What are the best ways for municipalities to avoid negative audit findings and the potential return of CSLFRF funds to Treasury?

Although there is no single solution and municipalities should carefully consult the underlying regulations and rules, to avoid negative audit findings and the potential return of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to the U.S. Department of the Treasury (“Treasury”), a municipality should, among other things, become familiar with the award terms and conditions outlined in the award agreement, and take steps to ensure compliance with applicable laws and regulations. For example, recipients of federal funds often must comply with the accounting guidelines and award management principles set forth in the Federal Office of Management and Budget’s (“OMB”) CFR Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements guidance (“Uniform Guidance”), among other things.[1]

Many provisions contained in the Uniform Guidance apply to the CSLFRF[2] program under assistance listing number 21.027,[3] including the Cost Principles and Single Audit Act requirements. Noncompliance with the Uniform Guidance could ultimately lead to an audit finding in areas such as Internal Controls, Reporting, Cash Management, Procurement, Subrecipient Monitoring, and Allowable Costs/Cost Principles, or others.  Implementing comprehensive internal compliance policies, procedures, and controls may help prevent a potential audit finding.

Recipients may consider referring to the Assistance Listing for details on the specific provisions of the Uniform Guidance that do not apply to this program.[4] Relevant provisions of the Uniform Guidance applicable to the CLSFRF are cited below, and we reiterate that municipalities should carefully conduct their own due diligence of the applicable rules, regulations and guidance in this sensitive area.

Uniform Guidance Provisions Applicable to CSLFRF[5]

Meeting Compliance Requirements

When an auditor is developing audit procedures to test a municipality’s compliance with the requirements applicable to the CSLFRF program, the auditor may determine from the non-exhaustive list below which of the compliance requirements have been identified as subject to the audit:

• Activities Allowed or Unallowed

• Allowable Costs/Cost Principles
• Eligibility
• Period of Performance
• Procurement Suspension & Debarment
• Reporting
• Subrecipient Monitoring[6]

The auditor may then determine which requirements are likely to have a direct and material effect on the federal program at the auditee.

A municipality should prepare for the audit by, at a minimum, reviewing the 2021 Audit Compliance Supplement guidance to ensure their procedures and processes are compliant and will reduce the risk of an audit finding.^[7]

Although an audit can be an exhaustive process that includes an organizational-wide review of financial and compliance components, it may have a positive outcome for the municipality. Developing and implementing policies, procedures, and internal controls that standardize the grants management process may position a municipality against receiving an audit finding.

Last Updated: March 9, 2023