Nonprofits with big COVID-19 roles now face added scrutiny
At St. Paul-based African Economic Development Solutions, an organization that mainly assists businesses led by immigrant entrepreneurs, the past year was like none other in the nonprofit’s 13-year history.
“It was crazy busy,” said founder and chief executive Gene Gelgelu.
He said the loan, grant and advisory work the nonprofit does increased four-fold and produced support for about 1,400 entities through its various programs. Aside from its work to blunt the effects of COVID-19 business disruptions, the organization also concentrated on recovery of those impacted by civil unrest after the murder of George Floyd in 2020.
All that assistance did something else: It pushed the organization into a category where it is subject to stricter audits.
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Because it handled more than $750,000 in federal awards, African Economic Development Solutions is in the midst of what’s called a single audit. It means more scrutiny on how money was used, compliance tests on various grants and lots more paperwork.
The rush of federal money that many nonprofits received to help deliver services during the COVID-19 pandemic bumped some into the new financial realm. For those nonprofits, it’s the first time they must satisfy more rigorous audit requirements than they normally face.
“It's not something that we planned for in the budget. We didn't budget. Nobody paid for it,” Gelgelu said last week as he examined the latest inquiry from the outside auditor. “So we have to try and find the resources.”
Billions of federal dollars came to Minnesota as part of the COVID-19 response, and more is in the pipeline for 2022 and beyond. State and local government agencies relied partly on nonprofits to make sure dollars wound up in places where they were needed most — from housing to job supports to business survival grants and more.
Kate Barr, president of a nonprofit support organization called Propel Nonprofits, said dozens of tiny organizations accustomed to simple balance sheet audits will be in for their initial exhaustive looks this year after clearing the $750,000 threshold. She wouldn’t be surprised if it affects 100 nonprofits.
“It's quite detailed in terms of its level of checking and double-checking and triple-checking,” Barr said. “And it's also an added cost because it's an additional fee that you pay to your auditor.”
Barr said it doesn’t end there.
“Nonprofits in Minnesota, as part of their filing to be a charitable organization with the attorney general, have to have an audited financial statement if they have revenues of over $750,000,” Barr said. “And quite a few organizations got kicked over that number over the last year because of everything from special philanthropy, generosity of donors, federal money.”
To be clear, nonprofits that got Payroll Protection Program money to keep their staff employed won’t have that count against them.
Minnesota accountants are also keeping tabs. Elizabeth Barchenger, director of assurance at the firm Mahoney CPAs and Advisors, recently wrote about it for the state’s CPA association.
Barchenger said the situation could pose a difficulty for some organizations that hadn’t planned ahead — and expense, given that these kinds of audits can cost two to three times more than standard financial reviews.
“A lot of public accounting firms specifically avoid dealing with single audits because it is such a complicated thing,” Barchenger said. “It's possible their public accounting firm can't help them — somebody they have a long-term relationship with can't help them with this one specific new thing.”
It's still unclear how heavily these audits will be enforced or if the feds will be lenient. Barchenger has her ear to the ground.
“Parts of the government that are responsible for this are expecting a lot of hiccups, and a lot of people, too, have missed this,” she said. “And honestly, with the pandemic funding, you've probably heard it, it came out fast; it came out kind of sloppy. The guidance on it kept changing.”
Gelgelu, the nonprofit founder in St. Paul, said he’s on board with the transparency and believes he has the required information at the ready. It’s been a learning curve, he said. But at least now he knows what to expect moving into what’s sure to be a busy 2022.
“I don't mind doing this. I’m more about the funding source and timing,” Gelgelu said. “You know, it takes a long time to do the single audit.”