Quality SEFA Prep What Auditees Should Know Brian Hemmerle, CPA, CFE May 2019

Brian J. Hemmerle, CPA, CFE About Your Presenter Henry+Horne, Senior Manager, Governmental Services Graduated from the University of Arizona Certified Public Accountant and Certified Fraud Examiner Experience in Municipalities, School Districts, State Agencies, Nonprofits and Industry Treasurer, Board of Directors for Girl Scouts Arizona Cactus Pine Council Member of the AICPA, ASCPA, GFOA, GFOAz and AASBO GFOA Special Review Committee Member Brian J. Hemmerle, CPA, CFE

Today’s Topics Schedule of Expenditures of Federal Awards What it is How to prepare the SEFA Common SEFA Deficiencies Breakout Session Reporting Requirements

Schedule of Expenditures of Federal Awards

Schedule of Expenditures of Federal Awards Uniform Guidance: https://www.ecfr.gov https://www.ecfr.gov/cgi-bin/text-idx?tpl=/ecfrbrowse/Title02/2cfr200_main_02.tpl Auditee is responsible for the SEFA (Sections 200.510, 200.508(b), 200.512(c)). The SEFA is a separate financial statement. You own it. SEFA content is essential to determining major programs and identifying applicable audit requirements. Lack of or ineffective internal controls over SEFA preparation is a significant deficiency and, depending on the severity of the problems, a material weakness.

Schedule of Expenditures of Federal Awards Significant Deficiency: A control deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Material Weakness: A control deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the organization’s financial statements will not be prevented, or detected and corrected on a timely basis.

Schedule of Expenditures of Federal Awards Prepared by management (200.502). Includes all expenditures from all federal financial assistance. Reconciles to the general ledger. Completeness is critical to avoid missed programs.

Schedule of Expenditures of Federal Awards Information to gather: Grant title Federal program name Award number Federal agency CFDA number (cfda.gov) Pass-through entity and award number Identify if non-cash, R&D or ARRA

Schedule of Expenditures of Federal Awards Programs listed by federal agency For R&D, list subdivisions with the agency or individual award Example: National Institute of Health is a subdivision of Department of Health and Human Services CFDA for each program Clusters Total amount for each individual federal program Name and identifying numbers of pass-through awards

Schedule of Expenditures of Federal Awards Notes should include: Significant account policies used to prepare the SEFA and basis of accounting. The amount of loans or loan guarantees outstanding at year end. The amount of insurance in effect during the year.

Schedule of Expenditures of Federal Awards Grant managers should gather and summarize data. Know the requirements of each grant. Document policies, procedures and internal controls. Analysis completed to determine if a vendor relationship exists.

Schedule of Expenditures of Federal Awards How do I know if I’m a vendor or a subrecipient (200.330) Subrecipients perform part of the program activities Report on SEFA Vendors/Contractors provide goods or services in support of project activities Do not report on SEFA An auditee may simultaneously be a recipient, subrecipient and a vendor.

Schedule of Expenditures of Federal Awards Examples of federal assistance may be: Grants + Contracts Interest subsidies Program Income Non-cash assistance Loans

Schedule of Expenditures of Federal Awards Examples of federal assistance may be: Grants + Contracts Cost reimbursements Coop Agreements Direct appropriations Amounts passed-through to subrecipients When the disbursement is made to the sub When expense occurs

Schedule of Expenditures of Federal Awards Examples of federal assistance may be: Interest subsidies – When amounts are disbursed to you Program Income – When you receive the income

Schedule of Expenditures of Federal Awards Examples of federal assistance may be: Non-cash assistance Food commodities – When you distribute food or use food Property donated – When you receive the property Insurance – When the insurance is in force Endowment funds – When federally restricted amounts are held Free Rent – In the period the rent covers

Schedule of Expenditures of Federal Awards Value of Non-Cash assistance Food commodities – Fair Value at time of receipt or assessed by federal government Property donated – Fair Value at time of receipt or assessed by federal government Insurance - Fair Value of contract at time of receipt Endowment funds – Value of cumulative balances of federally restricted amounts Free rent – Fair Value at time of receipt or assessed by federal government

Schedule of Expenditures of Federal Awards Examples of federal assistance may be: Loans and loan guarantees New loan proceeds spent Beginning balance of previous loans (if continuing compliance required) Interest and subsidies

Schedule of Expenditures of Federal Awards What is a continuing compliance requirement loan? Section 200.502(d) Loans, the proceeds of which were received and expended in prior years, are not considered Federal awards expended under this part when the Federal statutes, regulations, and the terms and conditions of Federal awards pertaining to such loans impose no continuing compliance requirements other than to repay the loans. Basically, if you are required to make sure the item(s) purchased with the proceeds is used for certain purposes or eligible individuals.

