The Uniform Guidance – Some Ongoing Pitfalls
By Matthew Cromwell, CPA, BDO
We find ourselves years into the implementation of Title 2 Code of Federal Regulations (CFR) 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). However, a few recurring matters continue to arise that lead to audit findings.
This article will discuss the following areas where we still see findings:
· Subrecipient monitoring
· Period of performance
Three areas where we see challenges on subrecipient monitoring are:
Vendor versus subrecipient analysis
In many instances, this line can be blurred depending on facts and circumstances. Depending on the final determination, different compliance requirements apply to vendors and subrecipients. CFR §200.331 considerations should be clearly documented for each entity engaged. Documentation of this analysis and the final determination should be retained by the organization.
CFR 200.332(b), Requirements for pass-through entities, state that an entity evaluate each subrecipient’s risk of noncompliance with federal statutes, regulations, and the terms and conditions of the subaward. The pre-award assessment is designed to determine what level of monitoring is required once the subaward is granted as well as determining risk level to the granting organization. Decisions made here determine if the subrecipient is awarded funds in advance or on a cost reimbursement basis, how often program and financial reports are required, or how many site visits or other monitoring actions are required. A granting organization cannot use a blanket pre-award assessment based on the expected amount of grant funding. To be clear, a $20,000 subaward will not receive the same significant level of assessment as a $1 million subaward. For example, grants to subrecipients of less than $20,000 cannot all be labeled as “low risk” just because of a dollar threshold. Risk assessments need to consider such factors as whether:
- Work is being completed in a high risk location
- First time working as a subgrantee for the organization
- Strong financial controls (and how assessed)
These decisions are all based on the pre-award assessment and certainly it is not a one-size-fits all analysis.
Coronavirus State and Local Fiscal Recovery Funds (CSLFRF)
By Stacey Powell, CPA, and Sam Thompson, CPA
The Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) provide $350 billion in emergency funding for eligible state, local, territorial and tribal governments. The U.S. Department of the Treasury (Treasury) has published an Interim Final Rule that implements and details the provisions of this program. This guidance is applicable to state and local governments. However, it may have an impact on nonprofits, healthcare organizations and institutions of higher education since these funds may be passed through to them from state and local governments.
Key program provisions include:
Use of Funds
Recipients of CSLFRF funds may use funds to:
- Support public health expenditures, by, for example, funding COVID-19 mitigation efforts, medical expenses, behavioral healthcare, and certain public health and safety staff.
- Address negative economic impacts caused by the public health emergency, including economic harms to workers, households, small businesses, impacted industries and the public sector.
- Replace lost public sector revenue, using this funding to provide government services to the extent of the reduction in revenue experienced due to the pandemic.
- Provide premium pay for essential workers, offering additional support to those who have and will bear the greatest health risks because of their service in critical infrastructure sectors.
- Invest in water, sewer, and broadband infrastructure, making necessary investments to improve access to clean drinking water, support vital wastewater and stormwater infrastructure, and to expand access to broadband internet.
Within these overall categories, recipients have broad flexibility to decide how best to use this funding to meet the needs of their communities.
Funds may not be used to directly or indirectly offset a reduction in net tax revenue due to a change in law from March 3, 2021 through the last day of the fiscal year in which the funds provided have been spent or to make a deposit into a pension fund.
Distribution and Timing of Payments
Treasury expects to distribute these funds directly to each state, territorial, metropolitan city, county and tribal government. Local governments that are classified as non-entitlement units will receive this funding through their applicable state government.
Local governments will receive funds in two tranches, with 50% of the funds provided beginning in May 2021 and the balance delivered approximately 12 months later. However, states that have experienced a net increase in the unemployment rate of more than two percentage points from February 2020 to the latest available data as of the date of certification will receive their full allocation of funds in a single payment. Governments of U.S. territories will receive a single payment. Tribal governments will receive two payments, with the first payment available in May 2021 and the second payment, based on employment data, to be delivered in June 2021.
Additional Guidance and Resources
Additional Treasury guidance and resources including a summary fact sheet, frequently asked questions, a Quick Reference Guide, as well as additional updates as they are released, are available on the CSLFRF page on the Treasury website.
Pulse Check: Is It Time to Update Your Spending Policy?
By Michaela Kay, CPA
2020 was quite the year. While we started off with record highs in the stock market, by mid-March, we saw the fastest 30% decline in the S&P 500 in the history of the index. Since then, we have continued to see many ups and downs, but we still saw overall gains in the stock market.
What does this mean for your organization’s spending policy? Is it time for an update?
Most financial experts advise sticking to your plan during tumultuous financial times and embracing volatility, as it can be an organization’s best tool to beat inflation and maintain the spending power of invested funds.
However, the events of the past year have shed light on some reasons why an organization should consider updating its spending plan.
