What You Need to Know About Beauty School HEERF Audits: Our Complete Guide


We know audits can feel overwhelming. So much of your beauty school’s success depends on maintaining practices that are up to code and compliant. At Lightheart, Sanders, and Associates, we understand this. That’s why we’ve put together this guide to help you pass your HEERF audit. We want to help your next audit go as smoothly as possible, so you can stop worrying and start reclaiming your time as a small business owner!

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!