The Best Things in Life are Free, but there is no Such ... · Subrecipient vs. Contractor (“Vendor”) Subrecipient and contractor determinations (200.330) • Substance of the

#AICPAgov

The Best Things in Life are Free, but there is no Such

Thing as Free Federal Money

Jill A. Shaw, CPA Michael L. Lauzon, CPA

HeinfeldMeech

Expenditure basics Tips for preparation of an accurate SEFA Avoiding Common SEFA Errors SEFA Tool and Resources

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https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwiV6bfh_6TVAhWr7YMKHeW6BK8QjRwIBw&url=https://www.gshp.org/meeting_spring.aspx&psig=AFQjCNGlaRphX-hZ_-r9ZlwfB8Cs0Xo39Q&ust=1501091497159587

Expenditure Recognition Basics

Governmental Funds Current Financial Resources Measurement Focus (What expenses are reported)

Use stems from the importance of appropriations and budgetary control A focus of providing services for the year Expenditures are outflows that are expected to be liquidated with expendable available financial resources

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Expenditure Recognition Basics

Governmental Funds Modified Accrual Basis of Accounting (When expenses are reported) Recognize expenditures in the period in which a

liability has incurred. Typically this is also interpreted as “when goods or services have been received”.

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Exceptions that put the “modify” in Modified Accrual Basis of Accounting

Debt service on general long-term debt • Recognize these when due

Compensated absences, claims and judgments, OPEB, pensions and many others

• Recognize these when they mature (that is, due for payment)

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Type of Expenditure When Due When Liability Incurred

Bonded debt service payment According to debt retirement schedule (typically 7/1 & 1/1)

Upon closing date for bond

Compensated absences At time of resignation At time of sick/vacation leave accrual

Claims and judgments When settlement has been reached (due and payable)

When loss is probable and reasonable estimable

OPEB When payments are made Liability based on actuarial valuations and includes all persons eligible for benefits Pensions When employer contributions are made

Advance Funding of Long-Term Liabilities

Exception – Governments may report a liability and expenditure for debt service if: 1. Resources have been accumulated in a debt service fund 2. Debt service is due and payable in 1 to several days after year end (but not

more than one month after year-end)

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If a government has accumulated resources to pay an unmatured long-term liability, can they record a liability and expenditure on the fund financial statements?

Question

No, accumulated resources should be included as part of fund balance.

Answer

Government-Wide / Proprietary Funds

Economic Resources Measurement Focus (What expenses are reported) Provides information about all operating costs

(financial and capital). Users can assess effect that current period

operations have on future resource needs. Accrual Basis of Accounting (When expenses are reported) Recognize expenditures when they occur

regardless of when cash is received or paid. Helpful in cases where users of the financial

statement need to see the “full picture”.

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Modified Accrual

Accrual

Reconciling Items – Fund to Government-Wide Statements

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Fund Statements

Statement of Activities (GW)

A Look at Federal Expenditures

Entities spending more than $750,000 in federal grant awards require a Single Audit If close to threshold, auditors will likely require an analysis

to document total federal expenditures do not trigger a Single Audit Ensure that the chart of accounts allows for detailed

reporting of federal expenditures • Funds • Cost Centers • Project Numbers

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S E F A

Schedule of Expenditures

of Federal Awards

Context of the SEFA – Why is it so important?

Primary view of federal awards for federal agencies and pass-through entities

• Provides picture of all federal money the entity is responsible for

Drives scope of audit • Main determinant of major programs • Inaccurate SEFA = Inaccurate major program determination

Feeds electronic accumulation of data for government-wide monitoring of its awards

• Includes significant data to input into Data Collection Form Supplemental schedule to the financial statements

• “In-relation-to” opinion, but with compliance emphasis

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Context of the SEFA

SEFA is defined in CFR 200.510 Auditee responsibilities for SEFA described in CFR

200.508 Auditor’s responsibility for reporting on the SEFA

described in CFR 200.515 • Opinion (or disclaimer of opinion) as to whether the SEFA is

presented fairly in all material respects in relation to the financial statements taken as whole.

