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Compliance guidance for the SFRF program

Mar 24, 2022

On January 6, 2022, the Treasury adopted the final rule implementing the SLFRF program, with the effective date of April 1, 2022.

On February 28, 2022, the U.S. Department of the Treasury released updated Compliance and Reporting Guidance for the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program. This guidance is meant to support recipients in complying with the final rule, and provide clarification for each recipient’s compliance and reporting responsibilities under the SLFRF program.

In addition to this guidance, recipients should also follow the award terms and conditions, the authorizing statute, the final rule and other regulatory and statutory requirements, including regulatory requirements under the Uniform Guidance and related Compliance Supplement.

This article will review just the compliance guidance as it relates to the SLFRF, with the reporting guidance covered in a separate article.

Eligible and restricted uses of SLFRF funds

Recipients of the SLFRF program have the discretion to use award funds in one of the four statutory categories:

  1. To respond to the COVID-19 public health emergency or its negative economic impacts
  2. To respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers of the recipient that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work
  3. For the provision of government services, to the extent of the reduction in revenue of such recipient due to the COVID–19 public health emergency, relative to revenues collected in the most recent full fiscal year of the recipient prior to the emergency
  4. To make necessary investments in water, sewer or broadband infrastructure.

As a recipient of an award under the SLFRF program, an organization is responsible for complying with requirements for the use of funds. In addition to determining a given project’s eligibility, recipients are also responsible for determining subrecipients’ or beneficiaries’ eligibility and must monitor subrecipients’ use of SLFRF award funds.

The Treasury’s additional guidance is to help recipients build a greater understanding of eligible uses. Its final rule establishes a framework for determining whether a specific project would be eligible under the SLFRF program, including some helpful definitions. For example, the Treasury’s final rule establishes:

  • A framework for determining whether a project responds to the COVID-19 public health emergency or its negative economic impacts.
  • Definitions of “eligible employers,” “essential work,” “eligible workers” and “premium pay” for cases where premium pay is an eligible use.
  • The option to select between a standard amount of revenue loss or complete a full revenue loss calculation of revenue lost due to the COVID-19 public health emergency.
  • A framework for necessary water and sewer infrastructure projects that aligns eligible uses with projects that are eligible under the Environmental Protection Agency’s Drinking Water and Clean Water State Revolving Funds along with certain additional projects, including a wider set of lead remediation and stormwater infrastructure projects and aid for residential wells.
  • A framework for necessary broadband projects that allows for projects that are designed to provide service of sufficient speeds to eligible areas, as well as an affordability requirement for providers that provide services to households.

Eligible costs timeframe

SLFRF funds may be used to cover eligible costs that were incurred during the period that begins March 3, 2021, and ends on December 31, 2024, as long as the award funds are expended by December 31, 2026. Costs for projects incurred by recipients prior to this period are not eligible per the final rule.

However, there are certain circumstances where SLFRF awards funds may be used for costs incurred prior to this period:

  1. Public health/negative economic impacts: Recipients may use SLFRF award funds to provide assistance to households, small businesses and nonprofits to respond to the public health emergency or negative economic impacts of the pandemic — such as rent, mortgage or utility assistance — for costs incurred by the beneficiary (e.g., a household) prior to March 3, 2021, provided that the recipient state, territorial, local or tribal government did not incur the cost of providing such assistance prior to March 3, 2021.
  2. Premium pay: Recipients may provide premium pay retrospectively for work performed at any time since the start of the COVID-19 public health emergency. Such premium pay must be “in addition to” wages and remuneration already received and the obligation to provide such premium pay must not have been incurred by the recipient prior to March 3, 2021.
  3. Revenue loss: Recipients have broad discretion to use funds for the provision of government services to the extent of reduction in revenue. While calculation of lost revenue is based on the recipient’s revenue in the last full fiscal year prior to the COVID-19 public health emergency, use of funds for government services must be forward looking for costs incurred by the recipient after March 3, 2021.
  4. Investments in water, sewer and broadband: Recipients may use SLFRF award funds to make necessary investments in water, sewer and broadband infrastructure. Recipients may use SLFRF award funds to cover costs incurred for eligible projects planned or started prior to March 3, 2021, provided that the project costs covered by the SLFRF award funds were incurred by the recipient after March 3, 2021.

Reporting

Generally, recipients must submit one initial Interim Report, quarterly or annual Project and Expenditure reports, which include subaward reporting, and in some cases annual Recovery Plan reports.

Assistance listing

The Assistance Listing for the SLFRF program was published May 28, 2021, on SAM.gov under Assistance Listing Number 21.027.

