The OMB issued a memo "Extension of Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19) due to Loss of Operations," on June 18. This article reviews key changes and takeaways.
As grant recipients were adjusting to operating remotely with little to no access to their office, there was a factor of uncertainty as to how the reopening phase would affect operations. As Governor Abbott announced the third phase of reopening Texas businesses on June 3, 2020, a sense of normalcy began to set in. The economy was looking to ramp-up and people were returning to their normal routines.
Since the economy was reopening, the Office of Management and Budget (OMB) issued M-20-26, Extension of Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly Impacted by the Novel Coronavirus (COVID-19) due to Loss of Operations, on June 18, 2020. The memorandum significantly reduced flexibilities previously provided in the M-20-17, Administrative Relief for Recipients and Applicants of Federal Financial Assistance Directly impacted by the Novel Coronavirus (COVID-19) due to Loss of Operations,issued on March 19, 2020. M-20-26 revises the single audit submission extensions and expands on allowable costs of salaries and other project activities.
Key changes to note in the memo are as follows:
- Paycheck Protection Program (PPP) loans - Payroll costs paid with PPP loans or any other Federal CARES Act programs must not be also charged to current Federal awards as it would result in the Federal government paying for the same expenditures twice. Note: Some charter schools elected to apply for PPP loans and should pay particular attention to the amended guidance.
- Funding Resources - Due to the limited funding resources under each federal award to achieve its specific public program goals, awarding agencies must inform recipients to exhaust other available funding sources to sustain its workforce and implement necessary steps to save overall operational costs (such as rent renegotiations) during this pandemic period in order to preserve Federal funds for the ramp-up effort. Documentation of the efforts taken to exhaust other funding sources and reduce overall operational costs is required to support these charges in accordance with 2 CFR 200.333. Note: This subsection primarily applies at this point to PPP loans; however, as other funding sources become available, all recipients must carefully document costs and seek approval for expenditures as necessary through the grant application process.
- Extension of Single Audit Submission and COVID-19 Emergency Acts Fund Reporting - Awarding agencies, in their capacity as cognizant or oversight agencies for audit, may allow recipients and subrecipients that have not yet filed their single audits with the Federal Audit Clearinghouse (FAC) as of March 19, 2020, and also have normal due dates from March 30, 2020 through June 30, 2020, to delay the completion and submission of the Single Audit reporting package. Audits with normal due dates from July 31, 2020 through September 30, 2020 will have an extension up to three (3) months beyond the normal due date. This removes the previous 6 month extension for fiscal year ends through June 30, 2020 from the date M-20-17 was issued. As such, charter schools and school districts with a June 30thand August 31st fiscal year-end will be required to submit by their normal due dates to the FAC which is the earlier of either 1) 30 days of report issuance or 2) 9 months subsequent to year end.
- Schedules of Expenditures of Federal Awards (SEFA) and Audit Report Findings - M-20-26 requires entities to identify COVID-19 expenditures on the SEFA. Charter schools and school districts should be able to do this with ease, given the previous guidance issued by the Texas Education Agency in regards to tracking COVID-19 expenditures.
The Governmental Accounting Standards Board (GASB) proposed technical bulletin No. 2020-a, Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020 and Coronavirus Diseases issuedon June 9, 2020, which provides additional clarification on the application of existing guidance for recognition and presentation issues pursuant to the programs established by the CARES Act.
Key takeaways are as follows:
- Coronavirus Relief Fund (CRF) Revenue Recognition – There has been confusion as to when revenue should be recognized for CRF resources received, due to the United States Treasury determining that these resources are considered other financial assistance as opposed to grantsunder 2 CFR 200.40. Resources received by governments have been identified as voluntary nonexchange transactions subject to eligibility requirements under GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions. Recipient governments should recognize revenue from resources received once the eligibility requirements established by the CARES Act have been met.
- Loss of Revenue Provisions Attributable to the Effects of COVID-19 – Resources provided to governments due to a loss of revenue from the effects of COVID-19 should be recognized as revenue once the eligibility requirements are met based on GASB Statement No. 33 as discussed above. Revenue loss by a government could be attributable to actions taken to stay in compliance with slowing the spread of the virus, such as a stay-at-home order.
- Subsequent Event Considerations for Amendments to the CARES Act after the Financial Statement Date, but before Issuance – Amendments to the CARES Act made after the financial statement date should not be recognized in the financial statements, as they do not represent existing conditions as of the financial statement date. Such an amendment would be considered a non-recognized event based on GASB Statement No. 56, Codification of Accounting and Financial Reporting Guidance Contained in the AICPA Statements on Auditing Standards, resulting instead, as a note disclosure to the financial statements.
- Paycheck Protection Program (PPP) and Loan Forgiveness Issues – Certain governmental entities received loans through the PPP which are expected to be forgiven once certain requirements are met. If the recipient government does not expect these requirements to be met, and the loans are set to be forgiven until a subsequent reporting period, then they should be reported as a deferred inflow of resources until the obligor is legally released from the debt based on GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees.
- Reporting CARES Act Resources as Special or Extraordinary Items – Resources provided through the CARES Act programs should not be reported as special or extraordinary items. GASB Statement No. 34, as amended, Basic Financial Statements— and Management’s Discussion and Analysis—for State and Local Governments, states that “extraordinary items are transactions or other events that are both unusual in nature and infrequent in occurrence.” That guidance also states that “significant transactions or other events within the control of management that are either unusual in nature or infrequent in occurrence are special items.” The event considered in this decision is the appearanceof the coronavirus disease and not the costs incurred or management’s response. It was determined that the appearance of a coronavirus is not infrequent in occurrence because it is reasonable to assume, in the context of a governments environment, that other coronavirus diseases will appear in the future.
For additional guidance specifically directed towards school district CARES Act Funding and COVID expense reimbursements please visit the FAQ sheet issued by the Texas Education Agency. You can also visit TEA’s website for general Coronavirus support and guidance as this page is frequently updated with new resources.