American Rescue Plan Act Compliance Guidance for State & Local Governments

HOST: DENISE LIPPUNER: Hello, everyone. Thank you for joining our Cherry Bekaert Risk Advisory Podcast. I am Denise Lippuner, Government Industry Leader for the Risk and Accounting Advisory Practice. With me today are Christian Fuellgraf and Curt Smith. Christian is the Government Industry Leader for Cherry Bekaert, and Curt is one of our Grants Management subject matter specialists. Thank you for joining me.


CHRISTIAN FUELLGRAF: Thank you, Denise. Nice to be here.


HOST: DENISE LIPPUNER: Today we are going to talk about the American Rescue Plan Act of 2021, commonly referred to as ARPA. You may also hear it called the COVID-19 stimulus package or the American Rescue Plan.

HOST: DENISE LIPPUNER: ARPA is a $1.9 trillion economic stimulus bill passed and signed into law in March 2021. It builds on the CARES Act, the Coronavirus Aid, Relief, and Economic Security Act of 2020, which was a $2.2 trillion economic stimulus bill responding to the economic fallout of the COVID-19 pandemic.

HOST: DENISE LIPPUNER: Similar to the CARES Act, ARPA is intended to accelerate the country's recovery from the pandemic. While organizations successfully navigated the pre-award, award, and post-award phases of CARES funding, many organizations are just entering these phases for ARPA funding. Christian, can you address the challenges with ARPA funding? Are the challenges similar or different compared to awards made under the CARES Act?


CHRISTIAN FUELLGRAF: There are a couple of parts to the challenges with ARPA funding, and it has improved since the CARES Act. First is the compliance piece and the technical aspects of complying with the rules and regulations. Second is the politics of handing out the money and distributing it.

CHRISTIAN FUELLGRAF: When you get into distribution, all politics is local. There are many influencers, opinion leaders, stakeholders, and elected officials with ideas about the best way to spend the funds. The places I've seen most successful look at it from a best-use perspective. That starts with identifying the most pressing needs the county or city may have and then planning for those needs. Often this involves leadership groups within the organization or bringing in outside stakeholders to help determine priorities.

CHRISTIAN FUELLGRAF: Another component is the long-term impact and the total cost of ownership for programs. I come out of state budgeting, and I compare it to COPS funding from the mid-1990s. While ARPA is one-time money, there are ongoing costs after the initial investment. Organizations need to consider how they will pay for maintenance and operations in future years.

CHRISTIAN FUELLGRAF: Unlike the CARES Act, which was a major influx of money that many wanted to spend quickly, ARPA recipients are being more thoughtful. Financial leaders across states and local governments consistently tell me they have more money than they know what to do with, which creates the challenge of prioritization. The second part of the challenge is the details of compliance, and that's something Curt can speak to.


HOST: DENISE LIPPUNER: Speaking of compliance, before we focus on that, Curt, can you elaborate on the requirements around the State and Local Fiscal Recovery Funds and how that factors into ARPA funding?


CURT SMITH: Let me compare a CARES Act program to the State and Local Fiscal Recovery Funds program under ARPA as an example. Both the CARES Act and ARPA contain a wide variety of programs administered by different federal agencies, and the regulations can differ.

CURT SMITH: Under the CARES Act, the Coronavirus Relief Fund administered by Treasury had relatively minimal regulatory requirements. Treasury adopted Subpart D of the Uniform Grant Guidance as regulation, and it primarily emphasized internal controls and subrecipient monitoring and management.

CURT SMITH: Under ARPA, the State and Local Fiscal Recovery Funds program administered by Treasury is subject to the entire Uniform Grant Guidance and Treasury regulations. That is a significant difference and presents very different circumstances.

CURT SMITH: The SLFRF program is unique because Treasury is delivering large amounts of cash directly to states and local governments. Recipients receive the funds upfront and can spend the money without having to request reimbursement. Local governments, especially smaller ones, are not used to receiving large sums of federal money in hand, and the extent of Treasury regulations can be intimidating.