Uniform administrative requirements

SLFRF awards are generally subject to the requirements in the Uniform Guidance. Recipients should review the Uniform Guidance requirements applicable to the use of SLFRF funds and SLFRF-funded projects.

The following provide a general summary of the compliance responsibilities as described in the most recent compliance supplement issued by OMB. Please note that these are general summaries, and all recipients and subrecipients are advised to carefully review the Uniform Guidance requirements and any additional regulatory and statutory requirements applicable to this program.

  1. Allowable activities: Each recipient should review program requirements, including Treasury’s final rule and the recipient’s Award Terms and Conditions, to determine and record eligible uses of SLFRF funds. Per 2 CFR Part 200.303, recipients must develop and implement effective internal controls to ensure that funding decisions under the SLFRF award constitute eligible uses of funds, and document determinations.
  2. Allowable costs/cost principles: As outlined in the Uniform Guidance at 2 CFR Part 200, Subpart E regarding Cost Principles, allowable costs are based on the premise that a recipient is responsible for the effective administration of Federal awards, application of sound management practices, and administration of Federal funds in a manner consistent with the program objectives and terms and conditions of the award. Recipients must implement robust internal controls and effective monitoring to ensure compliance with the Cost Principles, which are important for building trust and accountability.
    1. Administrative costs: Recipients may use funds for administering the SLFRF program, including costs of consultants to support effective management and oversight, including consultation for ensuring compliance with legal, regulatory and other requirements. Pursuant to the SLFRF Award Terms and Conditions, recipients are permitted to charge both direct and indirect costs to their SLFRF award as administrative costs as long as they are accorded consistent treatment per 2 CFR 200.403. Direct costs are those that are identified specifically as costs of implementing the SLFRF program objectives, such as contract support, materials and supplies for a project. Indirect costs are general overhead costs of an organization where a portion of such costs are allocable to the SLFRF award such as the cost of facilities or administrative functions like a director’s office
    2. Salaries and expenses: In general, certain employees’ wages, salaries and covered benefits are an eligible use of SLFRF award funds. Please see Treasury’s final rule for details.
  3. Cash management: SLFRF payments made to recipients are not subject to the requirements of the Cash Management Improvement Act and Treasury’s implementing regulations at 31 CFR Part 205 or 2 CFR 200.305(b)(8)-(9).
    1. As such, recipients can place funds in interest-bearing accounts, do not need to remit interest to Treasury and are not limited to using that interest for eligible uses under the SLFRF award.
  4. Eligibility: Under this program, recipients are responsible for ensuring funds are used for eligible purposes. Generally, recipients must develop and implement policies and procedures, and retain records, to determine and monitor implementation of criteria for determining the eligibility of beneficiaries and/or subrecipients. Recipients and, if applicable, the subrecipient(s) administering a program on behalf of the initial recipient, will need to maintain procedures for obtaining information evidencing a given beneficiary, subrecipient or contractor’s eligibility, including a valid SAM.gov registration.
  5. Equipment and real property management: Any purchase of equipment or real property with SLFRF funds must be consistent with the Uniform Guidance at 2 CFR Part 200, Subpart D. Equipment and real property acquired under this program must be used for the originally authorized purpose, unless stated otherwise by the Treasury. Consistent with 2 CFR 200.311 and 2 CFR 200.313, any equipment or real property acquired using SLFRF funds shall vest in the non-Federal entity, consistent with any guidance that the Treasury may issue. Any acquisition and maintenance of equipment or real property must also be in compliance with relevant laws and regulations.
  6. Matching, level of effort, earmarking: There are no matching, level of effort or earmarking compliance responsibilities associated with the SLFRF award.
  7. Period of performance: Recipients should also develop and implement internal controls related to activities occurring outside the period of performance. For example, each recipient should articulate each project’s policy on allowability of costs incurred prior to award or start of the period of performance. All funds remain subject to statutory requirements that they must be used for costs incurred by the recipient during the period that begins on March 3, 2021, and ends on December 31, 2024, and that award funds for the financial obligations incurred by December 31, 2024, must be expended by December 31, 2026. Any funds not used must be returned to Treasury as part of the award closeout process pursuant to 2 C.F.R. 200.344(d).
  8. Procurement, suspension & debarment: Recipients are responsible for ensuring that any procurement using SLFRF funds, or payments under procurement contracts using such funds, are consistent with the procurement standards set forth in the Uniform Guidance at 2 CFR 200.317 through 2 CFR 200.327, as applicable.
    1. The Uniform Guidance establishes in 2 CFR 200.319 that all procurement transactions for property or services must be conducted in a manner providing full and open competition, consistent with standards outlined in 2 CFR 200.320, which allows for non-competitive procurements only in circumstances where at least one of the conditions below is true:
