The Department of Education (ED) has repeatedly told schools that it will require an audit of the school’s use of HEERF funds, and after over a year of waiting, we finally received the ED’s HEERF Audit Guide. Keep reading to see what this audit looks like, requirements, and how you can prepare to pass your HEERF audit!

What is HEERF?

Before we jump into the details of the audit guide and what your auditor will need to complete the HEERF audit, let’s refresh the details of HEERF.

HEERF I

The initial round of money stemmed from the Coronavirus, Aid, Relief, and Economic Security (CARES) Act which included the Higher Education Emergency Relief Fund (HEERF). To proprietary schools, those funds came in two forms:

1. A student portion and
2. An institutional portion.

These funds are often referred to as HEERF I. The Department of Education posted the allocation of funds made available to schools. While not required, the Department did encourage institutions to prioritize students with the greatest need.

The student portion of the funds was to go directly to students and could be used for eligible COA expenses such as food, housing, materials, technology, health care, and child care. The institutional portion could be used to cover expenses due to significant changes to the delivery of instruction due to the coronavirus or to make additional financial aid grants to students. The Department seemed to give great latitude to schools to use professional judgment in determining if a cost was due to significant changes. Institutions were required to sign a funding agreement for both portions of the grant.

HEERF II

The second round of money came from the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 which was passed in December of 2020. For proprietary schools, the amount only included a student portion. These funds are referred to as HEERF II. Since proprietary schools were limited to just a student portion, we will not discuss the institution portion here. The changes from HEERF I included an increase in the things students could use the funds for. Specifically, funds could be used for emergency costs arising from COVID-19 such as tuition, food, housing, health care, and childcare. If a school participated in HEERF I, there was no need to sign an application or form.

HEERF III

Most recently, the third round of funds was made available through the American Rescue Plan. Again for proprietary schools, the amount only included a student portion. These funds are referred to as HEERF III and have the same use guidance as HEERF II. Requirements related to receiving the funds, reporting, and deadlines have not been released yet.

HEERF Audit FAQ

Who must get a HEERF Audit?

In a letter sent to all schools on March 8, 2021, the requirements for a HEERF compliance audit were finally released. Proprietary schools that expended $500,000 or more in total HEERF grand funds (student and institutional portion, and all three funds) during its fiscal year must obtain a compliance audit. Also, if a school is on Heightened Cash Monitoring (HCM 1 and HCM 2) and dispensed any HEERF funds, a compliance audit is required.

Schools that did not meet the requirements for a compliance audit are still required to adhere to all rules and requirements, and records must be available for review or audit by appropriate officials of ED.

Does my HEERF auditor need to meet GAGAS guidelines?

The HEERF compliance audit must be done following Generally Accepted Government Auditing Standards (GAGAS). This is the same requirement as your normal compliance audits and must be done per the requirements of the new HEERF compliance audit guide.

When will new HEERF audit guidelines be effective?

The effective date and implementation requirement of the guide is “upon issuance for the first fiscal year during which a school expend[ed] HEERF award funds.” In other words, it is effective immediately and is applicable for 2020.

How do I submit my report and when is it due?

The report will be submitted through the eZ-Audit System and is due either 120 days after the issuance of the Guide, or the submission deadline for the school’s Title IV audit. For schools with a December year-end, the deadline is July 29th. All other year ends would use their compliance audit due date.
If the school is submitting the HEERF audit report with its annual compliance report, it will use the “Other” file type to upload its compliance attestation engagement package. If the school is submitting the file at a different time, it will use the stub audit section, and the “HEERF audit package” should be entered as the reason.

What are the requirements for audit firms?

The audit guide contains a great reminder to firms about the rules and regulations surrounding the performance of compliance audits for ED. This reminder includes the need to follow the standards put forth as GAGAS and the AICPA.

Many of the items outlined are similar to traditional SFA compliance audits. While not required, we don’t see why a school would choose someone besides their SFA compliance auditor to perform this work.

What is audited?

