Ensuring your government entity is taking the right steps to stay afloat during the aftermath of the COVID-19 pandemic can be very difficult. Join us for Part 3 as CRI Partners Robert Lemmon, Ray Roberts, Jason Harpe, and David Alvarez answer some of our clients most frequently asked questions regarding government fund relief during the current economic climate.
CRI’s COVID-19-focused episodes are vetted for accuracy at the time of recording, but changes may have occurred. For the most up-to-date information, please contact your local advisor.
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Hello, and welcome to another episode of the CRI It Figures podcast. My name is Robert Lemmon, I’m going to be talking today about some governmental COVID-19 questions. For previous listeners, they’ve already heard us do this format before, it’s a Q&A session with a few of our partners here, from CRI.
With me today, first off, is Ray Roberts. Ray, for people who don’t know you, do you want to introduce yourself?
You bet. Thanks Rob, I appreciate you inviting me today. My name’s Ray Roberts, I’m the audit partner, government audit partner, out in Albuquerque, New Mexico, way out west. We had our first rainstorm for the year, I think, so that’s good. We’re up to almost a half an inch for the whole six months, so that’s great.
Anyway, I help out and work on the government and not for profit industry line, and do these podcasts from time to time.
Thank you, Ray. Ray, you’ve been with me every step of the way, to help me. Two of the other people who’ve joined us in the past and are back again for this episode, first off, I’ll go to Jason Harpe. Jason, you want to introduce yourself quickly?
Yeah, thanks Rob. I’m Jason Harpe, glad to be here today. I’m a government audit partner out of our Birmingham, Alabama office, and look forward to answering a few questions today.
Thank you, Jason. And the last of the three amigos with me today is David Alvarez. You want to introduce yourself, David?
Yeah, thanks Robert. I’m an audit partner in our Tampa office, I manage our government practice here in the Tampa Bay area of Florida, and happy to be here.
Thank you David, that’s awesome. I’m really glad to have you three guys. For previous listeners, they’ll know that I’ve got some really smart colleagues who I can turn to, and ask questions to, and that’s what we’re going to do today. As all this COVID funding information comes out, we’ve been tracking it, and all the partners here have been doing a great job of staying up to date on the latest information. So that’s what we’re going to talk about today, is what they’ve found.
On our last episode, we were actually talking about one of the states, Louisiana, has got quite ahead of the other states in terms of distributing the CARES Act Coronavirus relief fund money. We’ve got colleagues working on that, and that’s how we know. At the time of our last recording, Alabama was still figuring out it’s process, but I believe, Jason, there’s been changes since then. So, do you want to tell us what you’re seeing in your state?
Yeah Rob, about a week ago, the director of finance in Alabama actually sent out a memo and a form for all the local governments to submit the eligible expenditures to be funded, at least in Alabama, under the CARES Act allocation. It’s a relatively straight forward form. Of course, it gets back into things we’ve already talked about on previous podcasts, which is necessary expenditures related to COVID not budgeted as of March 27th, and expenditures that are incurred from March 1st to December 30th.
In Alabama, you’ll complete this form, and basically email it back to the Department of Finance to be compensated. Similar, I guess in another hat, PPP Loans is a certification that, basically, the local government filling the form out will have to certify that everything’s accurate and correct, related to the eligible reimbursement expenditures. And then, they do a good job of having a schedule that breaks things out, and there’s PPP equipment, cleaning, medical, teleworking expenses, training, payroll, those types of items, and that’s where you would fill those out.
They also do a good job of really giving examples of those type eligible expenses, so PPP would be, obviously, face masks, gloves, hand sanitizer. Medical would be thermometers, testing kits. Teleworking expenses, that may be where some of the larger amounts could possibly be, with laptops, increased WiFi, computer equipment. And of course, any payroll items that are directly attributable to COVID, those would be in. You would submit this, along with supporting documentation, almost an invoice type, I would imagine, format, or that type of item.