CURT SMITH: Local governments may need to understand requirements such as subrecipient monitoring. They must ensure compliance with the allowed uses in the final rule for the fiscal recovery funds, the cost principles of the Uniform Grant Guidance, and post-award requirements. Many jurisdictions are seeking help to ensure they do not have to return funds or improperly allocate them, and that is where advisory support is valuable.


HOST: DENISE LIPPUNER: You touched on challenges for organizations that have never received federal funding. What about larger cities, municipalities, and counties that have received federal funding and are used to navigating a single audit? What challenges might they face with ARPA funds?


CURT SMITH: First, the single audit requirement is significant. A single audit is an audit of all federal programs a recipient administers, whether funds come directly from the federal government or pass through a state. If you receive more than $750,000 in federal funds in a fiscal year, you will undergo a single audit.

CURT SMITH: The audit reviews the use of funds to ensure they fall within approved uses and the terms of the grant agreements. Recipients need documented policies, procedures, and internal controls to meet compliance requirements.

CURT SMITH: Larger municipalities and states undergo single audits regularly, so that part is not new. Their challenges tend to be in the finer details. The expenditure categories under the Fiscal Recovery Fund program are extensive. Recipients may need help interpreting guidance and regulations to ensure their expenditures are appropriately coded and documented.

CURT SMITH: Many mature organizations are held to a higher standard by auditors because they are expected to comply with complex regulations. They want assurance they are doing things correctly.


HOST: DENISE LIPPUNER: Because the program is subject to the entire Uniform Grant Guidance, larger organizations might encounter aspects related to cost principles they have not addressed. Can you expand on that?


CURT SMITH: The cost principles are in 2 CFR 200.400 and the appendices to the Uniform Grant Guidance. There are many selected cost items listed under 200.400, and in some cases costs are allowable and in others they are unallowable.

CURT SMITH: Even larger cities or states sometimes lack effective practices to identify or segregate allowable versus unallowable costs. Best practice is to classify costs correctly upon entry into the accounting system, but that is not always done. Scrutiny of expenditures during an audit can cause problems if costs are not properly identified.

CURT SMITH: Indirect cost recovery and developing an indirect cost rate can also be challenging. Establishing and documenting an indirect cost rate is not always straightforward.


HOST: DENISE LIPPUNER: We touched on current challenges. Can you describe challenges organizations might face down the road that they might not be currently aware of?


CHRISTIAN FUELLGRAF: Similar to CARES money, this funding arrived quickly. Smaller organizations should not be afraid to ask for help. You may have talented staff, but this may not be their daily work. Organizations like ours have specialists who understand federal regulations and compliance.

CHRISTIAN FUELLGRAF: I had an engagement with a small county that split work between a national firm and a local firm. Several months in, the county transferred the local firm's work to us after determining some recommended expenditures were not allowable and had to be repaid. That underscores the importance of engaging experienced advisors.

CHRISTIAN FUELLGRAF: Smaller municipal governments that lack breadth and depth of experience should consider outside support. Even larger states and counties are engaging firms for this reason.


HOST: DENISE LIPPUNER: Do you have any final advice you want to share?


CHRISTIAN FUELLGRAF: Take your time and be thoughtful. I had a client during the CARES Act who purchased an abandoned hotel and converted it into homeless housing and an off-site meeting location for the county. That required extensive research and coordination with the federal government, but it succeeded and earned recognition.

CHRISTIAN FUELLGRAF: Be creative and thoughtful. This is a once-in-a-career opportunity to make a difference for your community. Also consider the needs of your organization. Infrastructure that is not citizen-facing, such as grants management systems, can improve service delivery and operational efficiency.

CHRISTIAN FUELLGRAF: Finally, get the right help. Engage people with the ability to reach back to counterparts in government and to navigate FAQs and OMB guidance. That can speed up processes and reduce risk.


HOST: DENISE LIPPUNER: Thank you for joining me today, Christian and Curt. If you want to know more about how your organization can plan, prepare, and comply with ARPA, please visit us at cbh.com for more information and guidance. Thank you for listening.