There is No such Thing as Free Federal Money - Federal Expenditures and SEFAs

#AICPAgov
The Best Things in Life are
Free, but there is no Such
Thing as Free Federal Money
Jill A. Shaw, CPA
Michael L. Lauzon, CPA
HeinfeldMeech

Expenditure basics
Tips for preparation of an accurate SEFA
Avoiding Common SEFA Errors
SEFA Tool and Resources
2

Expenditure Recognition Basics
Governmental Funds
Current Financial Resources Measurement Focus
(What expenses are reported)
Use stems from the importance of appropriations
and budgetary control
 A focus of providing services for the year
Expenditures are outflows that are expected to be
liquidated with expendable available financial
resources
3

Expenditure Recognition Basics
Governmental Funds
Modified Accrual Basis of Accounting
(When expenses are reported)
Recognize expenditures in the period in which a
liability has incurred. Typically this is also interpreted
as “when goods or services have been received”.
4

Exceptions that put the “modify” in Modified
Accrual Basis of Accounting
Debt service on general long-term debt
• Recognize these when due
Compensated absences, claims and judgments, OPEB,
pensions and many others
• Recognize these when they mature (that is, due for payment)
5
Type of Expenditure When Due When Liability Incurred
Bonded debt service payment According to debt retirement schedule
(typically 7/1 & 1/1)
Upon closing date for bond
Compensated absences At time of resignation At time of sick/vacation leave accrual
Claims and judgments When settlement has been reached
(due and payable)
When loss is probable and
reasonable estimable
OPEB When payments are made Liability based on actuarial
valuations and includes all persons
eligible for benefitsPensions When employer contributions are made

Advance Funding of Long-Term Liabilities
Exception – Governments may report a liability and expenditure for debt service if:
1. Resources have been accumulated in a debt service fund
2. Debt service is due and payable in 1 to several days after year end (but not
more than one month after year-end)
6
If a government has accumulated resources
to pay an unmatured long-term liability, can
they record a liability and expenditure on the
fund financial statements?
Question
No, accumulated resources should be
included as part of fund balance.
Answer

Government-Wide / Proprietary Funds
Economic Resources Measurement Focus
(What expenses are reported)
Provides information about all operating costs
(financial and capital).
Users can assess effect that current period
operations have on future resource needs.
Accrual Basis of Accounting
(When expenses are reported)
Recognize expenditures when they occur
regardless of when cash is received or paid.
Helpful in cases where users of the financial
statement need to see the “full picture”.
7
Modified
Accrual
Accrual

Reconciling Items –
Fund to Government-Wide Statements
8
Fund
Statements
Statement of
Activities (GW)

A Look at Federal Expenditures
Entities spending more than $750,000 in federal grant
awards require a Single Audit
If close to threshold, auditors will likely require an analysis
to document total federal expenditures do not trigger a
Single Audit
Ensure that the chart of accounts allows for detailed
reporting of federal expenditures
• Funds
• Cost Centers
• Project Numbers
9

10
S E F A
Schedule of
Expenditures
of Federal
Awards

Context of the SEFA –
Why is it so important?
Primary view of federal awards for federal agencies and
pass-through entities
• Provides picture of all federal money the entity is responsible
for
Drives scope of audit
• Main determinant of major programs
• Inaccurate SEFA = Inaccurate major program determination
Feeds electronic accumulation of data for government-
wide monitoring of its awards
• Includes significant data to input into Data Collection Form
Supplemental schedule to the financial statements
• “In-relation-to” opinion, but with compliance emphasis
11

Context of the SEFA
SEFA is defined in CFR 200.510
Auditee responsibilities for SEFA described in CFR
200.508
Auditor’s responsibility for reporting on the SEFA
described in CFR 200.515
• Opinion (or disclaimer of opinion) as to whether the SEFA is
presented fairly in all material respects in relation to the
financial statements taken as whole.
Considered supplementary information (SI) under AU-C
725.
12