Similar to a traditional SFA audit, an auditor is testing management’s assertions that it complied with specific rules and regulations of the program. Those assertions are that the school complied with all criteria effective during the attestation period, as appropriate for the following areas:

1. Activities Allowed or Unallowed – Was it spent on an allowable activity?
2. Allowable Costs and Cost Principles – Was it spent for allowable cost?
3. Earmarking – Did you give students at least 50%?
4. Period of Performance – Was it used for an expense in the proper time frame?
5. Procurement Suspension and Debarment – Did you make sure the money was only spent on people and entities that are not prevented from receiving federal funds?
6. Reporting – Did you follow the reporting rules?

What Happens Next?

The ED’s audit guide did not contain many surprises. It follows the pattern established with the 2016 SFA audit guide. Firms should send information request sheets based on the required steps outlined in the audit guide. Schools should be aware of the deadlines and work with their auditor to complete them within the guidelines.

If you are a school required to perform this audit and you haven’t completed your 2020 compliance audit, we recommend talking to your auditor to determine if the work can be completed with the compliance report to save time and money.

Have More Questions? Get in Touch!

If you have any more questions about the new HEERF audit requirements and what they mean for your school, don’t hesitate to get in touch. At Lightheart, Sanders and Associates, we specialize in the audits, rules, and requirements of student financial aid with an emphasis on beauty schools. We work with over 110 beauty schools nationally!

Whether you are ready to finally work with a professional who knows your industry, or you just need a consult, we are here for you! Let us help you lose some stress and regain your time as a small business owner so you can get back to doing what you do best: running your business!

The post What You Need to Know About Beauty School HEERF Audits: Our Complete Guide first appeared on Lightheart, Sanders and Associates.

Not every accounting firm is qualified to perform a student financial aid audit for a beauty school. Of the well over 100,000 accounting firms in the U.S., you can narrow the field by asking whether a firm performs audits at all, whether it is qualified to perform Yellow Book (government) audits, and whether it specifically performs student financial aid audits. From there, the right fit depends on fees, firm size, communication style, industry knowledge, and personality. Lightheart, Sanders and Associates specializes in audits for beauty school clients and can walk you through what to look for before you choose a firm.

Who can perform a student financial aid audit?

There are well over 100,000 accounting firms in the U.S. However, not every firm is qualified to perform a student financial aid audit.

First, some firms do not perform audits at all. The main reason a firm avoids performing audits is the additional cost, liability, and scrutiny involved. The audit world is full of standards to ensure firms are performing the necessary tasks to meet the expected quality of a CPA firm. These standards focus on how an audit is performed, what auditors say in their report, and general requirements of training, proficiency, independence, and due professional care. Those standards are promulgated by the Auditing Standards Board, and firms that perform audits are required to participate in the Peer Review Program, in which another firm reviews their work to determine whether the audit was performed according to the standards. This additional work, cost, and reporting to governing bodies can be overwhelming for a firm without a focused audit team, so you can narrow your list by asking firms whether they perform audits at all.

Second, student financial aid audits are government audits. In addition to the general requirements to perform audits, government audits carry additional rules and regulations commonly referred to as the “Yellow Book”, and an audit prepared using those rules is called a “Yellow Book audit.” The standards focus on independence, due care, continuing education, supervision, and quality control. Because of these additional requirements, CPA firms often will not perform this type of audit unless they do enough of them for it to make economic sense, so the follow-up question is whether a firm is qualified to perform Yellow Book audits.

Third, even within CPA firms that perform Yellow Book audits, expertise varies widely. Yellow Book covers all aspects of government entities, including cities, schools, state agencies, and federal programs, each with its own rules and regulations. Some firms specialize across several of these areas, and some have found areas that are similar enough to balance together, but many require significant time and effort to understand with little crossover between them. That makes it worth asking directly whether a firm performs student financial aid audits specifically.

How do you choose the right firm once you have narrowed the list?

Once you have narrowed your choices down to firms qualified with the necessary knowledge and understanding to perform the audit, the standards are specific enough, and the audit guide dictates the procedures firms take, that the report itself and the steps to produce it look similar across firms. Even so, there are real differences between firms.