Common SEFA Deficiencies

Common SEFA Deficiencies Incorrect/missing CFDA numbers Names of pass-through entities omitted Missing pass-through contract number Federal agency names missing Clusters not shown as such Notes to SEFA missing or reference on SEFA missing Non-cash awards missing Improper basis for determining when awards expended Improper reporting of loans Subtotals missing for CFDA, federal agency, clusters, or totals

Common SEFA Deficiencies Incorrect CFDA numbers

CFDA Numbers? How do I verify my CFDA numbers? https://beta.sam.gov/

CFDA Numbers? What if I don’t know my CFDA number? https://beta.sam.gov/ Inquire with pass-through or granting agency Read through application and/or award Still can’t find it? Start with the agency’s 2 digit prefix followed by a U followed by a two digit number (e.g. U01, U02, etc.) in the extension field.

Common SEFA Deficiencies Grantor federal agency names missing

Common SEFA Deficiencies Missing names of pass-through entities

Common SEFA Deficiencies Multiple lines for CFDA numbers shown – total expenditures for CFDA number not shown

Common SEFA Deficiencies Subgrant award numbers not included

Common SEFA Deficiencies Program(s) that are part of a cluster not shown as such

Clusters? How do I know if I have any clusters in my SEFA? Use the Matrix of Compliance Requirements in the most recent Compliance Supplement. Each cluster is treated as one program for major program determination and testing by your auditors. Compliance Supplement Part 5 is also used as a tool for clusters. https://www.whitehouse.gov/wp-content/uploads/2018/05/2018-Compliance-Supplement.pdf https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A133/2017/Compliance_Supplement_2017.pdf

Common SEFA Deficiencies Notes to SEFA missing NOTE 1     BASIS OF PRESENTATION   The accompanying schedule of expenditures of federal awards (the “Schedule”) includes the federal award activity of the Town of Someplacen, Arizona (Town) under programs of the federal government for the year ended June 30, 2019. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the Town, it is not intended to and does not present the financial position, changes in net position, or cash flows of the Town.

Common SEFA Deficiencies Notes to SEFA missing NOTE 2     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years.

Common SEFA Deficiencies Notes to SEFA missing NOTE 3     INDIRECT COST RATE   The Town has/has not elected to use the 10-percent de minimis indirect cost rate allowed under the Uniform Guidance.

Breakout Session

Breakout Session Break into groups of 3-4 Time allotted: 5 minutes Using the handout SEFA: Circle errors Highlight corrections Write-in omissions Time allotted: 5 minutes

Reporting Requirements

Reporting Requirements The auditee is responsible for filing the reporting package and data collection form with the Federal Clearinghouse. Submission to the Clearinghouse is done online at: https://harvester.census.gov/facweb/

Reporting Requirements What is required to be submitted? Financial statements Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Corrective Action Plan (if findings) Summary Schedule of Prior Audit Findings

Reporting Requirements Also included: Opinion of Financial Statements Opinion on SEFA Report on Internal Control for both GAS and Uniform Guidance Report on Compliance for both GAS and Uniform Guidance

Reporting Requirements The data collection form is an electronic template completed on the Clearinghouse’s website that includes information from your SEFA. Needs to be electronically certified by both the auditor and auditee.

Reporting Requirements The reporting package and the data collection form is required to be submitted nine months after fiscal year end or 30 days after receipt of the auditor’s report, whichever is earlier.

Recap Schedule of Expenditures of Federal Awards Compliance Common SEFA Deficiencies Breakout Session Reporting Requirements

Questions?

Thank you! Contact us Brian Hemmerle (480) 839-4900 Ext. 304 BrianH@hhcpa.com www.hhcpa.com