      1. The item is below the micro-purchase threshold.
      2. The item is only available from a single source.
      3. The public exigency or emergency will not permit a delay from publicizing a competitive solicitation.
      4. After solicitation of a number of sources, competition is determined inadequate.
    2. Recipients must have and use documented procurement procedures that are consistent with the standards outlined in 2 CFR 200.317 through 2 CFR 200.320. The Uniform Guidance requires an infrastructure for competitive bidding and contractor oversight, including maintaining written standards of conduct and prohibitions on dealing with suspended or debarred parties. The recipient must ensure adherence to all applicable local, state and federal procurement laws and regulations.
  9. Program income: Generally, program income includes, but is not limited to, income from fees for services performed, the use or rental of real or personal property acquired under federal awards, and principal and interest on loans made with federal award funds. Program income does not include interest earned on advances of federal funds, rebates, credits, discounts, or interest on rebates, credits or discounts. Recipients of SLFRF funds should calculate, document and record the organization’s program income. The Uniform Guidance outlines the requirements that pertain to program income at 2 CFR 200.307. Treasury intends to provide additional guidance regarding program income and the application of 2 CFR 200.307(e)(1).
  10. Reporting: All recipients of federal funds must complete financial, performance and compliance reporting as required. Expenditures may be reported on a cash or accrual basis, as long as the methodology is disclosed and consistently applied. Reporting must be consistent with the definition of expenditures pursuant to 2 CFR 200.1. Recipients should appropriately maintain accounting records for compiling and reporting accurate, compliant financial data, in accordance with appropriate accounting standards and principles. In addition, where appropriate, recipients need to establish controls to ensure completion and timely submission of all mandatory performance and/or compliance reporting.
  11. Subrecipient monitoring: SLFRF recipients that are pass-through entities as described under 2 CFR 200.1 are required to manage and monitor their subrecipients to ensure compliance with requirements of the SLFRF award pursuant to 2 CFR 200.332 regarding requirements for pass-through entities.
    1. First, the recipient must clearly identify to the subrecipient: 1) that the award is a subaward of SLFRF funds; 2) any and all compliance requirements for use of SLFRF funds; and 3) any and all reporting requirements for expenditures of SLFRF funds.
    2. Next, the recipient will need to evaluate each subrecipient’s risk of noncompliance based on a set of common factors. These risk assessments may include factors such as prior experience in managing Federal funds, previous audits, personnel and policies or procedures for award execution and oversight. Ongoing monitoring of any given subrecipient should reflect its assessed risk and include monitoring, identification of deficiencies and follow-up to ensure appropriate remediation.
    3. Accordingly, the recipient should develop written policies and procedures for subrecipient monitoring and risk assessment and maintain records of all award agreements identifying or otherwise documenting subrecipients’ compliance obligations.
    4. Recipients should also note that subrecipients do not include individuals and organizations that received SLFRF funds as end users. Such individuals and organizations are beneficiaries and not subject to audit pursuant to the Single Audit Act and 2 C.F.R. Part 200, Subpart F.
    5. Many recipients may choose to provide a subaward or contract to other entities to provide services to other end users. For example, a recipient may provide a subaward to a nonprofit to provide homeless services to individuals experiencing homelessness. In this case, the subaward to a nonprofit is based on the services that the recipient intends to provide (assistance to households experiencing homelessness), and the nonprofit is serving as the subrecipient, providing services on behalf of the recipient. Subrecipients are subject to an audit pursuant to the Single Audit Act and 2 CFR part 200, subpart F regarding audit requirements, whereas contractors are not subject to an audit pursuant to the Single Audit Act and 2 CFR part 200, subpart F regarding audit requirements.
  12. Special tests and provisions: The Treasury may issue subregulatory guidance as well as frequently asked questions.

As a reminder, SLFRF awards are generally subject to the requirements in the Uniform Guidance. Recipients should review the Uniform Guidance requirements applicable to the use of SLFRF funds and SLFRF-funded projects.

These are general summaries, and all recipients and subrecipients are advised to carefully review the Uniform Guidance requirements and any additional regulatory and statutory requirements applicable to this program.

How Wipfli can help

For those interested in more information regarding the compliance requirements of the SLFRF program, Wipfli regularly performs in-depth trainings on OMB’s Uniform Guidance. Our team is available to help you answer questions or help you navigate and of the complexities of the recovery funds program. Contact us to learn more.

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Author(s)

Josh M. Faivre, CPA
Manager, Audit
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