following article outlines best practices you can consider to facilitate compliance with the various program requirements including:  

• Policies and procedures
• Expense tracking
• Identifying and quantifying lost revenue
• Reporting

Controls and Protocols

Policies and procedure are the foundation of creating a solid system of internal control. They help ensure management’s objectives are met, as well as compliance with federal, state, and other programs’ regulations, terms, and conditions.

While your organization may already have general policies and procedures to cover general program compliance, there are special considerations related to COVID-19 funding. Now is the time to review and update, or create new protocols and documentation to support decisions to specifically address potential areas that could result in noncompliance and put funding at risk. 

Once policies and procedures are updated or created, they should be communicated to applicable workforce members. Be sure to retain evidence of communication. 

Areas to review and update or document include the list below.

New General Ledger Accounts

To properly track the inflow and outflow of resources, new general ledger accounts and cost centers should be developed. The accounts and cost centers should be described in funding protocol documentation, guidelines, or policy appendix in addition to the specifics of what is intended to be included and used for each account.

A separate cost center or other accounting designation should be created for each funding stream with consistent application.

Expense Capturing

It’s important to properly capture only those allowable expenditures for each funding stream to ensure:

• All allowable expenses are captured.
• The proper level of effort is reflected.
• Funding sources are utilized as efficiently as possible.

Documentation will be key to defensibility in the event of an audit or to be prepared for any future additional program or funding requirements.

Lost Revenue Methodologies  

The CARES Act applies to lost revenue as well.

Developing and documenting methodologies to identify and quantify lost revenue will help ensure consistency of calculated amounts as well as defensibility in event of an audit. 

Monitoring Key Controls

Determining and documenting monitoring activities to proactively identify and correct process breakdowns will help ensure funding and program compliance requirements.

Expected Reports

Funding streams will have reporting requirements. Management should require a mechanism to track COVID-19-related expenditures and funding burn rates. Funding burn rates are important as some programs, such as the PPP loan, consider certain payroll-related expenses over eight weeks. Other funding streams, such as FEMA, include an awarded amount and specific allowable expenditures. To facilitate efficient use of all funding streams, it’s important to track each funding source and the level of spend, or burn rate, of each. Processes should be developed for both external and internal reports.  

Source Information

Retain sources for the guidance used to build out processes and determine allowable costs by programs and reporting requirements. This includes maintaining website information and the date the site was accessed.

A process for frequently checking governmental sites for updated and emerging information to proactively modify policies, procedures, and workflows to maintain compliance with program and funding requirements should also be developed.

Expense Tracking

Most program funding includes allowable costs and activities, as well as limitations to expenditures, and some programs allow the same types of expenses.

For example, relief funds from the CARES Act can only be used to prevent, prepare for, and respond to coronavirus, as well as for only health care-related expenses or lost revenues that can be attributed to COVID-19. There are also exceptions for the maximum level of certain expenses, such as executive pay.

Whereas the FEMA Public Assistance Program allows expenditures for personal protective equipment for health care providers working in a hospital treating COVID-19 patients.

In comparison, the PPP loan covers payroll costs, including costs for employee vacation, parental, family, medical, and sick leave. However, it excludes qualified sick and family leave wages for which credit is allowed under Sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA).  

Develop Dedicated COVID-19 Expense Accounts

The development of dedicated COVID-19 expense accounts should be outlined in policies and procedures. Read each funding source’s terms and conditions and funding materials thoroughly, then document:

• What expenses can be used with which funding source
• The lookback period for each funding source

Some programs are retroactive to the public health emergency declaration and others have different eligibility start periods.

A documented plan of which funding sources use which expenses can guide:

• The timing of which funding sources to use
• Consistent application methodologies
• The most efficient use of the received funding
• Compliance with each funding source’s requirements

It’s imperative to build out mechanisms to properly capture allowable expenses in each program and a process for monitoring to proactively modify funding source utilization. To avoid the appearance of double dipping into multiple funding sources, it’s important to have clear and traceable documentation to support all expenditures attributed to a particular fund or program.

Consider the following strategies for expense identification, utilization, and tracking:

• Follow documented processes outlined in the policies and procedures to consistently and properly capture expenses into these expense accounts and programs.
• Establish checklists or decision trees to assist staff with determining proper general ledger accounts to utilize.
• Train staff with approval authority and accounting staff on what to look for regarding proper COVID-19 recording.
• Identify and train on procedural steps to follow if an item doesn’t look as expected as part of the internal control structure.
• Ensure proper documentation is retained.
• Monitor expenses charged to new accounts to determine if allowable or meets funding requirements.
• Monitor for COVID-19-related expenses that haven’t been properly captured.

Lost Revenue Identification and Quantification

The CARES Act affords a great opportunity to identify and quantify lost revenue. However, there isn’t explicit guidance for lost revenue like there is for expenditures.

Some examples of items that can lead to lost revenue include:

• Cancelled procedures
• Reduced office and emergency department visits
• Inability to place residents in a long-term care facility due to COVID-19
• Staff utilized for non-billable activities such as training related to COVID-19

For each area where lost revenue could be identified and calculated, it’s prudent to develop and document a methodology to facilitate consistency across the organization.

Some other best practice considerations around lost revenue identification include:

• Consider revenue lost by payer and align it with the associated funding received.
• Create template(s) to help drive consistency and replicability; include narratives within the template—or a separate process document—to guide preparers and help ensure consistent application.
• Include and retain supporting documentation for each calculation.
• Build in appropriate controls for independent review of the calculations to ensure compliance.
• Retain documentation to support and defend amounts calculated and reported.

Developing Reporting Capabilities

Reports will be due to regulatory or other oversight agencies as part of the program or grant requirements. As an example, the first report for Provider Relief Funding is due no later than July 10, 2020. Prepare now and ensure information is accurately represented and that all required information is captured.

The following best practice activities should be started as soon as possible to prepare for the first wave of reporting:

• Review and document each program or funding reporting requirements.
• Create a matrix for all programs to provide a quick glance guide.
• Review and document reporting requirements for any new programs where funding will be requested.
• Work backwards for new funding streams to determine proper accounting and tracking needs as well as any potential overlap of allowable expenses between the new funds and existing funding.
• Work with the data analytics team to determine if any existing reports can be tweaked to efficiently prepare new reports.
• Gather teams across the organization for any new queries to determine who should provide input about what parameters to include.
• Perform a test run of the report and validate back to the source documentation.

We’re Here to Help

For more information on funding or program compliance—including building out an internal control structure to comply with funding or program terms and conditions or requirements—contact your Moss Adams business advisor.