Understanding Coronavirus State and Local Fiscal Recovery Funds Audit and Reporting Requirements

Coronavirus State and Local Fiscal Recovery Funds (SLFRF) Overview.

The SLFRF program authorized by the American Rescue Plan Act delivers $350 billion to over 30,000 recipients across the country to support their response to and recovery from the COVID-19 public health emergency. The Department of Treasury is still accepting requests for funding today through its submission portal. 

The 2022 Final Rule, issued on April 1, 2022, describes how recipients can use SLFRF funds to replace lost public sector revenue, respond to public health and negative economic impact of the pandemic, provide premium pay for essential workers and invest in water, sewer and broadband infrastructure. A 2023 Interim Final Rule, issued by Congress in September as part of an amendment to the SLFRF program through the Consolidated Appropriations Act, provides additional flexibility for recipients to use SLFRF funds. Recipients are encouraged to review the 2022 Final Rule, the Overview of the 2022 Final Rule and the 2022 Final Rule Frequently Asked Questions to assist in determining eligible uses of funds. The 2022 Final Rule FAQs have been updated to address the 2023 Interim Rule. 

Recipients are required to meet compliance and reporting responsibilities, which vary by the type and amount of funds received. Treasury released updated Compliance and Reporting Guidance on September 27, 2023, providing additional detail and clarification, which should be read in conjunction with the Award Terms and Conditions, the authorizing statute, the Final Rule and other regulatory and statutory requirements.

Audit Requirements

Treasury has recognized that many recipients of SLFRF funds may be required to comply with Single Audit or program-specific audit requirements for the first time. An alternative approach, available for recipients of SLFRF that would otherwise not be required to undergo an audit if it were not for SLFRF expenditures, permits eligible recipients to have a compliance examination engagement performed in accordance with the Government Accountability Office Government Auditing Standards. Eligible recipients include those entities whose total SLFRF award is at or below $10 million and other federal award funds expended are less than $750,000 during the fiscal year. 

Subrecipient vs. Beneficiary

It’s important for an entity receiving SLFRF funds to understand its designation as either a subrecipient or a beneficiary. This determination will result in either inclusion or exclusion of funds on the Schedule of Expenditures of Federal Awards (SEFA) and, ultimately, whether the entity is required to comply with all requirements of recipients, including a Single Audit and subrecipient reporting requirements. 

The distinction between subrecipient and beneficiary comes down to whether the entity is receiving the funds to carry out the program or as an end user. End users are considered direct beneficiaries and are receiving SLFRF funds due to experiencing a public health or negative economic impact of the pandemic. Beneficiaries, then, would not include SLFRF funds on their SEFA. Subrecipients of SLFRF funding, on the other hand, receive funds to carry out program requirements on behalf of the SLFRF recipient and therefore would include SLFRF funds on their SEFA. 

A unique situation exists under the “lost revenue” concept when considering subrecipient versus beneficiary. Recipients may use SLFRF funds to replace lost public sector revenue to provide government services. Treasury has determined that there are no subawards eligible under the “eligible use” category of lost revenue. The definition of subrecipient states that the subrecipient carries out the program and the use of lost revenue funds does not give rise to a subrecipient relationship, therefore any funds received to replace lost revenue by an entity, other than the original recipient, should be excluded from the SEFA. 

Entities should review their SLFRF agreements, as well as the most recent compliance supplement, for important information regarding audit requirements and to assist in determining whether they’re a subrecipient or a beneficiary. They’re strongly encouraged to consult with the SLFRF funder on the determination. 

Helpful Resources:

2023 Compliance Supplement
U.S. Department of Treasury Coronavirus State and Local Fiscal Recovery Funds

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