SEFA as Supplementary Information
13
Balance Sheet
Statement of Activities
Statement of Cash Flows
~~~~~ $XXX
~~~~~ $XXX
~~~~~ $XXX
~~~~~ $XXX
~~~~~ $XXX
~~~~~ $XXX
~~~~~ $XXX
SEFA
~~~ ~~ $XXX
~~~ ~~ $XXX
~~~ ~~ $XXX
~~~ ~~ $XXX
~~~ ~~ $XXX
Independent Auditor’s Report
on the Financial Statements
Financial statements
are fairly stated…
…. and the SEFA is too, in
relation to the financial
statements…

Compliance Audit Objectives
 SEFA serves as the primary basis for major program
determination – thus making the accuracy & completeness of
the SEFA a critical factor
 Internal control over compliance procedures require the
auditor to assess the auditee’s controls over the accuracy and
completeness of the expenditure amounts & accuracy of CFDA
numbers
 Compliance procedures should be performed to determine
whether the SEFA is complete, accurate and contains all
required elements
14

Auditee Responsibility
SEFA is the primary responsibility of the
auditee
Auditees are encouraged to:
• Contact pass-through awarding entities early in the planning
process
• Understand the importance of the SEFA
Consider control deficiencies
15

Uniform Guidance for Federal Awards
as it relates to the SEFA and significant changes from A-133
SEFA requirements in the UG are in Subpart F
Subpart F is effective for audits of fiscal years beginning
on or after December 26, 2014
• e.g., December 31, 2015 and June 30, 2016 year ends
Uniform Guidance references in slides are to the Code of
Federal Regulations, 2 CFR Part 200 section
• e.g., 200.510(b)
16

as it relates to the SEFA
Significant differences in the Uniform Guidance
• Total for cluster of programs on face of SEFA
• Amounts provided to subrecipients from each federal program
on face of SEFA
• Include on SEFA face all Federal awards expended including:
 Noncash assistance
 Loan programs (beginning balance of outstanding loans plus loans
disbursed during period plus interest subsidy, cash, or administrative
cost allowance)
 Loan guarantee programs
17

as it relates to the SEFA
Significant differences in the Uniform Guidance
• Loans and loan guarantees: Identify in SEFA notes the loan
balances outstanding at the end of the audit period
• SEFA notes disclose whether or not non-federal entity elected
to use the 10% de minimus cost rate (CFR 200.414)
 NOTE 4 – INDIRECT COST RATE
The Example City has not elected to use the 10% de minimis cost
rate as covered in 200.414 Indirect (F&A) costs.
18

Minimum SEFA Requirements
(UG 200.510(b))
Auditee must prepare – include federal awards expended
as determined in 200.502
• Refer to 200.502 for what must be included
List individual federal programs by federal agency
• If a cluster:
 List cluster name
 List individual programs within cluster
 Provide applicable federal agency name
20
Example of a Cluster

(UG 200.510(b))
For federal awards received as a subrecipient
• Name of pass-through entity
• Identifying number assigned by pass-through entity
Total federal awards expended for each individual federal
program and the CFDA number
• Use other identifying number when CFDA info not available
• For a cluster, also provide total for the cluster (200.510(b)(3)
makes this more explicit)
Total amount provided to subrecipients from each federal
program (NEW under UG - 200.510(b)(4))
• Previous guidance only required “to the extent practical”
21

(UG 200.510(b))
For loans and loan guarantees, identify in the
notes to the SEFA loan balances outstanding at
the end of the audit period (200.510(b)(5))
• This is in addition to including the total federal awards
expended for loan or loan guarantees in the schedule
• Important Note (New under UG): Can no longer put
beginning loan balance component of federal awards expended
in the notes (now will go on face of schedule)
SEFA footnotes:
• Describe significant accounting policies used
• Include in the notes to the SEFA whether or not non-federal
entity elected to use the 10% de minimis cost rate (NEW under
UG - 200.510(b)(5))
22

Example SEFA Under Uniform Guidance
Federal Grantor/
Pass Through Grantor/
Program Title
Federal
CFDA
Number
Pass Through
Entity
Identifying
Number
Federal
Expenditures
Expenditures
to
Subrecipients
Department of Housing and
Urban Development Direct
Program – Community
Development Block Grant 14.218 N/A $1,000,000 $800,000
23

