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October 5, 2020 Article 7 min read

Coronavirus relief funds come with significant strings attached. Funds must be used for the specified purpose, costs carefully identified, and reporting and recordkeeping requirements strictly followed. Here’s what you need to know to stay in compliance.

Empty desks and chairs in a room.The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020, to provide fast and direct economic assistance in light of the COVID-19 pandemic. The CARES Act established the $150 billion Coronavirus Relief Fund (CRF), which provides for payments to state, tribal governments, territories, and local governments with a population over 500,000.

Aside from the direct assistance provided by Treasury, CRF resources have also been made available to local units of government through pass-through programs established by direct recipients. Institutions of higher education, schools, nonprofits, and small businesses are also receiving CRF resources through state or local government programs.

If you’ve received CRF funding, no doubt you’ve been trying to weed through myriad requirements and resources. Here, we point out three important areas to consider.

If you’ve received CRF funding, no doubt you’ve been trying to weed through myriad requirements and resources.

CARES Act administrative requirements

Source of funds

As CRF funds (CFDA 21.019) start to flow through, you’ll need to understand the source of funding and distinguish the resources between directly funded grants and pass-through grants, and further for pass-through grants, by funding agency. Direct payments will be those directly from the Federal Department of Treasury. Pass-through funding could be received from the state or other local governments within the state that received CRF monies.

Distinguishing between directly funded and pass-through CRF monies is important as the requirements could be different for each different pot of money. For example, directly funded recipients have specific reporting requirements that pass-through entities don’t explicitly have. Additionally, each pass-through entity could impose additional/differing requirements.

Distinguishing between directly funded and pass-through CRF monies is important as the requirements could be different for each different pot of money.

Eligibility of costs

Section 601(d) of the Social Security Act, as added by Section 5001 of the CARES Act, outlines that payments from the CRF can only be used to cover costs that:

  1. Are necessary expenditures incurred due to the public health emergency with respect to the COVID–19 pandemic.
  2. Weren’t accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act), for the state or government.
  3. Were incurred during the period that begins on March 1, 2020, and ends on Dec. 30, 2020.

The Department of Treasury has published COVID-19 relief fund guidance on eligible uses of these funds as well as a COVID-19 relief fund frequently asked questions document.

Records to support compliance

As clarified in the Treasury’s FAQ, CRF is subject to the Single Audit Act and related provisions of the Uniform Guidance. Treasury has specifically stated in the FAQ document that CFR Sections 200.303 regarding internal controls 200.330-200.332 for subrecipient monitoring and management, as well as Subpart F regarding audit requirements, are applicable to COVID-19 relief funds. In order to assess documentation requirements, it’s recommended that you follow the underlying principles outlined in Uniform Guidance and the Department of Treasury

In addition, because the regulations and guidance isn’t explicitly clear in all cases, document your interpretation of the guidance (including rationale to support that a cost is NOT ineligible), the date the interpretation was made, the guidance available as of that date, and your rationale to support how the proposed costs align with your interpretation of that guidance.

Because the regulations and guidance isn’t explicitly clear in all cases, document your interpretation of the guidance.

Treasury has provided an “administrative accommodation,” according to question 2 in their FAQ document, which provides that “a State, territorial, local or Tribal government may presume that payroll costs for public health and public safety employees are payments for services substantially dedicated to mitigating or responding to the COVID-19 public health emergency.” Subsequent to this Treasury FAQ being posted, the Office of Inspector General came out with what appeared to be conflicting guidance, causing much consternation among CRF recipients. Recently, on Sept. 21, 2020, that guidance was amended and reissued. The revised OIG FAQ document (OIG-CA-20-028, as revised) now explicitly supports this administrative accommodation, reinforcing the concept that governments will not have to demonstrate/substantiate that a public health or public safety employee’s function or duties were substantially dedicated to mitigating the emergency. Nonetheless, governments must still maintain records and documentation that support the payroll amounts reimbursed using CRF proceeds.

