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The COVID-19 public health crisis and resulting economic crisis have put state and local governments, not-for-profits, and businesses under unprecedented strain. The Treasury Department, under the American Rescue Plan Act, is providing over $350 billion in relief to governments to enable them to continue to support the public health response and lay the foundation for a strong and equitable economic recovery. The first half of the relief was received in May 2021, and the second half will be received this May.
Most governments have begun to spend this money in the past few months, identifying projects to support local businesses, not-for-profits, individual citizens and municipal projects. The sheer volume of this relief, and the accompanying reporting requirements, however, has significantly increased the workload of the accountant— for those working with governments and other recipients of the relief. What’s more, this January, the Treasury released the Final Rule for its Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program, taking effect on April 1, 2022, which provides additional changes that they will have to account for.
However, while the Final Rule allows for additional uses of the funds, from investment in additional broadband service to underserved households, to financial services for communities not yet serviced by banks, to the rehiring of government employees initially affected by the pandemic, the truth is the nature of the risks associated with this COVID-19 relief remain the same for accountants.
Here are a few ideas on how accountants, for governments and other relief recipients, can continue to manage the risks associated with ARPA’s SLFRF program:
Gather needed information upfront to facilitate project setup
The Treasury requires a significant amount of data to be reported so it can monitor the use of these relief funds. If you don’t gather this information initially, you may not be able to get it subsequently. Accountants must gather this data at project inception to ensure that the reporting at the back end goes smoothly and to incorporate it into the contractual agreements between the government and recipients.
Some of the data that must be collected from the beginning of the project include the project recipient profile (contact name, contact information, SAM.gov number, taxpayer ID number, DUNS number); project overview (a 50- to 250-word description); and an expenditure category, under which information will be reported to the Treasury. For certain expenditure categories, non-financial information must be reported as well.
Establish separate cost centers
Concurrent with ensuring the appropriate data is included in the contracts, accountants should ensure a separate cost center, or a similarly unique tracking mechanism, is established in the general ledger. Project level data must be reported to the Treasury periodically (quarterly or annually depending on the size of the government), so having ready access to this data is critical. Further, accountants will want to ensure their organizational leadership has insight into the project spending so the spending can be monitored.
Speaking of monitoring, accountants must also keep a constant watch on how these relief funds are being spent. The scrutiny on these funds — whether from the federal government, other regulatory authorities, the local government, and the public at large — will be intense. The expectations that have been set for the usage of these ARPA funds are extremely high.
Accountants can help manage these high expectations by first establishing a strong culture of monitoring — developing policies to govern the nature and extent of monitoring procedures, and subsequently training all relevant parties, such as staff, leadership teams, and the recipients and issuers of the funding, in how the monitoring will be conducted. Second, they can identify and assign the degree of monitoring according to its level of risk. Not all projects nor recipients have the same risk profile, as some projects will require monitoring on a monthly or quarterly basis, while others only on an annual one. Finally, in reporting the results from established monitoring procedures regularly, and adjusting as needed to all parties initially trained on the process, they can help demonstrate the transparency of the spending process.
After all, accountants are the leaders in demonstrating transparency.
As was indicated earlier, depending on the size of the government, reports must be made to the Treasury either quarterly or annually. So there needs to be a clearly established process to gather the required information (both financial and non-financial) to be reported. But don’t just think of this as a discrete Treasury reporting exercise. An effective, regular reporting process should provide data to interested parties such as organizational leadership, elected leadership, other regulators and the public at large.
Accountants must lead the way in managing organizational ARPA risks. By gathering all needed information before the project spending starts, establishing clear accounting cost centers, monitoring project results (both financial and non-financial) throughout the project, and transparently reporting the results, you can manage and minimize your ARPA risks.
This article was originally published in Accounting Today.