Considered supplementary information (SI) under AU-C 725.

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SEFA as Supplementary Information

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Balance Sheet Statement of Activities

Statement of Cash Flows

~~~~~ $XXX ~~~~~ $XXX ~~~~~ $XXX ~~~~~ $XXX ~~~~~ $XXX ~~~~~ $XXX ~~~~~ $XXX

SEFA ~~~ ~~ $XXX ~~~ ~~ $XXX ~~~ ~~ $XXX ~~~ ~~ $XXX ~~~ ~~ $XXX

Independent Auditor’s Report on the Financial Statements

Financial statements are fairly stated… …. and the SEFA is too, in relation to the financial statements…

Context of the SEFA – Compliance Audit Objectives

SEFA serves as the primary basis for major program determination – thus making the accuracy & completeness of the SEFA a critical factor Internal control over compliance procedures require the

auditor to assess the auditee’s controls over the accuracy and completeness of the expenditure amounts & accuracy of CFDA numbers Compliance procedures should be performed to determine

whether the SEFA is complete, accurate and contains all required elements

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Context of the SEFA – Auditee Responsibility

SEFA is the primary responsibility of the auditee Auditees are encouraged to:

• Contact pass-through awarding entities early in the planning process

• Understand the importance of the SEFA

Consider control deficiencies

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Uniform Guidance for Federal Awards as it relates to the SEFA and significant changes from A-133

SEFA requirements in the UG are in Subpart F Subpart F is effective for audits of fiscal years beginning

on or after December 26, 2014 • e.g., December 31, 2015 and June 30, 2016 year ends

Uniform Guidance references in slides are to the Code of Federal Regulations, 2 CFR Part 200 section

• e.g., 200.510(b)

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Uniform Guidance for Federal Awards as it relates to the SEFA

Significant differences in the Uniform Guidance • Total for cluster of programs on face of SEFA • Amounts provided to subrecipients from each federal program

on face of SEFA • Include on SEFA face all Federal awards expended including:

Noncash assistance Loan programs (beginning balance of outstanding loans plus loans

disbursed during period plus interest subsidy, cash, or administrative cost allowance)

Loan guarantee programs

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Uniform Guidance for Federal Awards as it relates to the SEFA

Significant differences in the Uniform Guidance • Loans and loan guarantees: Identify in SEFA notes the loan

balances outstanding at the end of the audit period • SEFA notes disclose whether or not non-federal entity elected

to use the 10% de minimus cost rate (CFR 200.414) NOTE 4 – INDIRECT COST RATE

The Example City has not elected to use the 10% de minimis cost rate as covered in 200.414 Indirect (F&A) costs.

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Elements of the SEFA

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Minimum SEFA Requirements (UG 200.510(b))

Auditee must prepare – include federal awards expended as determined in 200.502

• Refer to 200.502 for what must be included List individual federal programs by federal agency

• If a cluster: List cluster name List individual programs within cluster Provide applicable federal agency name

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Example of a Cluster


For federal awards received as a subrecipient • Name of pass-through entity • Identifying number assigned by pass-through entity

Total federal awards expended for each individual federal program and the CFDA number

• Use other identifying number when CFDA info not available • For a cluster, also provide total for the cluster (200.510(b)(3)

makes this more explicit) Total amount provided to subrecipients from each federal

program (NEW under UG - 200.510(b)(4)) • Previous guidance only required “to the extent practical”

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For loans and loan guarantees, identify in the notes to the SEFA loan balances outstanding at the end of the audit period (200.510(b)(5))

• This is in addition to including the total federal awards expended for loan or loan guarantees in the schedule

• Important Note (New under UG): Can no longer put beginning loan balance component of federal awards expended in the notes (now will go on face of schedule)

SEFA footnotes: • Describe significant accounting policies used • Include in the notes to the SEFA whether or not non-federal

entity elected to use the 10% de minimis cost rate (NEW under UG - 200.510(b)(5))

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Example SEFA Under Uniform Guidance

Federal Grantor/ Pass Through Grantor/

Program Title

Federal CFDA

Number

Pass Through Entity

Identifying Number

Federal Expenditures

Expenditures to

Subrecipients Department of Housing and Urban Development Direct Program – Community Development Block Grant 14.218 N/A $1,000,000 $800,000

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CFDA Number

Sometimes not provided by grantor • Be proactive and reach out to them • Set expectations upon contract signing • Look in Catalog of Federal Domestic Assistance (CFDA.gov)

