There are universal lessons learned during ARRA that apply across all Federal grant programs and grantees. Join us for our upcoming webinar on May 7, 2020: “What can we learn from ARRA audits?” – You can register here.
Just as the New Deal introduced an “alphabet soup” of new programs, so does the CARES Act. The last time the country passed such a massive relief package was a decade ago, when the Recovery Act addressed the worst financial crisis since the Great Depression. We might all recall how the lawmakers compared the Recovery Act to the New Deal, feeling that history repeats itself in remarkable ways. The Recovery Act’s total cost was $840 billion. The New Deal cost $41.7 billion at that time, translating into $653 billion today. CARES Act appropriations dwarf both these: over $2 trillion dollars. The timing is accelerated as well. The New Deal lasted for almost a decade. ARRA was about 19 months; the CARES Act involves a huge amount of funds being spent in just a year.
The CARES Act brings unprecedented support to address the pandemic. At the same time, however, acceptance of the benefits of CARES Act funding comes with significant obligations. The accountability and oversight provisions in the CARES Act are comparable to those in ARRA and other pieces of significant legislation like the Affordable Care Act. Grantees that do not take adequate steps to comply with CARES Act legal requirements could have quite an audit “headache” in the years ahead as was the case with ARRA. ARRA audits continued long after grantees had spent their funds and forgotten about the economic collapse of 2008.
Here are just a few key risks that CARES Act fund recipients face today, which largely mirror those risks from oversight and enforcement of ARRA funding conditions.
- Separately track CARES Act funds. Just as was the case with ARRA, recipients of coronavirus relief funds must track and report funds separately from other sources. Grantees with different program funds should set up separate cost centers and keep appropriate books/records in order to meet one of the fundamental requirements of federal grant administration – tracking the source and use of federal funds; CARES is no different.
- Policies and Procedures are the Building Blocks to Compliance. Policies and procedures must adequately describe the processes, authorizations, records, and other internal controls necessary to maintain effective control and accountability over federal funds. Many ARRA audits began with findings of absent or insufficient written standards, long before the auditors moved into the assessment of expenditures.
- Do not forget to maintain the critical documentation supporting the grant application, budget, and amendments. While budget flexibility is an extremely useful tool in grants administration, there are limits. Flexibility doesn’t mean, for example, that you can charge costs to your CARES grant outside of the scope of the original application. Read the terms and conditions of your Notice of Award to see if there is additional flexibility but otherwise, the “regular” rules apply. Remember to maintain computations that clearly show how the costs were derived, as well as documentation that explains transfers between and among line items. Many ARRA audits question activities paid for with ARRA funds that were not in the original budget and did not have other approval.
- Do not rely on basic invoices/receipts and your memory just because it is a time of crisis. Highlighting the need for supporting records, ARRA audits found that grantees often could not produce adequate source documentation, resulting in disallowances. Just as was the case for ARRA funds, CARES Act auditors will ask whether the item(s) or activity charged to the grant meets the purpose and objectives of the authorizing legislation. Can you answer such questions as 1) how did this expenditure help intended program beneficiaries; 2) was the obligation incurred in the proper time period; 3) how did funded activities meet the grant objectives? You must create an audit trail that demonstrates compliance. The current emergency will be forgotten by the time the audits start and your documentation, not your memory, must tell your story, i.e., funds were spent appropriately.
- Create procedures and systems to comply with reporting requirements. Just as with ARRA, CARES Act grant recipients must submit government-wide reports on a quarterly basis. Create written policies and procedures to ensure data is available when the report is due. Systematize the collection of the required data elements that are captured by you and any subrecipients for quarterly reporting. Maintain work papers for everything submitted in these reports.
We will also explain some of the oversight and enforcement elements of the CARES Act which include:
- The PRAC. The new Pandemic Response Accountability Committee (PRAC) created by the CARES Act cuts across program and agency/IG boundaries. The PRAC is constituted as a committee within the existing statutory Council of Inspectors General for Integrity and Efficiency. Agencies will submit quarterly reports to the PRAC, Congress, and others on how funds are spent on each project or activity. The PRAC has the powers to audit and investigate private entities, including the authority to issue and enforce subpoenas to compel the testimony.
- OIG Audits and Investigations. With an additional $139M for CARES Act oversight, OIGs will review concerns that are raised by the public regarding the use of CARES Act funds and determine whether to conduct audits or investigations related to such concerns.
- GAO Reviews. The CARES Act directs the Government Accountability Office (GAO) to monitor and oversee CARES Act spending, including periodic briefings and reports to Congress. The CARES Act provides that the GAO “shall have access to records, upon request,” from both government agencies and private entities, as well as the authority to conduct interviews.
We look forward to discussing these issues with you on the 7th!