This article has been updated since its original publication to reflect 2022 SEFA standards.
With the influx of federal grant programs in the last few years, many organizations are, for the first time, determining whether or not they are subject to the Single Audit. The first step in doing so is preparing a Schedule of Expenditures of Federal Awards (SEFA). So, what is the SEFA? And what is the basis for determining which federal expenditures are included in the Single Audit threshold determination?
What is the SEFA?
The SEFA is a supplemental schedule to the audited financial statements that determines the applicability and scope of the Single Audit. The Single Audit requirement is triggered when the federal expenditures reported on the SEFA exceed $750,000 or more over the organization’s fiscal year. Getting the SEFA right is required to determine when a Single Audit is required and, if required, the proper scope of the Single Audit.
The SEFA is required to be completed in accordance with the Uniform Guidance (2.CFR.200.502). The federal expenditures that are included on the SEFA are to be based on determining when a federal award is considered “expended.” Unfortunately, the name federal expenditures on the schedule can be misleading. It seems to imply that the schedule only includes the value of costs the organization incurred that were paid for with federal funding. However, in reality, it is much more involved than that.
The following is a listing of different types of federal awards and how Uniform Guidance defines them as being expended:
Grants, Cost-based Contracts under Federal Acquisition Regulations (FAR), Cooperative Agreements, and Direct Appropriations
Federal funds received as a recipient or subrecipient are determined to be expended when the activity related to the federal award occurs. The SEFA can be presented on the accrual or cash basis of accounting. In addition to federally funded awards, cost-reimbursement federal contracts under the Federal Acquisition Regulation (FAR) are included. However, the Uniform Guidance explicitly excludes from the SEFA firm, fixed-price contracts under the Federal Acquisition Regulation (FAR) as noted in the table at 2 CFR Part 200.101.
Another type of award defined in the Uniform Guidance is a Fixed Amount Award. The Fixed Amount Award, as defined at 2 CFR Part 200.201, is a type of grant or cooperative agreement under which the federal awarding agency or pass-through entity provides a specific level of support without regard to actual costs incurred under the federal award. The Uniform Guidance at 2.CFR.200.102(c) states that a federal awarding agency may apply less restrictive requirements when making fixed amount awards, except for those requirements imposed by statute or in Subpart F of Uniform Guidance (Single Audit). As such, organizations should review any fixed cost awards carefully for possible inclusion on the SEFA.
Disbursement of Funds to Subrecipients
If an organization uses their federal funding to further pass down to another organization through a subrecipient relationship, the federal funds are determined to be expended when the organization becomes obligated to the subrecipient for payment. Generally, that is when the disbursement is made to the subrecipient.
Loans and Loan Guarantees
The basis for including loans and loan guarantees is defined at 2 CFR Part 200.502 as:
- Value of new loans made or received during the audit period; plus
- Beginning of the audit period balance of loans from previous years for which the federal government imposes continuing compliance requirements; plus
- Any interest subsidy, cash, or administrative cost allowance received.
As noted, if there are continuing compliance requirements, such as specific use of a facility that was purchased using a federal loan, the loan will remain on the organization’s SEFA until the continuing compliance requirement period ends. The notes to the SEFA are where the outstanding principal balance of the federal loans and loan guarantees would be disclosed.
Donated Personal Protective Equipment (PPE)
Organizations that received donated PPE should provide the fair market value of the PPE at the time of receipt as a stand-alone footnote accompanying their SEFA. The amount of donated PPE should not be counted for purposes of determining the threshold for a Single Audit.
Receipt of Property
This would relate to donated property and must be valued in the SEFA at fair market value at the time of receipt or the assessed value provided by the federal agency.
Receipt or Use of Program Income
This would be reported when the program income is received from the federal source or used by the organization.
Distribution or Use of Food Commodities
The basis for determining when this federal funding is expended is based on when the food commodities are used or distributed.
Medicare and Medicaid
Medicare or Medicaid payments received for providing patient care services are not considered federal awards expended (i.e. not included in the SEFA). However, there may be an exception to this if the organization’s state requires the Medicaid payments to be considered federally funded due to their own regulations on treatment of those types of payments on a cost-reimbursement basis.
Endowment funds that are federally funded are reported on the SEFA at the cumulative year-end balance as long as the restriction applies.
Insurance, Surplus Property, Interest Subsidies
Federal awards can come in other forms of federal assistance as identified at 2 CFR Part 200.502.
For-Profit Companies and the SEFA
With the significant output of relief programs during the COVID-19 pandemic, there were a number of for-profit or commercial companies that received federal funding. Because of this, many for-profit companies began questioning whether they were subject to uniform guidance and the Single Audit under Subpart F. And, by relation, if they needed to create a SEFA.
In general, Subpart F of the Uniform Guidance does not apply to for-profit companies. However, certain federal agencies, such as the Department of Health and Human Services and the Department of Energy, incorporated commercial audit requirements into their implementation of the Uniform Guidance. In addition, specific federal programs, for example the Shuttered Venue Operators Program, may impose an audit requirement for commercial recipients.
As a result of these complexities, if a for-profit company receives federal funding, they should check with the funder, their CPAs, and others that are knowledgeable about Uniform Guidance to understand if they are subject to the Single Audit requirement and need to produce a SEFA or equivalent.
Presentation of the SEFA
In addition to determining the amount of federal expenditures, the Uniform Guidance also has specific requirements as to how these amounts are to be reported in the SEFA.
Under Uniform Guidance, the organization is required to list individual federal programs by federal agency, including grouping a cluster of programs together. The organization is also required to note the name of the pass-through entity and any identifying number if the organization received federal funds that are passed through another entity. Conversely, if the organization passes through any of the federal funds to other entities, they are also required present the total amounts passed through to subrecipients for each federal program on the face of the SEFA.
The totals on the SEFA are required for each federal program and Assistance Listing (AL) number (formerly the Catalog of Domestic Assistance, CFDA). If the AL number is not available, organizations may use another identifying number. Totals are also required for each cluster reported on the SEFA.
Required SEFA Footnotes
Lastly, the SEFA also requires specific footnotes. As discussed previously, the organization must disclose the outstanding balance of any loan and loan guarantees reported on the SEFA as of the end of the audit period. Additionally, organizations are required to disclose whether or not they utilized the de minimis indirect recovery during the year. A SEFA Disclosure Checklist published by the AICPA’s Government Audit Quality Center is helpful in applying the SEFA disclosure requirements.
SEFA Internal Controls
An important element to the accuracy of the SEFA is having appropriate internal controls over its preparation. This includes proper grant intake (i.e. federal grant and contract identification), reconciliation to related financial statement amounts, and internal review and approval.
Organizations entering into federal grants and contracts must understand their responsibility for complying with the Single Audit requirements of the Uniform Guidance. Key to this is understanding the SEFA requirements and having appropriate controls in place to ensure its completeness and accuracy.
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