Here are a few examples of scenarios that might trigger a policy revision:
1. The investment fund is underwater.
Just as with your personal finances, an organization should not live paycheck to paycheck. If an organization has withdrawn all the income from an investment fund, it may want to consider revising the spending policy to decrease spending. It is healthy to have a cushion of accumulated earnings. That way, when future losses come, it will not be necessary to dip into the corpus in order to keep funding program services.
2. The spending policy doesn’t include a smoothing policy.
The most common type of smoothing policy is a simple moving average based on the average balance of the account over a specified period of time (often three years). This helps stabilize spending compared to a policy that focuses on fully spending the annual income or a fixed rate. It also helps to preserve the corpus in the long run.
5 Steps to Maintain Donor Engagement in a Tumultuous Time
By Robby Vanrijkel
COVID-19, the economy and political shifts have resulted in tumultuous times for many nonprofits. Organizational resilience depends heavily on securing funding, and organizations are seeking out new ways to engage with donors to ensure they have the resources needed to continue their missions. Successful nonprofits understand that maintaining these relationships is imperative for the survival and continued growth of their organizations.
To maintain donor engagement during these times, we recommend following these five best practices:
1. Scenario plan. While organizations often are aware of their current financial status and most pressing risks, the events of the past year have proven that they need to go beyond assessing the status quo. Some risks are external in nature and incredibly difficult to foresee. Being aware of the full landscape of potential risks and conducting different scenario analyses to determine their impact to the organization are essential to both managing risk and communicating with donors. The future can be hard to predict, so having several scenarios to discuss both internally and externally is imperative to navigating tumultuous times effectively.
Privacy by Design for Nonprofits
By Gail Spielberger, CIPM
Privacy in the age of modern technology is a major concern for individuals and, moreover, is the focus of laws and regulations directed at organizations that use personal data. The fast-moving digital landscape has not only challenged current lawmakers, but has also resulted in an erosion of public trust in how data is used, stored, transmitted and protected. As organizations, including nonprofits, adopt new technologies, services and business operations, they must be proactive about their data policies and practices to assure individuals their personal data is safe, and likewise reduce the likelihood of data loss, unauthorized disclosure or misuse.
What is Privacy by Design?
Privacy by Design (PbD) is an approach that considers privacy concepts from the moment a product, service or business process is designed or planned, from inception to implementation. This means that products, services and applications must be designed and developed to protect privacy from the beginning rather than applied later as an afterthought.
Some privacy laws and regulations, such as the General Data Protection Regulation, legally require organizations to apply PbD principles as part of their organizational data practices. As part of these regulations, organizations may be required to provide evidence that they have implemented PbD. This documentation not only demonstrates compliance to regulators, but it also allows your organization to recognize potential privacy issues so risks can be identified and mitigated as projects move forward. Further, these privacy implementations will provide your enterprise with a framework to comply with privacy and data protection laws and regulations, and can strengthen your reputation while differentiating your organization from the competition.
Other Items to Note
FASB Proposes Improvements to Discount Rates for Lessees
On June 16, 2021, the Financial Accounting Standards Board (FASB) released a proposed Accounting Standards Update (ASU) related to the Leases standard (Topic 842). The proposed ASU would improve the discount rate guidance for lessees that are not public business entities which includes nonprofit organizations, private companies and employee benefit plans.
Under the new lease standard, that needs to be adopted for fiscal years beginning after December 15, 2021, these entities can utilize a practical expedient so these entities could establish an accounting policy election to use a risk-free rate as the discount rate for all leases. An example of a risk-free rate is a Treasury rate.
However, feedback from many stakeholders was that this risk-free rate election in the current environment was leading to an increase in the entity’s lease liabilities and right-of-use assets recorded in the statement of financial position.
The amendments in the proposed ASU address this concern by permitting these entities to make the application of the practical expedient by class of underlying asset instead of entity-wide. In addition, the amendments state that if there is a rate implicit in the lease that can be determined, that rate should be utilized instead of the risk-free rate or an incremental borrowing rate, regardless of whether it has made the risk-free rate election.
Provider Relief Funds (PRF) Reporting Requirements Update
On June 11, 2021, Health Resources and Services Administration (HRSA) released a Reporting Requirements Policy Update related to provider relief fund reporting requirements. The updated Post-Payment Notice of Reporting Requirements seeks to amend the previous reporting requirements released on January 15, 2021. These reporting requirements apply to PRF General and Targeted Distributions (including the Skilled Nursing Facilities (SNF) and Nursing Home Infection Control Distribution). These reporting requirements do not apply to the Rural Health Clinic COVID-19 Testing Program or claims reimbursements from the HRSA COVID-19 Uninsured Program and the HRSA COVID-19 Coverage Assistance Fund (CAF). Additionally, HHS also updated its Frequently Asked Questions (FAQs) as of June 11, 2021.