In Alabama, the way they’ve done it is they’ve actually gone in, the state has, and done a budgeted allocation per local government unit, for expenditures that could be reimbursed. I’m not sure if other states are doing it quite that way, and I’m not really certain on how Alabama did the allocation, but they’re pretty sizeable amounts per local government. Then, if anything’s not used by December 30th, it reverts back to the state. So that’s what Alabama’s done, since we last had our previous podcast, and it’s certainly helpful to have something out that local governments can begin using to get some relief, as far as reimbursements for these expenditures.
Good. That sounds like Alabama really has given a good structure to the process, and very clear instructions. And, as we’ve been saying on the previous episodes, it’s all moving very quickly, happening very fast, and gradually now, we’re starting to see more and more states start to be getting ready to distribute that money. And obviously, Alabama’s the next one on the list, that I know we’re in there working with them, and getting involved. I haven’t seen anything in Florida just yet, to specify their process, and give details on their process for distributing that money, but I’m sure it’s not too much further behind. Well, I do appreciate that update as well.
I do have some other questions, obviously we always have a good number of questions on these things. What I want to point out, what we’re going to be covering a lot of today in these questions is new guidance that the Treasury has put out in the past few days. So for anyone who wants to do a bit of research themselves, the Treasury website does have a good FAQ document.
We’re going to cover some of the highlights now, and one of the questions is a good one, given where everyone’s at right now. It asks, “must stay at home order, or other public health mandate be in effect, in order for a government to provide assistance to small businesses using payments from the Coronavirus Relief Fund?” So as we’re getting back to work, and these orders the being removed, does that impact whether we can give assistance to small businesses with this funding? Anyone want to take that?
Yeah, I’ll take that one, Rob. This is Ray.
The guidance is, I think, pretty clear. There’s money set aside for small businesses, for the cost of business interruption caused by the potential closures in the COVID crisis. But, such decisions, you don’t necessarily have to have a stay at home, or a public health mandate, if the government, if that city, county, whatever it might be that’s in that area, determines that such expenditures are necessary to respond to the public health emergency.
Would it be easier if you had a closure or a stay at home order? You bet. But, is it absolutely mandatory? No, like anything, it’s just document why and how you made that decision, and what expenses you’re going to have, and make sure those would apply. I don’t think you’ll have any problems at all, in those areas.
Good advice. Good clear answer, good advice.
One of the things we’ve talked a lot about, and I’m going to get to in this next question is we’re talking about the funding distribution, a lot of went to the state to trickle down through. This next question hits on that and it asks, “Should states that have received a payment from the CARES Act money transfer funds to local governments that did not receive the direct payments from the Treasury?” The direct payments were the ones fort the big cities and counties with over 500,000, so again, this question’s saying hey, if the state got money, should it be transferred to the local governments that didn’t already get the money because they were a big government? What does anyone know about that?
Ah, I’m on a roll here, so I’ll go ahead and take it. This is Ray.
I think it’s pretty clear that two places get money, the towns or counties over half a million people, they get money directly from the Federal government. And, the states get money from the Federal government. All the total amount of funds have already been determined. So what’ll happen is that the states will take their pot of money they receive and pass it out to the local governments, basically, based on per capita populations.
The direct, larger ones, half a million people or more, they’ll get their money directly from the Federal government. And, the ones small than half a million will get a pass through, through the state. But, everybody will ultimately get their money in that area.
Yeah, and I know all the big direct payments, they went out early on in the process, because some of my clients have already been getting theirs and asking me. But, lots of these smaller governments, there’s a good summary, Ray, that these smaller governments are still waiting on their money, it’s going to come through the state. This is what we’re talking about, what Jason’s saying, in Alabama now they’ve set up their process now for the smaller governments to get what they need, and get their portion of the pie. Hopefully, all the other states start following soon, and getting it moving through to the smaller governments.
I’ll move on to our next question, let’s have another here. This one just asks, “Are costs associated with increased solid waste capacity an eligible use of payments?” So this came up because, actually, I heard a client asking specifically whether they can use the money, because of the extra solid waste burden that they’re having because people are at home more, using more solid waste requirements. This question, just to repeat, “Are the costs associated with the increased solid waste capacity an eligible use of payments, of CARES Act money?” Anyone know anything about this?