CFDA Number
Sometimes not provided by grantor
• Be proactive and reach out to them
• Set expectations upon contract signing
• Look in Catalog of Federal Domestic Assistance (CFDA.gov)
Indicate not available and provide other identifying
number
Follow the instructions of the Data Collection Form for
program with no CFDA number
• If award has a contract or grant number:
 Awarding agency’s 2 digit prefix followed by grant or contract number
(e.g., 20.ABCDE12345Z)
• If award does not have contract or grant number:
 Awarding agency’s 2 digit prefix followed by “UNKNOWN”
• If federal agency does not have 2 digit prefix, enter “99”
24

Recipient of a Pass-through Award?
Subrecipient - an entity that expends federal awards that
are received from a pass-through entity to carry out a
federal program
Included in the scope of the single audit on the same
basis as federal awards that are received directly
On the SEFA
• Name of pass-through entity
• Identifying number assigned by pass-through entity
25

Subrecipient vs. Contractor (“Vendor”)
Subrecipient and contractor determinations (200.330)
• Substance of the relationship over form or name of agreement
26
Subrecipient
• Determines who is
eligible for federal
assistance
• Has responsibility for
programmatic decision
making
• Has performance
measured in relation
to meeting federal
program objectives
Contractor
• Provides goods or
services within normal
business operations
• Provides similar goods
or services to many
different purchasers
• Provides goods or
services that are
ancillary to the
operation of a federal
program

Basis for Determining When Expended (200.502)
“Determination of when a federal award is expended is based on when
the activity related to the award occurs. Generally, the activity
pertains to events that require the non-federal entity to comply
with federal statutes, regulations, and the terms and conditions of
Federal awards, such as: expenditure/expense transactions associated
with awards including grants, cost-reimbursement contracts under the
FAR, compacts with Indian Tribes, cooperative agreements, and direct
appropriations; the disbursement of funds to subrecipients; the use of
loan proceeds under loan and loan guarantee programs; the receipt of
property; the receipt of surplus property; the receipt or use of program
income; the distribution or use of food commodities; the disbursement
of amounts entitling the non-Federal entity to an interest subsidy; and
the period when insurance is in force.”
27

Basis for Determining When Expended –
Federal Awards Basis for Determining When Expended
Grants, cost reimbursement, cooperative
agreements, direct appropriations
When the expenditure/expense transaction occurs
Amounts passed-through to subrecipients When the disbursement is made to the subrecipient
Loan and loan guarantees When the loan proceeds are used
Donated property, donated surplus
property
When property is received
Food commodities When distributed or used
Interest subsidies When the amounts are disbursed entitling the entity to
the subsidy
Insurance When the insurance is in force
Endowment Funds When federally restricted amounts are held
Program income When received or used
28

Noncash Awards
Loans and loan guarantees, insurance, endowment
funds, free rent, food commodities, donated property,
donated surplus property
Reported on face of SEFA
• Under the UG, no longer allowed to report only in SEFA
footnotes
Important to identify: Noncash awards impact major
program determination
29

Value of Noncash Awards
Types of Noncash Awards Basis to Determine Value
Insurance Fair value of insurance contract at time of receipt
Endowment Funds Value equals the cumulative balances of federally restricted
amounts
Food commodities, donated property, free rent Fair value at time of receipt or assessed value provided by
federal agency
Loans and loan guarantees Amount of new loans made during year plus balance of
previous loans (if continuing compliance requirements)
Loans at institutions of higher education Same as above, unless institution does not make loan, then
only new loans are included
30

Basis for Determining when Expended
Loan and loan guarantees (loans) (200.502(b))
• Federal government is at risk for loans until the debt is repaid
• Calculate value of Federal awards expended under loan
programs, except as noted in paragraphs (c) and (d) of
200.502:
 Value of new loans made/ received during audit period
plus
 Beginning of period balance of loans from previous years for which
federal government imposes continuing compliance requirements
plus
 Any interest subsidy, cash, or administrative cost allowance received
31