Indicate not available and provide other identifying number Follow the instructions of the Data Collection Form for

program with no CFDA number • If award has a contract or grant number:

Awarding agency’s 2 digit prefix followed by grant or contract number (e.g., 20.ABCDE12345Z)

• If award does not have contract or grant number: Awarding agency’s 2 digit prefix followed by “UNKNOWN”

• If federal agency does not have 2 digit prefix, enter “99”

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Recipient of a Pass-through Award?

Subrecipient - an entity that expends federal awards that are received from a pass-through entity to carry out a federal program Included in the scope of the single audit on the same

basis as federal awards that are received directly On the SEFA

• Name of pass-through entity • Identifying number assigned by pass-through entity

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Subrecipient vs. Contractor (“Vendor”) Subrecipient and contractor determinations (200.330)

• Substance of the relationship over form or name of agreement

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Subrecipient

• Determines who is eligible for federal assistance

• Has responsibility for programmatic decision making

• Has performance measured in relation to meeting federal program objectives

Contractor

• Provides goods or services within normal business operations

• Provides similar goods or services to many different purchasers

• Provides goods or services that are ancillary to the operation of a federal program

Basis for Determining When Expended (200.502)

“Determination of when a federal award is expended is based on when the activity related to the award occurs. Generally, the activity pertains to events that require the non-federal entity to comply with federal statutes, regulations, and the terms and conditions of Federal awards, such as: expenditure/expense transactions associated with awards including grants, cost-reimbursement contracts under the FAR, compacts with Indian Tribes, cooperative agreements, and direct appropriations; the disbursement of funds to subrecipients; the use of loan proceeds under loan and loan guarantee programs; the receipt of property; the receipt of surplus property; the receipt or use of program income; the distribution or use of food commodities; the disbursement of amounts entitling the non-Federal entity to an interest subsidy; and the period when insurance is in force.”

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Basis for Determining When Expended –

Federal Awards Basis for Determining When Expended

Grants, cost reimbursement, cooperative agreements, direct appropriations

When the expenditure/expense transaction occurs

Amounts passed-through to subrecipients When the disbursement is made to the subrecipient

Loan and loan guarantees When the loan proceeds are used

Donated property, donated surplus property

When property is received

Food commodities When distributed or used

Interest subsidies When the amounts are disbursed entitling the entity to the subsidy

Insurance When the insurance is in force

Endowment Funds When federally restricted amounts are held

Program income When received or used

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Noncash Awards

Loans and loan guarantees, insurance, endowment funds, free rent, food commodities, donated property, donated surplus property Reported on face of SEFA

• Under the UG, no longer allowed to report only in SEFA footnotes

Important to identify: Noncash awards impact major program determination

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Value of Noncash Awards

Types of Noncash Awards Basis to Determine Value

Insurance Fair value of insurance contract at time of receipt

Endowment Funds Value equals the cumulative balances of federally restricted amounts

Food commodities, donated property, free rent Fair value at time of receipt or assessed value provided by federal agency

Loans and loan guarantees Amount of new loans made during year plus balance of previous loans (if continuing compliance requirements)

Loans at institutions of higher education Same as above, unless institution does not make loan, then only new loans are included

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Basis for Determining when Expended

Loan and loan guarantees (loans) (200.502(b)) • Federal government is at risk for loans until the debt is repaid • Calculate value of Federal awards expended under loan

programs, except as noted in paragraphs (c) and (d) of 200.502: Value of new loans made/ received during audit period

plus Beginning of period balance of loans from previous years for which

federal government imposes continuing compliance requirements plus

Any interest subsidy, cash, or administrative cost allowance received

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Basis for Determining when Expended

Prior loan and loan guarantees (loans) (200.502(d)) • Loans, the proceeds of which were received and expended in

prior years, are not considered Federal awards expended under this part when the Federal statutes, regulations, and the terms and conditions of Federal awards pertaining to such loans impose no continuing compliance requirements other than to repay the loans.

