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What is the audit period for federal funds?

Guidance published to date does not set a clear temporal limitation on government clawbacks. The U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Final Rule, which goes into effect on April 1, 2022, does not address this question but states that “the Office of Management and Budget's (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (commonly called the ‘Uniform Guidance’) generally applies to” CSLFRF.[1] In light of this guidance, municipalities should review 2 CFR 200 in its entirety to understand audit requirements and scope of audits.

Audits under the Uniform Guidance are typically based on “[f]inancial records, supporting documents, statistical records … pertinent to a Federal award.” These documents must be retained for a period of three years from the date of submission of the final expenditure report (2 CFR 200.334). However, the three-year clock does not start until the grant is complete and a final report is submitted. This could extend the document retention requirement for several years.

Aside from audits that may be conducted by Treasury or the Office of Inspector General, municipalities and its subrecipients should review the annual audit requirements stated in 2 CFR § 200.501: 

(a) Audit required. A non-Federal entity that expends $750,000 or more during the non-Federal entity's fiscal year in Federal awards must have a single or program-specific audit conducted for that year in accordance with the provisions of this part.

(b) Single audit. A non-Federal entity that expends $750,000 or more during the non-Federal entity's fiscal year in Federal awards must have a single audit conducted in accordance with § 200.514 except when it elects to have a program-specific audit conducted in accordance with paragraph (c) of this section.

(c) Program-specific audit election. When an auditee expends Federal awards under only one Federal program (excluding R&D) and the Federal program's statutes, regulations, or the terms and conditions of the Federal award do not require a financial statement audit of the auditee, the auditee may elect to have a program-specific audit conducted in accordance with § 200.507. A program-specific audit may not be elected for R&D unless all of the Federal awards expended were received from the same Federal agency, or the same Federal agency and the same pass-through entity, and that Federal agency, or pass-through entity in the case of a subrecipient, approves in advance a program-specific audit.[2]

The Final Rule indicates a major risk for funding recipients, noting that “[s]ections 602(e) and 603(e) of the Social Security Act provide the Secretary with the power to recoup ‘funds used in violation’ of the Social Security Act.”[3]  

Last Revised: January 25, 2022

[1] Treas. Reg. 31 CFR 35 at 171, available at: https://home.treasury.gov/system/files/136/SLFRF-Final-Rule.pdf.

[2] 2 CFR § 200.501(a)-(c) (emphasis added), https://www.law.cornell.edu/cfr/text/2/200.501.

[3] Treas. Reg. 31 CFR 35 at 374-378, available at: https://home.treasury.gov/system/files/136/SLFRF-Final-Rule.pdf.