I'm a little concerned about your auditors...
All of your customers are subject to that kind of due diligence. The only thing that might lead anyone to the mistaken impression that there is a higher standard for exempt persons is this language in Part V of Form 110 regarding biennial renewals for phase II exempt persons:
I certify on behalf of the bank that its system of monitoring the transactions in currency of an exempt person for suspicious activity has been applied as necessary, but at least annually, to this exempt person. That language did not reflect any regulatory standard or, as a simple instruction to a form, create a higher standard for phase II exempt persons. It simply required banks to certify that they had performed ongoing due diligence on this particular customer.
Regardless, you are no longer required to file biennial renewals; i.e. you are no longer required make that certification as the
Form 110 on the FinCEN web site indicates.