What You Should Know Before Your Organization Accepts Federal Funding
By Erin Enstad, CPA
Without an end to the coronavirus pandemic in sight, local government revenues continue to be in limbo. Thankfully, many Minnesota cities have received some measure of economic relief from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. However, these federal grant programs also come with administrative requirements that can overburden staff. What’s more, if an organization expends more than $750,000 of federal funds, it will be required to undergo a single audit.
If your organization has accepted—or plans to accept—federal grant money, it’s important to understand the requirements that come along with it. Here’s a quick summary of what you and your staff should know.
What is a single audit?
A single audit is an audit that takes place in addition to the annual audit of your organization’s financial statements. It’s program-specific, meaning the requirements for the audit relate directly to the grant program from which your organization was awarded funds. Each grant program has certain stipulations for how its monies should be spent and accounted for.
Is your organization required to have a single audit?
If your organization has expended more than $750,000 of federal funds during the fiscal year, it will be required to have one. Keep in mind the $750,000 threshold is what your organization spends, not what it received. So, if your organization received $1 million in federal grants but spent only $500,000 of it in 2020, it won’t be subject to a single audit.
What should you do if your organization accepts federal grant money?
First, it’s important to review the requirements of the specific program from which your organization receives the funds. Make sure your staff members understand them, too.
Put the right controls in place.
As part of receiving federal grants, entities are required to have controls in place to monitor their adherence to the grant programs’ requirements. Examples of the types of controls include:
- Approval of expenses by the organization’s board or council
- Review and approval of required reports by someone other than the person completing them
- Software controls, such as approval of manual journal entries
- Monitoring of the grant, including any subrecipient monitoring (if applicable)
- Adequate documentation of expenses
Establish the right policies.
Your organization must develop written policies for how the federal funds will be spent. This is different from a purchasing policy; these policies must be specifically related to federal funds. Items required to be addressed within the policy include payments, procurement, allowability of costs, compensation (personnel and benefits), and travel costs.
If you’ve never written a policy for spending federal funds, it can be hard to know where to start. If needed, your auditor should be able to provide you with a sample policy you can use as a template.
Document expenditures on a schedule of federal awards (SEFA).
A schedule of federal awards, or SEFA (pronounced “see-fah”), is a list of all of your organization’s federal expenditures. Each federal grant is assigned a Catalog of Federal Domestic Assistance (CFDA) number. Be sure to itemize your organization’s expenditures on the SEFA using each grant’s CFDA number. Because most of the federal grants local governments receive are passed through to the organization from the state, you’ll also need to note each grant’s identifying number on the SEFA. This number is usually included in the grant agreement.
Remember, if your organization’s SEFA totals more than $750,000, it will be required to have a single audit. Your auditor will analyze each grant your organization has received to determine which programs will need to be tested.
Accepting federal funds this year? Take action sooner rather than later.
If your organization has never had a single audit but will need one for fiscal year 2020, it’s a good idea to get in touch with your auditor sooner rather than later. As I mentioned, each grant has different requirements, so it’s important to know exactly what your organization’s grants will require. Your auditor can help you sort through the requirements and understand the types of documentation, controls, and policies you should implement.
If you’re unsure of how to account for or report your organization’s federal expenditures, we’re here to help. Contact us today.
Erin Enstad, CPA is a manager in the firm’s Government Audit department where she enjoys helping clients to solve their complex financial issues and ensure compliance with governmental regulations.
You can reach Erin at 507.304.6809 or click here to contact her via email.
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