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Articles From Lumsden McCormick

CARES Act Funds for Governments

This BDO article is available through our affiliation with the BDO Alliance USA. Lumsden McCormick has been a member of the BDO Alliance USA since 2009.

By Susan Friend, CPA

The Coronavirus Aid, Relief and Economic Security (CARES) Act enacted by Congress on March 27, established the Coronavirus Relief Fund and appropriated $150 billion to the fund for COVID-19 related expenses for states, the District of Columbia, U.S. territories, tribal governments, and local governments with populations over 500,000. The allocation of $139 billion to the states was determined by a population-based formula, with states receiving a minimum of $1.25 billion, with a reduction for payments made to local governments. A total of $3 billion was reserved for the District of Columbia and U.S. territories, with allocations based on population. A total of $8 billion was reserved for tribal governments, with 60% allocated based on population and the remaining 40% based on employment and expenditure data, with a minimum payment of $100,000 to the smallest tribal governments.

According to guidance provided by the Department of Treasury, recipients may use the payments received to cover costs that were necessary and incurred from March 1, 2020, through December 30, 2020, to respond to the COVID-19 public health emergency. Relief fund payments received may not be used to fill shortfalls in government revenue to cover ineligible costs. Governments are responsible for making determinations as to what expenditures are necessary, and do not need to submit a proposed expenditure plan to the Department of Treasury. Eligible expenditures include those incurred to address medical or public health needs, as well as those incurred as a consequence of the pandemic, such as providing economic support to those who have suffered loss of employment or business interruptions due to closures.

Payments made by the recipients should only be used to cover costs that were not accounted for in the state or government budget most recently approved as of March 27, 2020, without considering supplemental appropriations or other budgetary adjustments made in response to the COVID-19 emergency. A cost meets this requirement if the cost either cannot lawfully be funded using a line item, allotment or allocation within that budget, or is for a substantially different use from any expected use of funds in such line item, allotment or allocation. Costs incurred for a substantially different use would, for example, include personnel costs that were included in the most recently approved budget, but, were diverted to substantially different functions due to the COVID-19 emergency. Regarding budgetary stabilization funds or other similar reserve funds, a cost is not considered to have been included in a budget simply because it could have been met using one of these reserve funds.

Recipients may deposit relief fund payments into interest-bearing accounts. If invested separately, interest earnings or other proceeds of those investments must be used only to cover eligible expenditures. If recipients deposit the payment in the government’s general account, those monies can be used to meet immediate cash management needs provided that the full amount of the payment is used to cover necessary expenditures. Additionally, if assets were purchased consistent with limitations on the eligible use of relief funds and were disposed of prior to Dec. 30, 2020, proceeds from the disposal are subject to the restrictions of use of eligible expenditures.

The Inspector General of the Department of Treasury may recoup amounts not used in a manner consistent with the provisions of the CARES Act. The CARES Act also provides that if amounts received were not used to cover costs incurred by Dec. 30, 2020, those funds must be returned to the Department of Treasury. For all payments received from the Department of Treasury or other federal agency, it is imperative that recipients of the funds maintain sufficient records and documentation to demonstrate compliance with requirements. Due to the significant amount of questions pertaining to eligible expenditures and the administration of amounts received from the relief fund, the Department of Treasury issued a FAQ document, which is updated periodically. Through the FAQ document, notification was given that relief fund payments are considered to be federal financial assistance subject to the Single Audit Act and the related provisions of the Uniform Guidance, 2 CFR §200.303 regarding internal controls, §200.330 through 200.332 regarding subrecipient monitoring and management, and subpart F regarding audit requirements. The document further advises that relief fund payments to subrecipients, such as a state transferring payments to its political subdivisions, would count toward the subrecipients threshold under the Single Audit Act.

In addition to the relief fund, multiple federal agencies have directed part of their allotted emergency aid to grant programs to provide support in the response to the COVID-19 pandemic. Relief fund payment recipients need to consider restrictions and limitations on other available federal programs since payments from the relief fund cannot be used to cover expenditures for which reimbursement will be received under another federal program.

Although the current guidance from the Department of Treasury indicated that payments from the relief fund could not be used to fill government revenue shortfalls, there is discussion as to whether to provide more flexibility to use these federal dollars to cover lost revenues, or if more funding will be provided. However, no conclusions have been reached on these issues yet.

Additional COVID-19 resources for governments can be found at the following links:

For more information, contact Susan Friend, National Assurance Director, at sfriend@bdo.com.

This BDO article is available through our affiliation with the BDO Alliance USA. Lumsden McCormick has been a member of the BDO Alliance USA since 2009.

CARES Act Funds for Governments

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Sara has extensive experience serving governmental entities in the areas of internal and external auditing, single audits, taxation, information returns, and financial reporting. As the leader of our governmental services group, Sara is responsible for reviewing all governmental financial statements and assists with the management and delivery of services by facilitating risk assessment and client expectations for our larger governmental clients. She maintains and exceeds the continuing professional education requirements of Government Auditing Standards. In addition to the services she provides to local governments, Sara performs audits and related financial services for commercial businesses and nonprofit organizations.


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