Hey Rob, this is Jason. I’ll take that one, that’s a really good question.
I guess, we’ve been so focused on the front end of funding, we probably haven’t thought about the backside of that, which would obviously be some waste. And specifically, I think maybe significant costs would be disposing of PPE, obviously that’s some pretty dangerous stuff, and there may be some costs associated with disposing of that, and certainly those costs would be eligible. As would any other solid waste cost that has any kind of COVID impact, as you mentioned. So, I think that’s something that’s unique, and certainly something to give some thought to, as you’re gathering up expenses that could be reimbursable, is don’t forget about any costs related to disposing of equipment, or anything that’s used related to the pandemic.
Very good. Yeah, that was an interesting one, but I’m glad you pointed out it’s also the PPE, and all the stuff that’s having to be disposed of. I didn’t think about that when I introduced the question, but obviously that’s a big part so I’m glad that’s been specified by the Treasury, and clarified. That’s good information.
What about this one, then? “Is it okay for payments from the CARES Act funding to be used to cover, across the board, hazard pay for employees during the state of emergency?” Is that allowed, to cover hazard pay, across the board?
I’ll grab that one also, Rob. This is Jason, again.
The answer to that no, if there’s just an across the board local government saying, “We’re going to raise everybody’s pay because we just feel like everybody needs hazard pay just because,” that wouldn’t work. It’s got to be more specific than that. Generally, and I know we’ve mentioned this before on previous podcasts, it would be probably be something that’s public safety oriented, public health, some type of healthcare, human services, anything that’s substantially dedicated to mitigating or responding specifically to COVID-19, the health emergency piece of that, that’s really what it’s designed for.
There’s obviously some limitations just with general payroll expense, so I think you’d have to be careful with that, and I’d expect total reimbursement if a local government just said, “We’d like to give everybody a bump up, just because that’s just what we want to do.” I’ve worked with, I know, one large local government in our area that’s got a pretty stringent policy on what would qualify as hazardous duty pay, and in my opinion, I think they would meet this, the way they went about it. I would hope everybody has a policy that’s specific to what constitutes hazardous duty pay, and I would imagine that, in that case, it probably would encompass the COVID-19 direct expenses, or direct matters with that so you can get the reimbursement.
But, certainly not just an across the board, hey we’re giving everybody a payroll increase for hazardous duty, and we expect to be reimbursed, I don’t think that would really work under the CARES Act.
So, it’s having to go back to the original three CARES Act, and the eligible criteria, is that right? Where obviously we know two of the criteria has got to be not budgeted, it’s got to be in a certain time window, but the third one is, I think you heard you saying, it’s got to be related to the response to the pandemic, it has to be people directly responding to the health situation, right?
That’s exactly correct. I think there could be, I guess, some thought you might match two of those, which is not budgeted and it falls within the time period, but I think an across the board, you’d have trouble connecting the dots to get to the related specifically to COVID matters.
Yeah, so it’s about keeping those original core criteria in mind, at all times, when seeing what eligible.
I’m going to switch gears a little bit here, and I’m glad we’ve got David for this. I think you’re going to be knocking this out of the park, David, because we’re going to talk single audit for a little moment, because I’ve had a bunch of clients ask me, “Hey, this is Federal money. Do the Federal grant requirements and single audit testing requirements apply? Is this going to go on my SEFA, my schedule of expenditures of Federal awards next year?” People are not familiar with this funding, so wondering what are the strings attached, so that’s where I want to start with. David, does this CARES Act money qualify for single audit?
Yeah, so the answer to that one is a definitive yes, in what the Treasury has put out. And it is a little confusing because this is a new funding source for many people, we’ve not seen much direct money from the Treasury. But, this is going to qualify for single audit purposes, and governments will need to identify those expenditures that they’ve paid with this funding, and put those amounts on their SEFA.
Excellent. Well I’m glad you were here, David. I’m sorry I picked on you for that question, but I know you’re a super duper smart guy with single audit stuff, so I’m glad you’re up to speed on that.
