Most not-for profit organizations understand that, when receiving federal assistance, they are required to complete a Schedule of Expenditures of Federal Awards (SEFA) to determine whether a single audit is required and, if so, include the SEFA in the single audit reporting. But what is the SEFA and what is the basis for determining which federal expenditures are to be included?
What is the SEFA?
The SEFA is a supplemental schedule to the financial statements that an organization is required to produce when it is subject to the single audit requirement. 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. For some organizations, getting the SEFA wrong could result in an organization concluding that a single audit is not required when it actually was required to be performed.
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 would simply only include 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-reimbursement contracts under Federal Acquisition Regulations (FAR), with Indian Tribes, cooperative agreements, and direct appropriations – federal funds are determined to be expended when the related activity occurs. Since Uniform Guidance follows the accrual method of accounting, this would be when the expense/expenditure occurs, unless the Organization has prepared the SEFA on the cash basis, which the Uniform Guidance actually allows. In addition, federal contracts are included except for firm fixed-price contracts, subject to the FAR’s, which are specifically identified by the Uniform Guidance as being excluded.
- 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 expanded to not only include any federal loans received or spent in the current year, but it also includes any loans that were received in prior periods that have continuing compliance requirements. These continuing compliance requirements could vary from loans that are currently being repaid to those that will be forgivable at the end of a set period. 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 ends. For these types of federally funded loans or loan guarantees, what gets reported as federal expenditures is the beginning balance plus any advances or loan proceeds received during the year. Included in this balance is also any interest subsidy, cash, or administrative cost allowance received. In the notes to the SEFA, the organization would report the outstanding balance of any loans as of the last day of the fiscal year.
- Receipt of property – this would relate to donated property and would be reported in accordance with the accrual method of accounting and be considered expended when the property was received.
- 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 aligned with the activity, similar to grants, in which the food commodity would be considered expended when used or distributed.
- Insurance – for any insurance that is federally funded, the basis for determining when it is reported is when the insurance is in force. This would not include any Medicare or Medicaid payments to the organization for providing patient care to patients that are Medicare or Medicaid eligible. 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 – similar to loans and loan guarantees, any endowment funds that are federally funded are reported on the SEFA at the cumulative year-end balance as long as the restriction applies.
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 to note the total amounts passed through to subrecipients for each federal program. The totals on the SEFA are required for each federal program and Catalog of Domestic Assistance (CFDA) number. If the CFDA 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 must disclose their accounting policies for preparing the SEFA and if they applied as allowed by Uniform Guidance. If an organization did not elect this rate, the organization still needs to note that it did not in the footnotes. The footnotes cannot be silent on this item.
As organizations can see, it is critical for management to understand the requirements for preparing the SEFA and what is included. It is necessary for organizations receiving federal funding to get this right and familiarity with what the Uniform Guidance requires in the SEFA is a must.
See below for a listing of helpful resources related to the Uniform Guidance:
Uniform Guidance (2.CFR.200)
Uniform Guidance Frequently Asked Questions
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