On December 3, the Office of Management and Budget (OMB) issued Compliance Supplement Addendum 1, which contains guidance for independent auditors who perform audits under the Single Audit Act when the auditee has expended funds made available under the State and Local Fiscal Recovery Fund (SLFRF). The SLFRF is administered at the federal level by the U.S. Treasury Department. The single audit requirement is triggered by expenditure of $750,000 or more federal financial assistance received as direct federal awards or passed through other recipients such as state agencies or county governments during the auditee’s fiscal year. SLFRF expenditures during that fiscal year, regardless of the amount, count against the $750,000 threshold. The Supplement Addendum applies to recipient fiscal years ending on June 30, 2021 and after.
Key Takeaways for Cities
- Auditors performing single audits are required to use the Supplement Addendum to determine what compliance requirements they must apply when testing SLFRF expenditures. The Addendum also suggests audit procedures that can be used by the auditors in conducting those tests. So, for cities, it provides a welcome window into what to expect during their single audits and how to improve audit readiness. The auditors will determine whether to test SLFRF expenditures by reviewing the Schedule of Expenditures of Federal Awards (SEFA) prepared by the city at the end of its fiscal year.
- Since award compliance guidance from the U.S. Treasury Department has continued to evolve since the enactment of the SLSLFRF, the Addendum emphasizes that auditors should test SLFRF expenditures based upon the federal requirements that were in effect at the time that the expenditure was made. To help establish that timing, the Addendum summarizes the applicability of the American Rescue Plan Act, the Treasury Department’s interim final regulations (issued May 17, 2021), and its Frequently Asked Questions document.
- The compliance criteria that are expected to be applied arise either from the American Rescue Plan Act under which the SLFRF was authorized or from sections of OMB’s Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (2 CFR 200) that the Treasury Department has made applicable to the SLFRF program. These include: activities allowed or unallowed; allowable costs; period of performance; procurement and suspension and debarment; reporting; and subrecipient monitoring. The Addendum notes that compliance with the revenue replacement calculations in the Treasury Department regulations are not subject to audit in FY 2021.
NLC will present an in-depth webinar on how cities can use the Supplement Addendum for audit readiness on January 12, 2022.
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