Hey, Rob? I’m thinking we had a couple small cities realize that hey, this is going to be the first year they’ve ever had a single audit because of this money, it’s put them over the limit. Just watch out for that, it might cause you some issues in that going forward.
Yes, definitely. I work with some of the smaller guys as well, who don’t often get enough funding to require a single audit, so it’s going to be new territory for a lot of people. Obviously, that limit just being $750,000, a lot of people are going to trip that for the first time this next year, and have to go through the single audit fun.
But David, if you don’t mind, I’m going to pick on you a little bit longer just because we’re talking single audit stuff. Then, educate me a bit here as well. So this Coronavirus Relief Fund money, we’ve just established subject to single audit. But, what are the requirements, how can the money be spent? Can you educate us a little bit more on what hoops people have to jump through?
Yeah. I think from, really, a high level picture following up on what Jason had said, of general use. So in the single audit world, we’re typically used to using the terms allowable costs and allowable activities. I think Jason’s explained, big picture, what those items are for this Coronavirus Relief Fund.
But, when we talk about single audit, and really where the pain is, is really all those other things that uniform guidance, the Single Audit Act requires. So all those other compliance requirements, we’ve gotten a lot of questions from some people out there is, do all these other things really apply to these dollars? The answer is yes, the uniform guidance really starts with internal controls, so there still has to be internals controls around expenditures of these funds. And then, all the other compliance pieces, that we still have to have controls around all those compliance pieces.
So this really starts with internal controls, works its way all the way through some recipient monitoring that we’ll talk about in just a minute, because that’s an interesting one. Then, it gets into audit requirements. We’ve had the same audit requirements with these dollars that we do with any other Federal dollars, or state dollars, that governments are used to. I’m glad that Ray brought that up, that there will be probably a lot of governments that have not had single audits in the past that will.
When we’re dealing with single audits, typically really, the first thing that we’ll look for is a CFDA number. This money is coming through the Department of Treasury, there’s not a lot of Department of Treasury grants out there. If you actually looked at the listing today, and there’s really two mains ones which is pretty low for a major Federal department. They do have a number, they do have a CFDA number that they’re going to use, but it says, “Pending completion of the registration.” So that’s also going to be what are all the specific rules with that CFDA number in relation to compliance? That’s one of the big questions that we still have. Thinking, what are the details of that CFDA number going to be?
If it came through another department, a lot of individual departments have similar types of compliance requirements, but because this is coming through the Treasury, and we don’t have a lot to compare to in the Treasury there’s still some questions about what specifics might they slide in there.
One thing to point out, I mentioned sub-recipients. In the Single Audit Act, when you do receive money, and pass money onto someone else that’s really going to perform the ultimate service is there are some sub-recipient requirements, and the main things that we want to be aware of there. So this would be for most states, and states are used to dealing with sub-recipient issues. But, even governments that have over 500,000 in population, they might not deal with a lot of sub-recipient issues at this point. So really, the first thing is they need to make sure that everyone they provide this money to is aware of the CFDA number, is aware of the compliance requirements.
That person whose also responsible for sub-recipient monitoring, they need to be aware if the person they’re passing the money onto is getting a single audit. So if they trigger the $750,000 threshold, is that recipient getting an audit? Is the pass through entity looking at that audit report? There’s some information that I’ve come across where this money can be provided to for-profit entities as well, as the end sub-recipient. While they don’t qualify for single audit requirements, the pass through entity would still be responsible to ensure that those end users do have some policies and procedures in place to ensure that the money is being properly spent. This is an area where it’ll be new for quite a few people, the sub-recipient area, that people need to really be aware of.
The one thing at the end that they did put in as an eligible expenditure is that these funds can be used to pay audit expenses. So there likely will be some people who have never had a single audit before, who need to go and get one. For people that do get this money, based on thresholds and the level of which expenditures falls, your auditors will be auditing this as a major program, so there will likely be some additional costs, and these funds can be used to pay that additional cost that entities will likely have to incur.