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Loans – Continuing Compliance Requirements

UG does not define Some federal agencies will indicate that their loans have

continuing compliance requirements Use professional judgment Example:

• Loan to construct building- a. Current year activity is only loan repayments b. Current year activity is loan repayments AND certain percentage of building must be rented to low-income residents

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Clean Water and Drinking Water Loan Examples

Often times passed through WIFA Sub awards - not direct federal loans Loan proceeds expended during the audit period should

be reported on the SEFA

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Optional Presentation Elements

Non-federal awards Pass-through entity contract or grant information Multiple-year information for multiple-year awards

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Reporting Requirements

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Responsibility for the SEFA

Auditee

• Must prepare financial statements, including the SEFA in accordance with §200.510 Financial statements (200.508(b))

• Include the SEFA in the reporting package submitted to FAC (200.512(c))

Auditor

• Determine and issue an opinion (or disclaimer) on whether SEFA is fairly stated in relation to the financial statements (200.514(b), 200.515(a))

• Use the SEFA to determine major programs to audit

Federal Agencies / Pass-Through

Entities • Provide data about

federal awards necessary to prepare an appropriate SEFA

• Use the SEFA for their oversight and monitoring purposes

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The SEFA as Supplementary Information to the Financial Statements (AU-C 725)

Information contained in the SEFA was derived from, and relates directly to, the underlying accounting and other records used to prepare the financial statements. SEFA is for the same period as the financial statements. The financial statements were audited AND

• the auditor reporting on the SEFA audited those financial statements

• Neither an adverse opinion nor a disclaimer of opinion was issued on the financial statements.

SEFA will accompany the entity's audited financial statements, or such when they will be made readily available.

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The SEFA as Supplementary Information to the Financial Statements (FS) (AU-C 725)

Management must acknowledge and take responsibility related to the SEFA:

• For the preparation of the SEFA in accordance with the UG • To provide the auditor with certain written representations • To include the auditor's report on the SEFA in any document

that contains the schedule and that indicates that the auditor has reported on such information

• To present the SEFA with the audited FS, or if the SEFA will not be presented with the audited FS, to make the audited FS readily available to the intended users of the SEFA no later than the date of issuance of the SEFA and the auditor's report thereon

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The SEFA as Supplementary Information to the Financial Statements (FS) (AU-C 725) What Does the Auditor Have to Do?

• Ask about the criteria management used to prepare SEFA. • Determine whether form and content complies with UG/A-

133. • Understand the methods of preparing the SEFA, whether there

were changes from those used previously and, if so, why. • Compare /reconcile the SEFA to the underlying accounting

and other records used in preparing the FS or to the FS themselves.

• Inquire about significant assumptions or interpretations underlying the measurement or presentation of the SEFA.

• Evaluate the appropriateness and completeness of the information contained in the SEFA, considering your FS audit and knowledge.

• Obtain certain written representations from management.

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Materiality for SEFA

May use materiality to determine amount of test work to be performed Materiality

• Is the same as materiality for the financial statement audit • Is different than major program materiality

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Additional Auditor Procedures - Compliance

Test for elements required by the UG Test for accuracy, completeness, and classification of

recorded amounts • May use evidence from financial statement audit • May use evidence from compliance audit of federal awards

Auditee’s reconciliation to the financial statements and records Confirmations with federal granting agencies, pass-

through entities, subrecipients

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Examples of Compliance Procedures

Reconcile expenditures and other amounts listed to general ledger accounts and/or other supporting documents. On a sample basis, verify CFDA numbers and program

titles to the CFDA catalog and/or to the grant award document. Consider completeness and classification

• Federal awards in general ledger but not reported on the SEFA • Federal awards that are R&D/non R&D but not classified as

such Obtain and review footnotes to the SEFA

• Test amounts in SEFA footnotes

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Additional Auditor Procedures – Internal Control