Choosing the right firm for your school is like choosing the right shoe: you have narrowed the choices down to shoes that can do the job, but now it is time to figure out which one fits best. That means evaluating what you are looking for in the relationship and which aspects of a firm matter most to your needs.

What should you weigh when comparing firms?

• Fees: often the first question asked, but not always the most important one for the relationship. Some schools are simply looking for the most cost-effective way to obtain a required financial and compliance audit and do not mind if steps are skipped, support is limited, or the firm does not invest in staying current, which are the areas that are often reduced to compensate for lower fees. Other firms bring significant value to the relationship, but that value might not be useful to every school.
• Size: a two-edged sword. Larger firms tend to have more internal resources for complex issues and more staff to handle larger audits, but that size can also mean higher fees, since work goes through more layers of review, and it can mean the person doing the bulk of the work does not have authority over critical decisions. Larger firms also tend to see more staff turnover from promotions and departures. A smaller firm will have fewer people involved in the audit and more hands-on involvement from management and ownership.
• Communication: it is easy to assume that as the client you should dictate exactly how information is communicated and delivered, but pushing firms outside of their designed approach tends to cause delays, problems, and hiccups in the audit process, which leads to frustration on both sides. Understanding how a firm prefers to receive and perform certain procedures, and how much it leverages technology to safely exchange information and deliver reports, is critical to outlining a workable relationship.
• Industry knowledge: even among firms that know student financial aid audits, focus varies. A beauty school and an allied health school have different needs, as does a single-location school compared with a nationwide entity of 50 campuses. The different characteristics of proprietary schools create different needs and expectations of firms.
• Personality: firms have a personality, often shaped by their leadership. Finding a firm you feel comfortable talking to about difficult issues matters. Consider how easy it is to talk to your audit team, whether your auditor can explain complex accounting or auditing issues in a way you can understand, and whether they take the time to help you understand problems and issues as they come up.

What questions should you ask a prospective audit firm?

There are two key things to evaluate when choosing an audit firm: the firm’s skills, knowledge, and expertise in performing the audit and understanding the beauty industry, and the firm’s approach and methodology, which shapes the relationship between the school and the audit firm. Selecting the right firm can be a major tool in successfully meeting your regulatory requirements. Consider asking:

• Do you perform audits?
• Are you Yellow Book qualified?
• How many, or how well, do you know the student financial aid audits?
• What percent, or how many, beauty schools do you have as clients?
• How many people will be involved in my audit?
• Whom will I have the most contact with?
• How is information exchanged between us?
• How are findings handled?
• How often are auditors changed from client to client?
• Describe your ideal school client.
• What are the most important aspects of the relationship between the school and the audit firm?

Lightheart, Sanders and Associates specializes in audits for beauty school clients. When you work with us, you can be certain you are partnering with a firm that understands the importance of the audit process, both technically and in the relationship it takes to get through it smoothly.

Next step: If you want a partner who will have your back throughout the audit process, we are here for you. Contact us today to learn more about our CPA firm and our experience, knowledge, and technological savvy in beauty school audits.

Frequently asked questions

What is a Yellow Book audit?

A Yellow Book audit is a government audit performed according to the standards in the Government Accountability Office’s “Yellow Book,” which focus on independence, due care, continuing education, supervision, and quality control. Student financial aid audits fall under these rules.

Why do some accounting firms not perform student financial aid audits?

Performing audits carries additional cost, liability, and scrutiny, and Yellow Book audits add further rules and regulations on top of that. Many CPA firms will not take on this work unless they perform enough of it to make it economically worthwhile.

Is a bigger accounting firm always the better choice for a school audit?

Not necessarily. Larger firms often have more internal resources for complex issues, but can also mean higher fees, more staff turnover, and less decision-making authority for the person doing the bulk of the work. Smaller firms typically offer more hands-on involvement from management and ownership.

What should I ask a firm before hiring them for a student financial aid audit?

Ask whether they perform audits at all, whether they are Yellow Book qualified, how many beauty schools they serve, how many people will be involved in your audit, and how communication and findings are typically handled.

The post Choosing An Auditor For Your School first appeared on Lightheart, Sanders and Associates.