Free money! Who doesn’t love a new federal grant?
Free money! Who doesn’t love a new federal grant?
The accounting team might not if your district isn’t ready to manage those funds correctly. New funding streams can involve some potential “gotchas,” so it’s wise to prepare now to ensure you’re ready for your annual single audit.
New Grant Programs to Prepare For
Two recent federal grant programs to be aware of are discussed below, and one of them might be funding services or equipment to your district without the accounting department’s knowledge.
Emergency Connectivity Fund (ECF)
This pandemic-era program was created to help districts provide off-site broadband services and devices to students and staff who would otherwise lack access to participate in online instruction. It’s administered through the same federal agency that manages E-Rate grants, the Federal Communications Commission, but it differs in a few key ways:
- Someone had to apply for the ECF grants, but it might have been the IT department. Therefore, accounting might not be aware that the district was awarded this grant. This funding isn’t from a typical grantor, and there is not a typical award letter or agreement. Furthermore, your vendors could apply for this funding on your behalf, creating the risk of double reimbursement and a later clawback.
- ECF grants could take the form of free equipment or internet connections rather than direct income. The only documentation might be a credit on an invoice from your internet provider, and both the IT department and accounting might be unaware that the credit or discount represents grant funding.
- Finally, unlike E-Rate funds, ECF grants must be reported on your SEFA — even when they take the form of credits or non-cash assistance rather than cash reimbursements received.
There were three application windows for ECF funds, and the last one closed in May 2022. However, the last application window covers spending/reimbursements made between July 1, 2022, and December 31, 2023, which means that if you took these funds, you might need to report spending in this fiscal year, and possibly through the fiscal year ending 2024. Additionally, it’s possible that some of this “funding” —likely in the form of invoice credits or equipment/services received through your IT department — was not properly or fully included in last year’s SEFAs for many districts, so you could be looking at prior year services/credits that were missed and now need to be included in the current year SEFA.
Clean School Bus Program
The Environmental Protection Agency (EPA) has allocated $5 billion to be spent by 2026 on replacing school buses with low-emission and zero-emission models. The 2022 funding was focused on rebates, and applications are open now for the 2023 grants. Applications close on August 22, 2023.
Schools can use these funds not only for new electric, propane, or compressed natural gas (CNG) vehicles but also for new infrastructure such as charging stations. Be aware that competition isn’t just from other public school districts. Local governments that provide bus services, not-for-profit school transportation organizations, and tribal organizations are also eligible.
As a traditional grant program, this funding won’t sneak up on you as ECF might. Like any grant, you will need to make sure all expenditures comply with the grant agreement and report the funding on your SEFA.
Remember the Basics
Grant compliance is always going to require careful attention, whether or not you have new streams of grant funding to contend with. The accounting team needs to work with other departments, such as IT, transportation, and HR, to make sure that expenditures meet all requirements. And then there’s the reporting….
The SEFA and Using a Grant Rollforward Tool
If your district receives more than $750,000/year in federal grant funds, you are required to prepare a SEFA (Schedule of Expenditures of Federal Awards) and have a Single Audit under the rules of 2 CFR 200, or Uniform Guidance. A draft SEFA is one of the documents your financial auditor will ask for when it is preparing to conduct your audit.
A Grant Rollforward document is an essential tool for preparing an accurate SEFA. This spreadsheet provides a starting point for testing grant receivables, reimbursements (cash received), deferred revenue, revenue, and expenditures. You can use this sheet to collect information about all the grant funds received and spent, including beginning and ending balances.
If you would like a Grant Rollforward template to use in tracking each of your district’s federal, state, and local grants, Weaver has provided one for TASBO members here. You can use this to get started, customizing it for your needs.
The Single Audit
The SEFA is the foundation of the single audit, and errors in this schedule can have serious consequences. In addition to tracking your expenditures and revenues on an accrual basis and reconciling these amounts by grant to your general ledger (which is where a Grant Rollforward template can help), there are also some nuances of your SEFA presentation to consider. Some of the most common errors in SEFA presentations are:
- Incorrect or transposed AL (Federal Assistance Listing) numbers
- Sub-grant award numbers not included
- Identification of pass-through entity missing
- Federal agency names missing
- Clusters not shown as such
- Non-cash awards missing
- Missing references to notes in the SEFA
- Expenditures not totaled by AL number
In addition to the draft SEFA, your auditor will ask to see grant agreements, NOGAs, and/or grant applications for all the grants on the SEFA. For grants selected as major programs to be audited, the auditor will most likely ask for items such as documentation of internal controls, grant budgets, a register of program disbursements, including payroll, a list of employees paid through the grant, and any reports issued to you as a grantee. Gathering this information ahead of time will make the single audit go more smoothly.
Managing Grant Funds
Uniform Guidance includes more than just audit requirements. It also lays out best practices to help you work collaboratively to accomplish the goals of both the grant and your district. It shows you how to provide accountability and set up internal controls to protect those funds.
Internal controls for grants are things you should be doing anyway, such as establishing policies and procedures, providing segregation of duties, and requiring approvals and authorization of expenditures. When you receive a new grant, be sure to read the grant agreement carefully and set up any internal controls that are not already in place. For example, there may be personnel requirements for staff whose salary is paid, even partially, with grant funds.
These are some of the common pitfalls and issues in grant management:
- Missing or incomplete supporting documentation (cost allocations, budget amendments, procurement files, and equipment inventories, for example)
- Lack of appropriate approvals for expenditures
- Late or inaccurate reporting
- Inappropriate or unallowed expenditures
- Lack of management coordination and oversight of grant funds
To avoid these problems, make sure that someone on your team tracks how many grants you have, their funding sources, the people responsible for managing the funds, documentation, and appropriate internal controls.
Like a Boy Scout, Be Prepared
Don’t let the accounting requirements associated with grant funds scare you away from opportunities like the ECF or Clean School Bus Program. These grants can enable your district to serve your community better and fill needs that help students reach their full potential. Just be aware of the commitments you’re making so that you can manage the funds well all year and avoid any last-minute stress at audit time.