AU-C 725 does not require a separate understanding of the entity's internal control or to assess fraud risk Auditor has additional responsibilities to satisfy

compliance audit requirements • Internal control over compliance including consideration of

accuracy and completeness of amount reported on SEFA

Examples of Auditor’s Internal Control Procedures • Inquiring of entity personnel • Observing application of controls • Inspecting documents and reports used to prepare the SEFA

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Reporting on the SEFA – follow AU-C 725

Reported as either: • Other matter paragraph in report of independent auditors on

the financial statements • Stand-alone report • Paragraph in report on compliance and on internal control over

compliance Report date

• Same date or later than the financial statement date • May be dual-dated

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Representations from Management

Acknowledges and understands its responsibility for the presentation of the SEFA in accordance with Circular A-133. Believes the SEFA, including its form and content, is fairly

presented in accordance with the Uniform Guidance /Circular A-133. Methods of measurement or presentation have not changed

from those used in the prior period, or if the methods of measurement or presentation have changed, the reasons for such changes. Any significant assumptions or interpretations underlying the

measurement or presentation of the SEFA. When the SEFA is not presented with the audited financial

statements, management will make the audited financial statements readily available to the intended users of the schedule no later than the issuance date by the entity of the SEFA and the auditor's report thereon.

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Date of Representations from Management

If reporting on FS and SEFA at the same time • Same date as the date of the auditor’s report on the financial

statements If opinion on the financial statements and in-relation-to

opinion on the SEFA have separate dates • Separate representation letters – each received at a different

time • SEFA representations dated same date as the in-relation-to

opinion on the SEFA

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Avoiding Common SEFA Errors

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SEFA Error Example Expenditures related to reimbursements received after

the period of availability are not reported on SEFA • Town is awarded a grant from the Department of Housing and

Urban Development for $300,000 to purchase avocado toast and cold brew coffee for Millennials.

• $200,000 is expended towards the end of the 2017 fiscal year. • The reimbursement is not received until September of 2017

(fiscal year 2018).

• In which fiscal year would the expenditures be reported on the SEFA?

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SEFA Error Example

Revenues used to determine the amount reported on the SEFA for non-reimbursement grants

• City is awarded a grant from the Department of Transportation to build a rail line between Phoenix and Flagstaff.

• The City receives $250,000 during fiscal year 2017. • The City expends $180,000 during fiscal year 2017.

• How much should be reported on the SEFA?

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SEFA Error Example Over-expenditure of grant funds not reconciled to

determine if expenditures should be coded differently • The County is awarded a grant from the US Department of

Energy. • The County receives $200,000 during fiscal year 2017, has a

prior year grant carryover of $50,000. • The County expends $300,000 during fiscal year 2017.


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SEFA Error Example

Amounts related to on-behalf payments from grantor are not reported on the SEFA

• City is awarded a grant from the US Department of Transportation for a bus system.

• The City received and expended $300,000 during fiscal year 2017 to assist with running the bus system.

• The City received three buses from the Department of Transportation; each bus was valued at $200,000.


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SEFA Error Example

Errors in accounts payable translate to errors on the SEFA

• During the audit it was discovered that $25,000 of a Department of Agriculture Grant to make the local brewery more energy efficient had expenditures recorded that were paid in fiscal year 2018 for goods/services received in fiscal year 2017.

• The Town had appropriately recorded $50,000 of expenditures in fiscal year 2017.

• The final SEFA was given to the auditors last week.


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SEFA Error Example

Amounts coded to federal revenue on the general ledger turn out to not be federal upon investigation

• During the final review of the SEFA it was discovered that $100,000 of a $200,0000 grant passed through the Governor's Office were State funds

• The County had recorded all of revenues as federal in the CAFR and had expended 100% of the monies received.

• A draft of the SEFA was given to the auditors last week.


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SEFA Errors

