As you know, the GFOA, Government Finance Officers Association, reminds us that the Single Audit Act requires that States, local governments, and Indian tribes expending over a threshold amount ($750,000) in Federal awards during the year must prepare and have audited a SEFA (Schedule of Expenditures of Federal Awards). Preparing the SEFA financial statements based on GAAP (Generally Accepted Accounting Principles) is easily done if the information has flowed correctly into the general ledger.
Introduction
Sometimes, in the rush of getting from Monday to Friday in one piece, Local Government Finance Departments make errors that arise from missing federal programs on the SEFA. Why? Because the federal programs don’t result in a discernible expenditure at first glance, and they get overlooked.
These federal programs can range from fire trucks to nonprofit grants. This post will look at a few specific examples and then show some general rules to help avoid these mistakes.
Examples of Common Mistakes
Many federal programs at the local government level keep cities safe, add to the community’s welfare, and bridge gaps between tax revenues and necessary expenditures.
Here are a few real-life examples.
Fire Trucks
In many areas, fire truck programs are similar to the Cal Fire program, where cities are given a fire truck in exchange for their commitment to respond to larger wildfires in what is known as a mutual aid agreement.
For accounting purposes, the Fire Truck is a ‘donated asset’ if it is purchased with federal funds. However, if the city didn’t spend any money on it, they sometimes forget to book it as an expense.
For the SEFA, the fire truck needs to be counted as an expense.
Nonprofit Grants
When a nonprofit has a major grant but is only eligible to get it with a government co-sponsoring it, a municipality may co-sponsor an agreement with the federal government to get the funding. The city is happy to help, and when the aid arrives, they immediately direct all the funding to this nonprofit. They still must track the flow of money.
Unfortunately, out of sight and out of mind can make it so the city doesn’t remember to put the grant money on the books because they never saw a dollar of it. However, the county and the federal government consider the city to be a subset or prime recipient for money-tracking purposes. The nonprofit is the subrecipient, and the general ledger must reflect the flow of money into their books and then on to the nonprofit.
Water Arrearage Programs
The pandemic made it difficult for many people to pay their bills. In California, for instance, the state was given federal funding to help people behind in their water bills. Sometimes, funding is received and immediately applied to customers’ bills because the cities are glad to help people in need. However, when the city’s financial staff misses the proper accounting in the short term, the expenditure never hits the municipality’s expense or General Ledger account., and sometimes it’s forgotten altogether. Then, the SEFA is missing proper information because it never hit the expense account. The auditors will find it.
Miscellaneous Errors
Sometimes, the expenditures are missing (as above), or are recorded to the wrong ALN (Assistance Listing Number—formerly known as the Catalog of Federal Domestic Assistance CFDA). Code errors are common, and subrecipients might be absent or incorrect. Some State awards are percentages of Federal awards; and in those cases, only the Federal amount should go on the SEFA.
The bottom line is that lots can be missing or incorrect on the SEFA because, as they say, the devil is in the details. Here are some tips for preparing a complete SEFA.
How to Ensure the SEFA is Complete
To ensure a complete SEFA, we recommend:
- Checking all the grant agreements entered during the year.
- Making sure each one is identified by sources of funding.
- Doing a scrub of the General Ledger —specifically, the grant-related accounts, ensuring they are capturing everything in the SEFA that is federally funded (as noted above).
- Comparing against the Minutes of City Council meetings or Board of Directors’ meetings to ensure that any grants accepted during the year have expenditures included.
NOTE: Even if there are no expenditures— where no actual money goes out— the grant still has to be on the schedule.
The GOFA (Government Finance Officers Association) suggests creating an electronic file for all programs, whether grants or other federal-related programs, for the staff compiling the SEFA to check against in their preparation for the auditors. Some of the pieces of information in the file, as recommended by the GOFA, are as follows:
- Grant agreement and notice of the award, as applicable.
- Type of grant (e.g., reimbursement basis or structured payments)
- Program name and cluster title (if applicable)
- Name of federal funding agency
- Pass-through entity (if applicable)
- Assistance listing number (formally known as the CFDA number)
- Pass-through entity identifying number (if applicable)
- Amount passed through to each subrecipient (if applicable)
- Award amount
- Award date
- Match requirement (if applicable)
- Period of performance
Conclusion
The SEFA must be complete and accurate. It is the auditee’s responsibility to prepare it, and it is the foundation for a smooth audit. Errors and omissions are not only inefficient, but they can also require another audit by your CPA, and in some instances, an audit for reinstatement because,
…what is really at stake is whether the government entityis eligible to receive federal funds in the future.
As noted, federal grant money helps local governments by providing services and programs they cannot fund themselves. Sharing assets (fire trucks or nonprofit grants) is a more efficient use of assets. Every city doesn’t need its own wildfire-fighting equipment. Sharing makes more sense. Cities that lose access to federal funds because of untidy SEFA practices are not serving their constituents responsibly.
Getting the accounts set up correctly is the first step. Asking your CPA and auditor for help ahead of time is another good way to support your team and the citizens who place their trust in their local government officials.
Please contact LSL CPAs if you need assistance.
