Compliance Consideration Under Coronavirus Relief Funding
By: Daniel Gougherty, Director, Assurance Services
As quickly as the world has changed due to COVID-19, additional federal funding has just as quickly been made available to deal with the unexpected costs that Not-For-Profits and Governments have been facing during these uncertain times. Guidance, on the other hand, regarding allowable use of such funds, has not been addressed as quickly. As a result, many Governments and certain Not-For-Profits have cautiously been waiting for further guidance on allowable uses of the CARES Act funding.
We at Cherry Bekaert have highlighted the various CARES Act funding affecting Governments and certain Not-For-Profits that are eligible for this other financial assistance under the CARES Act, as well as recent guidance released regarding allowable costs under these programs.
To start with, The Treasury has initially assigned the Coronavirus Relief Funding a Catalog of Federal Domestic Assistance (“CFDA”) number of 21.019; however, that is subject to completion of its registration. As it relates to your Single Audit, and as this is a new CFDA program, it will more likely than not be a high risk Type A or B program (based on the entity’s threshold).
Treasury’s Coronavirus Relief Fund
The CARES Act requires that the payments from the Coronavirus Relief Fund only be used to cover expenses that:
- Are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (“COVID-19”);
- Were not 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; and
- Were incurred during the period that begins on March 1, 2020 and ends on December 30, 2020.
While some may find it easier to identify and track non-payroll related expenditures incurred due to the public health emergency, with respect to COVID-19, there is a bit more consideration that needs to go into payroll related expenditures. Guidance released by the Treasury on payroll related expenditures has focused on two terms: “substantially dedicated” and “substantially different use.” The following are examples of the types of payroll costs that are considered eligible provided by the Treasury in their frequently asked questions:
- The entire payroll costs of public health and public safety employees incurred from March 1, 2020 through December 30, 2020 are considered payments for services “substantially dedicated” to mitigating or responding to COVID-19 public health emergency, unless the Chief Executive (or equivalent) of the relevant government determines otherwise. Further guidance released by the Treasury on September 2, 2020 further clarified that if a public health or public safety employee is presumed to be substantially dedicated to COVID-19 the work performed may be considered to be for a substantially different use than accounted for in the approved budget as of March 27, 2020.
- Costs including payroll of other public employees that were originally budgeted for but are now being used for a “substantially different use” due entirely to the COVID-19 public health emergency. However, it is worth noting that “substantially different use” does not mean that their jobs are being completed in a different location or through a different manner.
These funds were made available within thirty (30) days of enactment of the Cares Act by the Treasury Department directly to states and local governments with populations in excess of 500,000.
Further, this funding is not considered a grant, but rather other financial assistance under 2 C.F.R. § 200.40 and is subject to the following requirements under Uniform Grant Guidance:
- 2 C.F.R. § 200.303 – Internal Controls
- 2 C.F.R. §§ 200.330 through 200.332 – Subrecipient monitoring and management
- Subpart F – Audit Requirements
As noted above, a CFDA number of 21.019 has currently been assigned; however, that is subject to completion of its registration.
Below are some additional key takeaways from recently published guidance from the Treasury:
- State and local governments may transfer funds between each other as long as the transfer qualifies as a necessary expenditure incurred due to the public health emergency and meets the other criteria of section 601(d) of the Social Security Act.
- Governments are not required to use other Federal, State, or Local funds prior to their use of this funding, so long as the expenditures are eligible under section 601(d) of the Social Security Act.
- Funds may not be used to fund shortfalls in government revenue due to COVID-19, including assistance to meet tax obligations or unpaid utility fees. However, grants or subsidies can be made to individuals facing economic hardships to allow them to pay utility fees for essential services.
- Governments may grant or loan their funding to other organizations including public and private hospitals, small businesses, and individuals that have been affected by COVID-19; however, certain restrictions do apply. Further, any loan funds repaid before December 30, 2020 would need to be returned to the Treasury or redeployed for another eligible expenditure under the Cares Act. Any loans repaid after December 30, 2020 must be returned to the Treasury upon receipt by the government lending such funds.