For other eligible costs, the OIG for the Department of Treasury memorandum, Coronavirus Relief Fund Reporting and Record Retention Requirements (OIG-CA-20-021), provides some examples of records to support compliance with subsection 601(d). We have outlined a few of these examples below:

  • General ledger and subsidiary ledgers used to account for (a) the receipt of CRF payments and (b) the disbursements from such payments to meet eligible expenses related to the public health emergency due to COVID-19
  • Payroll, time records, human resource records to support costs incurred for payroll expenses related to addressing the public health emergency due to COVID-19
  • Contracts and subcontracts entered into using CRF payments and all documents related to such contracts
  • Grant agreements and grant subaward agreements entered into using CRF payments and all documents related to such awards

Identification and tracking of costs

To accurately capture costs associated with COVID-19, you will need to implement a mechanism to identify costs that are eligible for CRF resources and track these costs separately from costs incurred as part of your normal operations. Tracking these expenses against the specific federal funding it was applied to will also ensure that you aren’t charging the same costs to two or more funding opportunities.

Revenue recognition requirements

All transactions stemming from the CRF may not be accounted for in the same period. The facts and circumstances specific to the CRF award that you received will need to be evaluated. To assist with this evaluation, you should consider the Technical Bulletin, 2020-1 titled “Accounting and Financial Reporting issues related to the CARES Act and Coronavirus Diseases,” issued by the Government Accounting Standards Board (GASB), in June 2020.

Question 1 in the Technical Bulletin specifically addresses revenue recognition for the CRF. An important takeaway missed by most organizations when reading this guidance is that revenue can’t be recognized until eligible expenditures have occurred. Many organizations have received CRF dollars in advance of incurred expenditures. If this is the case, your organization will have to offset that advance through liability recognition until the point in time that eligible expenditures are incurred.

Reporting requirements for CRF recipients

Department of Treasury quarterly reporting for direct recipients

In July, the OIG for the Department of Treasury issued two memoranda dealing with reporting requirements:

  1. Memorandum OIG-CA-20-021, Coronavirus Relief Fund Reporting and Record Retention Requirements, outlines certain specific reporting requirements for prime recipients of Coronavirus Relief Funds to report related “costs incurred” during the “covered period” (the period beginning on March 1, 2020, and ending on Dec. 30, 2020):
    • The report for the period March 1 through June 30, 2020, is due no later than Sept. 21, 2020.
    • Thereafter, quarterly reporting will be due no later than 10 days after each calendar quarter. For example, the period July 1 through Sept. 30, 2020, must be reported no later than Oct. 13, 2020.
    • Reporting shall end with either the calendar quarter after the COVID-19-related costs and expenditures have been liquidated and paid or the calendar quarter ending Sept. 30, 2021, whichever comes first.
  2. Memorandum OIG-CA-20-025, Coronavirus Relief Fund Reporting Requirements, augments and clarifies the prime recipient’s quarterly reporting requirements contained in the original memorandum OIG-CA-20-021.

Other reporting guidance: Direct recipients and subrecipients

Memorandum OIG-CA-20-028 also addresses FAQs related to reporting requirements. We’ve outlined a few more of those clarifications below, but encourage you to read the entire document:

  • Only the prime recipient is required to report COVID-19-related costs in the Grant Solutions portal. (question #4)
  • If a third party is hired to review and approve subrecipient reimbursement requests and supporting documentation, the direct (or prime) recipient is ultimately responsible for compliance with the limitation on the use of payments from the CRF. (question #9)
  • FFATA reporting isn’t required since CRF payments aren’t grants. (question #29)
  • The prime recipient should report on an accrual basis, unless the prime recipient’s practice is traditionally to report on a cash basis for all its financial reporting. (question #30)
  • There is no requirement that CRF activity be accounted for in a separate fund of the government as that is an individual management decision. However, the documentation required above should be easily understandable by the auditors. (question 72)

SEFA reporting

COVID-19 relief funds are provided under CFDA number 21.019 and are subject to the federal single audit act. Expenditures under these programs should be included on the Schedule of Expenditures of Federal Awards (SEFA). Uniform Guidance indicates that the “determination of when a Federal award is expended must be based on when the activity related to the Federal award occurs.” Federal expenditures can’t be reported until all eligibility requirements have been met, which means an award is in place and the eligible expenditures were incurred.

As you navigate through the complexities of CRF, we’re here to help. Don’t hesitate to reach out.

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