Basis for Determining when Expended
Prior loan and loan guarantees (loans) (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.
32

Loans – Continuing Compliance
Requirements
UG does not define
Some federal agencies will indicate that their loans have
continuing compliance requirements
Use professional judgment
Example:
• Loan to construct building-
a. Current year activity is only loan repayments
b. Current year activity is loan repayments AND certain percentage of
building must be rented to low-income residents
33

Clean Water and Drinking Water Loan
Examples
Often times passed through WIFA
Sub awards - not direct federal loans
Loan proceeds expended during the audit period should
be reported on the SEFA
34

Optional Presentation Elements
Non-federal awards
Pass-through entity contract or grant information
Multiple-year information for multiple-year awards
35

Responsibility for the SEFA
Auditee
• Must prepare financial
statements, including
the SEFA in accordance
with §200.510 Financial
statements (200.508(b))
• Include the SEFA in the
reporting package
submitted to FAC
(200.512(c))
Auditor
• Determine and issue an
opinion (or disclaimer)
on whether SEFA is
fairly stated in relation
to the financial
statements (200.514(b),
200.515(a))
• Use the SEFA to
determine major
programs to audit
Federal Agencies
/ Pass-Through
Entities
• Provide data about
federal awards
necessary to prepare an
appropriate SEFA
• Use the SEFA for their
oversight and
monitoring purposes
37

The SEFA as Supplementary Information to
the Financial Statements (AU-C 725)
Information contained in the SEFA was derived from, and
relates directly to, the underlying accounting and other
records used to prepare the financial statements.
SEFA is for the same period as the financial statements.
The financial statements were audited AND
• the auditor reporting on the SEFA audited those financial
statements
• Neither an adverse opinion nor a disclaimer of opinion was
issued on the financial statements.
SEFA will accompany the entity's audited financial
statements, or such when they will be made readily
available.
38

the Financial Statements (FS) (AU-C 725)
Management must acknowledge and take responsibility
related to the SEFA:
• For the preparation of the SEFA in accordance with the UG
• To provide the auditor with certain written representations
• To include the auditor's report on the SEFA in any document
that contains the schedule and that indicates that the auditor
has reported on such information
• To present the SEFA with the audited FS, or if the SEFA will not
be presented with the audited FS, to make the audited FS
readily available to the intended users of the SEFA no later
than the date of issuance of the SEFA and the auditor's report
thereon
39

the Financial Statements (FS) (AU-C 725)
What Does the Auditor Have to Do?
• Ask about the criteria management used to prepare SEFA.
• Determine whether form and content complies with UG/A-
133.
• Understand the methods of preparing the SEFA, whether there
were changes from those used previously and, if so, why.
• Compare /reconcile the SEFA to the underlying accounting
and other records used in preparing the FS or to the FS
themselves.
• Inquire about significant assumptions or interpretations
underlying the measurement or presentation of the SEFA.
• Evaluate the appropriateness and completeness of the
information contained in the SEFA, considering your FS audit
and knowledge.
• Obtain certain written representations from management.
40

Materiality for SEFA
May use materiality to determine amount of test work to
be performed
Materiality
• Is the same as materiality for the financial statement audit
• Is different than major program materiality
41

Additional Auditor Procedures - Compliance
Test for elements required by the UG
Test for accuracy, completeness, and classification of
recorded amounts
• May use evidence from financial statement audit
• May use evidence from compliance audit of federal awards
Auditee’s reconciliation to the financial statements and
records
Confirmations with federal granting agencies, pass-
through entities, subrecipients
42

Examples of Compliance Procedures
Reconcile expenditures and other amounts listed to
general ledger accounts and/or other supporting
documents.
On a sample basis, verify CFDA numbers and program
titles to the CFDA catalog and/or to the grant award
document.
Consider completeness and classification
• Federal awards in general ledger but not reported on the SEFA
• Federal awards that are R&D/non R&D but not classified as
such
Obtain and review footnotes to the SEFA
• Test amounts in SEFA footnotes
43

