By Marna Sanford – Government Relations Coordinator & Ben Shilling – Deputy Financial Officer
What a year! So much has happened this year that you have probably forgotten it was just months ago that Prince Harry and Megan Markle announced they were leaving the royal family and the west coast was invaded by MURDER HORNETS!!! It was also only a few months back that a global health emergency emerged that has changed life as we know it for the foreseeable future.
As a result of the virus, Congress passed the CARES Act, which provided for financial relief to states, tribes, and local governments for the increased costs associated with the COVID19 public health emergency. Due to lots of pressure from tribal advocates, Tribes received $8 billion according to a formula implemented by the US Department of Treasury.
We have been in contact with almost every single one of our communities as you have planned your assistance programs and addressed long overdue maintenance issues in your water and sewer systems, provided remote work and schooling options, cleaner heating systems, and food security. It’s been a whirlwind of spending and planning to shore up our communities for the continuing impacts you have felt from the pandemic.
As a constant reminder, the Department of Treasury will be enforcing the statutory guidelines for how funds can be used. In short, CRF funds can only be used for:
- “Necessary expenditures incurred due to the public health emergency”
- Those expenditures that are “not accounted for” in the tribe’s 2020 approved budget; and
- Expenditures that incurred between March 1, 2020 and December 30, 2020.
Treasury has segmented expenditures into 5 types of permitted uses:
- Medical expenses
- Public health expenses
- Payroll expenses for public health, safety, direct responders, others dedicated to responding to the public health emergency
- Expenses to help facilitate compliance with public health measures
- Economic support for small businesses, government employee payroll support, and unemployment insurance
Treasury has also identified “ineligible expenses” such as certain payroll costs, expenses that will be reimbursed by another federal program, and per capita distributions to tribal members.
So while it feels like 2020 is the year that just keeps on giving; one of its most belated gifts will be the gift of an audit requirement that is likely to hit sometime in 2021. TCC has been able to insulate many of our villages from this requirement in the past, by having their federal and state funds flow through TCC and thereby keeping the audit requirement with TCC. However, most of the tribal set aside in the CARES act went directly to the villages. Combined with your direct receipts, your CARES funding is likely to cause many of our villages to fall into the mandated federal single audit. However, there are strategies that may be utilized to avoid the audit and/or maybe limit it to just one year.
Before we get into those strategies, let’s review the actual requirements.
A federal single audit is required for any fiscal year in which the village SPENDS $750,000 or more of federal funds. The audit requirement is not triggered by receiving the money. It is only triggered by expenses. And expenses are triggered by when the work is done or the goods are received. It is not triggered by when you write the check. So for any fiscal year in which you have $750,000 of work done, or goods received that are funded by federal funds, you will have to have a federal single audit performed. And remember, if your entity will be required to have a federal single audit performed, it won’t just be the federal funds that are audited, it is the entire organization and all funds expended and funds received and all assets and liabilities.
Here are a couple of strategies to possibly mitigate the audit requirement, keeping in mind that the requirements of your federally funded programs may not allow you to take advantage of these strategies.
Spread your expenditures across two different fiscal years. For instance, if your fiscal year ends on September 30, you can set your program up to have part of the work performed before September 30 and some of the work performed after September 30. So if you have a $1,000,000 grant, and that is your only source of federal funds, try to spend less than 70% in one fiscal year and the balance in the next fiscal year. That way neither year will trigger a federal single audit. Remember that it isn’t which year you write the check, its which year was the work done, so be careful.
Spend the bulk of your funds in a single fiscal year in order to avoid multiple federal single audits. If you know you are going to exceed the threshold in one year, then spending as much of the federal funds as possible in that single year could help you avoid having to do another audit in the next year. This is only an option if the type of program you are undertaking lends itself to this type of schedule.
If you have not had audits performed routinely, it can be a big hurdle to overcome. Just getting the records ready to be audited can be a substantial task and may cost as much as $10,000 or more to accomplish depending on whether you are able to perform the work in house or have to contract with an accounting firm to assist. The audit itself can cost $20,000 or more depending on the size of you organization and the condition of your records. Audit and accounting fees are typically allowable costs that can be charged against the federal funds so be sure to set some aside for this work that will come after the fact.
The big take away here is that the audit threshold is $750,000 of federally funded EXPENSES that are incurred during a single fiscal year. And the State of Alaska has the same threshold for spending of State funds. So all of the above would also apply if you receive state funding and you want to manage the need to have State Single Audits performed.
If you have any questions about how your CARES funding can be used, or if you have any questions about the federal single audit requirements, please don’t hesitate to reach out to us.