Public Sector: Insight in Uncertainty

March 2020 | Posted in Audit, Public Sector, Whitley Penn
Audit, Public Sector, Whitley Penn

During a time of uncertainty, we want to assure you that Whitley Penn will adapt to the needs of our clients. With normalcy out the window, we are also monitoring state and federal laws and regulations to see what relief will be granted to our public sector clients.

The federal government is currently working on a stimulus package that will provide relief to our economy, but as you may recall from the American Recovery and Reinvestment Act of 2009, we encountered some challenges, to say the least. We, as advisors/auditors vividly remember the accounting and financial reporting challenges. So, as you incur costs specific to COVID-19, we highly recommend that you utilize a mechanism to track these expenditures in your accounting records. This may mean creating a separate fund, sub-object, or project code to track these expenditures.

The Office of Management and Budget (OMB) issued M-20-17 Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly impacted by the Novel Coronavirus (COVID-19) due to Loss of Operations, on March 19, 2020. The memorandum expounds on M-20-11, Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly impacted by the Novel Coronavirus (COVID-19), issued on March 9, 2020, also aimed at federal agencies. M-20-17 provides short-term relief for administrative, financial management, and audit requirements to an expanded scope of recipients affected by the loss of operational capacity and increased costs due to the COVID-19 crisis. Awarding agencies will need to maintain appropriate documentation on any exceptions granted. Please ensure that you have clear guidance from your grantor.

Items of note in the memorandum are as follows:

  1. Submission of non-federal entities’ Federal Single Audit packages have received a six-month extension. So this applies to those entities that have not yet filed their single audits through the Federal Audit Clearinghouse as of March 19, 2020, and have fiscal year-ends through June 30, 2020. The guidance indicates that non-federal entities do not have to obtain approval to invoke the six-month extension, but documentation should be maintained explaining the reason for the delay. Rest assured that the extension does not affect an entity’s low-risk auditee status.
  2. Allowability of salaries and other project activities – Awarding agencies may allow recipients to continue to charge salaries and benefits to currently active federal awards consistent with the recipients’ policy of paying salaries (under unexpected or extraordinary circumstances). It is important that your governing bodies (councils, boards, and commissioners’ courts) take appropriate action if not already written into policy. Please ensure that you keep documentation to support these charges in accordance with 2 CFR 200.333, which states, “Financial records, supporting documents, statistical records, and all other non-Federal entity records pertinent to a Federal award must be retained for a period of three years from the date of submission of the final expenditure report…”
  3. Allowability of Costs not Normally Chargeable to Awards – Your awarding agencies may allow non-federal entities to incur costs related to the cancellation of events, travel, or other activities necessary and reasonable for the performance of the award or pausing and restarting of grant funded activities due to the public health emergency. Record retention rules will still apply to substantiate the charging of any cancellation or other fees related to the disruption of operations. Again, make sure that you have written, explicit, guidance from your awarding agency that this may be done.

Procurement is always a hot topic. First things, first: make sure your governing body approves a resolution to invoke the public exigency/emergency procurement procedures specifically related to COVID-19. I would suggest that your legal counsel review the resolution so that it is clear what purchases fall under these non-competitive procurement procedures. In addition, please make sure that both finance and procurement personnel are keeping current with the Federal Emergency Management Agency (FEMA) guidance. On March 17, 2020, FEMA released guidance related to procurement and has provided an important excerpt below:

Current Federal procurement standards (found at 2 C.F.R. § 200.320(f)(2)) allow non-state entities to noncompetitively procure contracts (i.e., sole-sourcing) under certain emergency or exigent circumstances. FEMA defines an emergency or exigent circumstances as unexpected and unusually dangerous situations requiring immediate action or an urgent need for assistance or relief. Emergencies typically involve a threat to life, public health or safety, improved property, or some other form of dangerous situation. Exigencies, on the other hand, typically involve an urgent need to avoid, prevent, or alleviate serious harm or injury, financial or otherwise. Under both an emergency and exigency, using a competitive procurement process would prevent a non-state entity from taking immediate action required to address the situation. However, use of the emergency/exigency exception is only permissible during the actual emergency or exigent circumstances. 

The President’s unprecedented Nationwide Emergency Declaration, and the Secretary of Health and Human Services’ (HHS) declaration of a Public Health Emergency for COVID-19 establish that exigent and emergency circumstances currently exist.

Please note that the public health emergency began January 27, 2020, and local governments and nonprofits and other non-federal entities may proceed with new and existing noncompetitive procured contracts. Please remember that the reason to follow noncompetitive procedures is to protect property and public health and safety.  An additional resource is the FEMA Fact Sheet. Take some time to review it.

As your trusted advisors, we are available by phone, text, or email to talk through any scenario or if you need to hear/read a friendly voice/message. We plan to perform our procedures remotely and will work to accommodate you based on your staffing limitations. We will continue to send updates such as these and plan to record our first public sector podcast on April 1, 2020, or as soon as we are able. I think the human spirit is one of the most amazing things in this world and we will get through this together. So I leave you with this quote by Bernard Beckett: Human spirit is the ability to face the uncertainty of the future with curiosity and optimism. It is the belief that problems can be solved, differences resolved. It is a type of confidence. And it is fragile.

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