Additional Auditor Procedures – Internal
Control
AU-C 725 does not require a separate understanding of
the entity's internal control or to assess fraud risk
Auditor has additional responsibilities to satisfy
compliance audit requirements
• Internal control over compliance including consideration of
accuracy and completeness of amount reported on SEFA
Examples of Auditor’s Internal Control Procedures
• Inquiring of entity personnel
• Observing application of controls
• Inspecting documents and reports used to prepare the SEFA
44

Reporting on the SEFA – follow AU-C 725
Reported as either:
• Other matter paragraph in report of independent auditors on
the financial statements
• Stand-alone report
• Paragraph in report on compliance and on internal control over
compliance
Report date
• Same date or later than the financial statement date
• May be dual-dated
45

Representations from Management
 Acknowledges and understands its responsibility for the
presentation of the SEFA in accordance with Circular A-133.
 Believes the SEFA, including its form and content, is fairly
presented in accordance with the Uniform Guidance /Circular
A-133.
 Methods of measurement or presentation have not changed
from those used in the prior period, or if the methods of
measurement or presentation have changed, the reasons for
such changes.
 Any significant assumptions or interpretations underlying the
measurement or presentation of the SEFA.
 When the SEFA is not presented with the audited financial
statements, management will make the audited financial
statements readily available to the intended users of the
schedule no later than the issuance date by the entity of the
SEFA and the auditor's report thereon.
46

Date of Representations from Management
If reporting on FS and SEFA at the same time
• Same date as the date of the auditor’s report on the financial
statements
If opinion on the financial statements and in-relation-to
opinion on the SEFA have separate dates
• Separate representation letters – each received at a different
time
• SEFA representations dated same date as the in-relation-to
opinion on the SEFA
47

Avoiding Common SEFA
Errors
48

SEFA Error Example
Expenditures related to reimbursements received after
the period of availability are not reported on SEFA
• Town is awarded a grant from the Department of Housing and
Urban Development for $300,000 to purchase avocado toast
and cold brew coffee for Millennials.
• $200,000 is expended towards the end of the 2017 fiscal year.
• The reimbursement is not received until September of 2017
(fiscal year 2018).
• In which fiscal year would the expenditures be reported on the
SEFA?
49

SEFA Error Example
Revenues used to determine the amount reported on the
SEFA for non-reimbursement grants
• City is awarded a grant from the Department of Transportation
to build a rail line between Phoenix and Flagstaff.
• The City receives $250,000 during fiscal year 2017.
• The City expends $180,000 during fiscal year 2017.
• How much should be reported on the SEFA?
50

SEFA Error Example
Over-expenditure of grant funds not reconciled to
determine if expenditures should be coded differently
• The County is awarded a grant from the US Department of
Energy.
• The County receives $200,000 during fiscal year 2017, has a
prior year grant carryover of $50,000.
• The County expends $300,000 during fiscal year 2017.
51

SEFA Error Example
Amounts related to on-behalf payments from grantor are
not reported on the SEFA
• City is awarded a grant from the US Department of
Transportation for a bus system.
• The City received and expended $300,000 during fiscal year
2017 to assist with running the bus system.
• The City received three buses from the Department of
Transportation; each bus was valued at $200,000.
52

SEFA Error Example
Errors in accounts payable translate to errors on the
SEFA
• During the audit it was discovered that $25,000 of a
Department of Agriculture Grant to make the local brewery
more energy efficient had expenditures recorded that were paid
in fiscal year 2018 for goods/services received in fiscal year
2017.
• The Town had appropriately recorded $50,000 of expenditures
in fiscal year 2017.
• The final SEFA was given to the auditors last week.
53

SEFA Error Example
Amounts coded to federal revenue on the general ledger
turn out to not be federal upon investigation
• During the final review of the SEFA it was discovered that
$100,000 of a $200,0000 grant passed through the Governor's
Office were State funds
• The County had recorded all of revenues as federal in the
CAFR and had expended 100% of the monies received.
• A draft of the SEFA was given to the auditors last week.
54