So at least if the money you receive makes your audit more expensive, well the money you’ll receive will also cover those costs for you, right?
That is correct.
Okay. You mentioned in there, there’s a CFDA number. I know you said it’s not completed yet, it’s still pending. But for people who want to be ahead, and be ready to research it when it gets finalized, what’s the number that they’ve assigned to it, please?
Yes, currently they’ve identified it as 21.019. 21 is that Department of Treasury grouping of programs, and like I said, there’s not too many other Treasury programs. But, it’ll 21.019, that’s what they’re projecting at this point.
Okay. Well, I’m going to be doing my research on 21.019 when that becomes effective. But that’s a really good summary because, like I say, a lot of people have been asking where there’s single audit implications with this funding. And now we know for sure, the Treasury are clearly saying, “Yes, and here’s some of the rules, some of the guidance on it.” That’s a great summary. Thank you, David.
I’m going to try and take us to the home stretch, we’re running longer than usual. But, I’ve got a couple more good questions, I think are worth touching on. So is it possible, does anyone know whether it’s possible for a state to impose restrictions on transfers of funds to local governments? Can a state restrict what they’re passing through to the local governments?
Hey Rob, I’ll take this. This is Ray.
Yeah, I think they can. The law itself, the Social Security Act, 601D of the Social Security Act, the guidance from the CARES Act itself, and some other applicable requirements like in the Single Audit Act or whatever, they have some limited ability for restrictions, to facilitate the states to restrict the contributions to the individual local governments. But, the Federal government wants to facilitate, do anything and everything they can, to get that money passed out. There’s just a limited set of exceptions to that. If they follow those, they’d be all right, any other restrictions are not permissible.
If you’re going to restrict it in any way, I think you need to make sure your ducks are in a row on this one, and maybe get a law firm or a CPA firm in there to say, “Hey, get somebody else to buy off on it.” I think it’s pretty rare that it’s going to happen, but it can happen.
Okay, good answer. Possible, but not common, that’s a good summary.
A couple of quick ones here. I’ve heard stuff talking about tax anticipation notes, because of tax deadlines, payment deadlines being pushed how are governments going to maintain their funding with these tax delays? So there’s a question specifically asking that, “If someone’s required to issue some tax anticipation notes, to make up for these revenue shortfalls, are the expenses associated with the issuance of the notes, are those eligible uses of CARES Act money?”
Hey Rob, this is Ray. I think it is, I think the original law is clear. If you spend anything because of COVID-19, and it wasn’t budgeted previously, then it’s deductible. Or, reimbursable.
So you have, for instance on these TANs, you would have the accrued interest on that. You would have administrative and transactional costs, payments to advisors, underwriters associated like that, all the costs associated with issuing these bonds and notes. So the only thing you can’t deduct, or get reimbursed for, is the actual principle amount of those notes. Everything else, in my opinion, would be clearly reimbursable.
Excellent. Yeah, I think it comes back, as we’ve done a couple of times now, it’s all about those three key criteria that we’ve discussed a few times for eligible expenditures. I think one of the keys, though, is going to be it might be eligible, but is the money still available because, as we’ve seen in Alabama, they’re getting ready to distribute down to the smaller local governments. And Louisiana is already going through the process, Florida will be coming soon. But, I’m sure it’s going to get consumed pretty quickly, all the funding. Let’s hope there’s enough to cover everyone’s costs, but it remains to be seen.
All right, well I’ve gone a bit long today but that is where I’m going to wrap it up. So I really just want to thank you three gents for helping, and answering these questions, I think there’s a lot of good information. As always, the information is changing very, very quickly, and really encourage everyone to stay abreast of the latest guidance, and be looking at the good websites, like the Treasury website and all the places for latest information. Also, would recommend people check out the CRICPA.com website, we’ve got a whole host of COVID related resources there, some specific to governments and a lot of useful things that might be helpful. Of course, you can contact us with questions, we’re happy to take questions from people if they have any.
With that, I’m going to just thank everyone again for listening, sign off, and see you again next time. Thanks.
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