Commonly Missed Requirements to Improve State Compliance

Managing Federal Awards to Maintain Compliance

CPAs & Advisors

Ali Barnes
Ali Barnes CPA, CGFM Managing Principal CPAs & Advisors

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The changing landscape of how local units of government are being funded during the COVID-19 pandemic requires an advanced understanding of the requirements set forth by funding agencies. Governmental entities that historically haven’t received federal funding are now receiving it through various programs and grants. Understanding the requirements set forth by grantors and properly managing the flow of federal dollars is crucial to maintaining compliance. The following are a few areas to consider when managing federal awards.

1. Understand the Requirements of the Specific Award
While there are overarching guidelines to follow when using federal funding, each award may have unique requirements. Read the grant award documents to ensure an understanding of the conditions. If requirements are unclear, obtain a better understanding from the grantor as soon as possible to ensure the grant is being administered in the manner intended.

Sometimes the grantor itself will be unsure of how to interpret the application of a law or regulation that relates to the grant. Should the grantor be unable to provide further guidance, make sure the local unit of government documents the assumptions used when interpreting a requirement and how it was applied. When possible, obtain in writing from the grantor its agreement, or at least acknowledgment, of the assumptions used.

2. Advance Funding vs. Reimbursement Basis
Some grants allow for the payment of funds to a grantee before expenditures are incurred. Other grants are on the reimbursement basis, which requires grantees to incur expenditures and then subsequently request reimbursement from the grantor. Understanding which method is allowed is necessary to ensure compliance with the grant, properly account for grant receipts, and manage cash flow.

If funds are received before incurring allowable expenditures, the receipt should be recorded as a liability until the time allowable expenditures are incurred.

3. Allowable Expenditures
The purpose of grant awards can vary significantly. Expenditures can mean anything from wages and related benefits to goods or services purchased from vendors, to recouping indirect expenses. 2 CFR 200 defines expenditures as charges made by a nonfederal entity to a project or program for which a federal award was received. The costs may be reported on a cash or accrual basis as long as the methodology is disclosed and is consistently applied.

Grants may consider indirect costs to be allowable expenditures. The de minimus indirect cost rate is 10%; however, not all grants allow for this rate to be used. Consult the award documents or budget to aid in determining what is allowable for your entity.

Grant award documents, the related federal compliance supplement, and approved grant budgets typically outline the definition of allowable expenditures. Consulting with the grantor is often the best first step when the allowability of an expenditure is unclear.

4. Reporting Requirements
Most federal grants have reporting requirements. The type of conditions can vary depending on whether the award is a direct award or if the recipient is a subrecipient. Reports may be required monthly, quarterly or annually. Some grants only require reporting when cash reimbursement is requested. Grants may have specific forms that need to be used or may require submission of information via an online platform. Review the grant award requirements to ensure information is being reported timely and in the manner requested.

Managing federal awards can be complex. Obtaining an understanding of the requirements of each award up front, as well as throughout the life of the award, will aid the local unit of government in meeting the applicable compliance requirements.

No matter where your unit of government is in the consideration of, application for or use of federal awards, reach out to a member of Yeo & Yeo’s Government Services Group if you have questions or need further insight.

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