If money is given to a nonprofit as beneficiary to compensate for lost income and the nonprofit spends that money on capital projects, must a municipality report on the expenditures as capital projects?

The U.S. Department of the Treasury (“Treasury”) does not explicitly require recipients or subrecipients that provide Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) direct assistance to beneficiaries to report on the beneficiaries’ use of funds—including capital expenditures—as beneficiaries are not subject to the monitoring and reporting requirements associated with CSLFRF.[1] Treasury provides recipients “substantial discretion”[2] regarding the distribution and use of CSLFRF.

Treasury has provided helpful guidance regarding the applicability of the CSLFRF reporting requirements to recipients’ respective subrecipients and beneficiaries. In particular, Treasury has explicitly stated:

The Uniform Guidance definitions for both subaward and subrecipient specify that payments to individuals or entities that are direct beneficiaries of a federal award are not considered subrecipients. The final rule adopts this definition of a beneficiary and outlines that households, communities, small businesses, nonprofits, and impacted industries are all potential beneficiaries of projects carried out with [C]SLFRF funds. Beneficiaries are not subject to the requirements placed on subrecipients in the Uniform Guidance, including audit pursuant to the Single Audit Act and 2 CFR Part 200, Subpart F or subrecipient reporting requirements.[3]

Moreover, Treasury has outlined reporting required of recipients and subrecipients in FAQ #1.20 of its Project and Expenditure Report User Guide in “Appendix 1 – Frequently Asked Questions.”[4] The reporting requirements outlined by Treasury’s Compliance and Reporting Guidance[5] only explicitly apply to recipients and subrecipients. Regarding the compliance and reporting requirements for CSLFRF and subrecipient monitoring, Treasury has explicitly stated:

[C]SLFRF recipients that are pass-through entities as described under 2 CFR 200.1 are required to manage and monitor their subrecipients to ensure compliance with requirements of the [C]SLFRF award pursuant to 2 CFR 200.332 regarding requirements for pass-through entities.

First, your organization must clearly identify to the subrecipient:

1.  that the award is a subaward of [C]SLFRF funds;
2. any and all compliance requirements for use of [C]SLFRF funds; and
3. any and all reporting requirements for expenditures of [C]SLFRF funds.[6]

A recipient or subrecipient must follow capital expenditure compliance and reporting requirements if the recipient’s or its respective subrecipient’s use of CSLFRF includes capital expenditures.[7] However, these requirements do not explicitly apply to beneficiaries.

Instead, Treasury provides that:

In addition to determining a given project’s eligibility, recipients are also responsible for determining subrecipient’s or beneficiaries’ eligibility, and must monitor subrecipients’ use of [C]SLFRF award funds.[8]

Accordingly, when providing CSLFRF funding to a beneficiary, recipients must ensure that:

1. the use of funds is eligible to provide to a beneficiary; and
2. the beneficiary is eligible to receive the funds.

For example, when a municipality provides direct assistance to a nonprofit organization, it must ensure that it addresses a public health or negative economic impact that the nonprofit has experienced due to the pandemic.[9] It also must ensure that there is a “reasonable connection between the assistance provided and an impact on the beneficiaries.”[10] Treasury goes on to provide the following scenario:

For example, if a nonprofit organization experienced impacts like decreased revenues or increased costs (e.g., through reduced contributions or uncompensated increases in service need), and a recipient provides funds to address that impact, then it is providing direct assistance to the nonprofit as a beneficiary under Subsection (c)(1) of Sections 602 and 603. Direct assistance may take the form of loans, grants, in-kind assistance, technical assistance, or other services that respond to the negative economic impacts of the COVID-19 public health emergency.[11]

Once the recipient or its subrecipient has provided this direct assistance to a nonprofit beneficiary to address the economic impact it has experienced, the beneficiary’s use of this direct assistance is not explicitly required to be monitored and reported to Treasury.

Last Updated: June 6, 2022