Incorrect or missing CFDA number Sub-grant award numbers not included Names of pass-through entities omitted Missing pass-through contract number Federal agency names missing Clusters not shown as such Notes to SEFA missing or reference to SEFA notes is

missing Non-cash awards missing Improper basis for determining when awards expended Federal expenditures not totaled Indicating major programs on the face of the schedule

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Tips to Ensure all Expenditures are Captured

Departmental reminders Disclaimer on purchase orders Review of budget to actual expenditure variances Follow up on open purchase orders Review of retainage payable on construction contracts Reconcile the SEFA to the General Ledger

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SEFA Case Study

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Auditors planned to audit this program. • 33%

coverage • The other

type A was audited in the PY.

SUNSHINE CITY, TEXAS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

YEAR ENDED JUNE 30, 2017 CFDA Total

Federal/Pass-Through/Agency Number Expenditures

U.S. Department of Transportation Passed through Texas Department of Transportation:

Highway Planning and Construction 20.205 $ 894,522 U.S. Department of Housing and Urban Development

Direct Program: Community Development Block Grants 14.228 445,672

U.S. Department of Justice Direct Program:

Edward Byrne Memorial Justice Assistance Grant (JAG) 16.738 285,123 Environmental Protection Agency

Passed through Texas Water Development Board: Drinking Water State Revolving Funds 66.468 764,589

Department of Homeland Security Passed through San Antonio County:

Homeland Security Grant Program 97.067 368,295

Total Expenditures of Federal Awards $ 2,758,201

Type A

Type A

SEFA Case Study

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Upon further research this program isn’t really federal in nature.













SEFA Case Study

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Turns out this is the award amount. The City actually only spent $325,150.













SEFA Case Study

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This amount didn’t reconcile to the general ledger. Should be $225,000 instead.













SEFA Case Study

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This amount is expenditures. Grant award

was only $675,750, so

the over- expenditure

will have to be moved to a

different funding source.













SEFA Case Study

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Does not include a

reimbursement of $75,000 received in

August 2017.













Revised SEFA

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Now there are no Type A programs (over $750K) and CDBG only provides 19.5% coverage (20% is required).




U.S. Department of Housing and Urban Development Direct Program:

Community Development Block Grants 14.228 $ 325,150 U.S. Department of Justice

Direct Program: Edward Byrne Memorial Justice Assistance Grant (JAG) 16.738 225,000

Environmental Protection Agency Passed through Texas Water Development Board:

Drinking Water State Revolving Funds 66.468 675,750 Department of Homeland Security

Passed through San Antonio County: Homeland Security Grant Program 97.067 443,295


Auditor updates plan to audit this program.

Evolution of Major Program Determination

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SEFA is prepared? Awesome! Looks like we are auditing CDBG

this year. I love auditing that program! Wait a second! Looks

like a few amounts are changing.

What do you mean CDBG doesn’t give us

coverage?

Tips and Reminders

Start early • Contact pass-through entities as needed • Review Council minutes for indications that a department has

been approved for a federal grant • Review SEFA at several different times to make sure no major

changes occurred Review best practices

• Same format as last year may not be best Understand the importance

• Can materially affect major program determination • Undetected errors can lead to financial statement errors or vice

versa • Consider a central grants department

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SEFA Tools and Resources

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AICPA Worksheet for Identifying Federal Program Information

Grant title Program name Award number Federal agency CFDA (and other

identifying number) Award period Extensions

Research & development (major subdivision of agency) Pass-through entity Pass-through identifying

number Amount awarded

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Tools for SEFA Reporting

Guidance for SEFA Reporting

AICPA Audit Guides • 2016 Government Auditing Standards and Single Audits Audit

Guide OMB

• Uniform Guidance for Federal Awards, Subpart F - for fiscal years beginning ON OR AFTER December 26, 2014 replaces guidance in OMB Circular A-133

• OMB Circular A-133 - for fiscal years beginning BEFORE December 26, 2014

• OMB Compliance Supplement GAO

• Government Auditing Standards: 2011 Revision

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#AICPAgov

Thank you

Documents

The Best Things in Life are Free, but there is no Such ... · Subrecipient vs. Contractor (“Vendor”) Subrecipient and contractor determinations (200.330) • Substance of the