SEFA Errors
Incorrect or missing CFDA number
Sub-grant award numbers not included
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 to SEFA notes is
missing
Non-cash awards missing
Improper basis for determining when awards expended
Federal expenditures not totaled
Indicating major programs on the face of the schedule
55

Tips to Ensure all Expenditures are Captured
Departmental reminders
Disclaimer on purchase orders
Review of budget to actual expenditure variances
Follow up on open purchase orders
Review of retainage payable on construction contracts
Reconcile the SEFA to the General Ledger
56

SEFA Case Study
57
Auditors
planned to
audit this
program.
• 33%
coverage
• The other
type A
was
audited in
the PY.
SUNSHINE CITY, TEXAS
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2017
CFDA Total
Federal/Pass-Through/Agency Number Expenditures
U.S. Department of Transportation
Passed through Texas Department of Transportation:
Highway Planning and Construction 20.205 $ 894,522
U.S. Department of Housing and Urban Development
Direct Program:
Community Development Block Grants 14.228 445,672
U.S. Department of Justice
Direct Program:
Edward Byrne Memorial Justice Assistance Grant (JAG) 16.738 285,123
Environmental Protection Agency
Passed through Texas Water Development Board:
Drinking Water State Revolving Funds 66.468 764,589
Department of Homeland Security
Passed through San Antonio County:
Homeland Security Grant Program 97.067 368,295
Total Expenditures of Federal Awards $ 2,758,201
Type A
Type A

SEFA Case Study
58
Upon
further
research
this
program
isn’t really
federal in
nature.
CFDA Total
Direct Program:
Direct Program:

SEFA Case Study
59
Turns out
this is the
award
amount.
The City
actually
only spent
$325,150.
CFDA Total
Direct Program:
Direct Program:

SEFA Case Study
60
This
amount
didn’t
reconcile
to the
general
ledger.
Should be
$225,000
instead.
CFDA Total
Direct Program:
Direct Program:

SEFA Case Study
61
This amount is
expenditures.
Grant award
was only
$675,750, so
the over-
expenditure
will have to be
moved to a
different
funding
source.
CFDA Total
Direct Program:
Direct Program:

SEFA Case Study
62
Does not
include a
reimbursement
of $75,000
received in
August 2017.
CFDA Total
Direct Program:
Direct Program:

Revised SEFA
63
Now there are
no Type A
programs
(over $750K)
and CDBG
only provides
19.5%
coverage
(20% is
required).
CFDA Total
Direct Program:
Community Development Block Grants 14.228 $ 325,150
Direct Program:
Auditor
updates
plan to
audit this
program.

Evolution of Major Program Determination
64
SEFA is prepared?
Awesome! Looks like
we are auditing CDBG
this year. I love auditing
that program! Wait a second! Looks
like a few amounts are
changing.
What do you mean
CDBG doesn’t give us
coverage?

Tips and Reminders
Start early
• Contact pass-through entities as needed
• Review Council minutes for indications that a department has
been approved for a federal grant
• Review SEFA at several different times to make sure no major
changes occurred
Review best practices
• Same format as last year may not be best
Understand the importance
• Can materially affect major program determination
• Undetected errors can lead to financial statement errors or vice
versa
• Consider a central grants department
65

AICPA Worksheet for Identifying Federal Program Information
Grant title
Program name
Award number
Federal agency
CFDA (and other
identifying number)
Award period
Extensions
Research & development
(major subdivision of
agency)
Pass-through entity
Pass-through identifying
number
Amount awarded
67
Tools for SEFA Reporting

Guidance for SEFA Reporting
AICPA Audit Guides
• 2016 Government Auditing Standards and Single Audits Audit
Guide
OMB
• Uniform Guidance for Federal Awards, Subpart F - for fiscal
years beginning ON OR AFTER December 26, 2014
 replaces guidance in OMB Circular A-133
• OMB Circular A-133 - for fiscal years beginning BEFORE
December 26, 2014
• OMB Compliance Supplement
GAO
• Government Auditing Standards: 2011 Revision
68

There is No such Thing as Free Federal Money - Federal Expenditures and SEFAs

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