Federal disaster aid: avoiding compliance complications

In the wake of Hurricanes Harvey and Irma, significant federal funds are available to government and not-for-profit entities from the Federal Emergency Management Agency (FEMA) and other federal agencies to aid in the recovery process. FEMA is accepting applications for assistance and has expressed an intent to disburse funds quickly. Whether your organization already manages federal awards or you’re receiving federal awards for the first time, understanding the compliance requirements is critical during this time.

Because funding from FEMA is typically disbursed during emergencies, and potentially at a faster rate than in the past, your organization may have less time get internal controls in order. Be aware that, even if alternative processes are used, ultimately all expenditures incurred and reimbursed by federal agencies must be accounted for in accordance with the federal agency requirements. If your organization is or will be receiving federal disaster aid, appropriate supporting documentation is required for the following:

• Expenditures incurred and reimbursed
• Expenditures incurred for any required local match
• Reports and reimbursement requests filed with the federal agency
• Contracts awarded for recovery efforts and related procurement regulations
• Sub grants awarded to other organizations for their own recovery efforts

Future audits may be required as a result of disaster aid

Emergency funding in excess of $750,000 from the federal government is subject to the federal single audit requirements under Uniform Guidance. Additionally, in Texas and Florida, those most impacted by Harvey and Irma, also impose single audit requirements on funding provided at the state level. Emergency funding that your organization accepts today may need to be audited as major programs in the future.

The federal or state awarding agencies may also conduct audits. These audits may be performed many years after the incident and disbursement of funds. Consider maintaining records supporting disaster recovery efforts for at least seven years after the incident.

Failure to follow requirements may result in litigation and/or repayment of funds

Federal Inspectors General have been actively conducting audits from past disaster awards, and in many cases have sought repayment of funds due to insufficient compliance records. In one case, FEMA sought repayment of $750,000 from a small village due to an underinsurance error uncovered in 2015, nearly two years after Hurricane Sandy. In another case, five years after Katrina and six years after Ivan, FEMA asked a county to repay $5.8 million in cleanup funds distributed during the two hurricanes. The best way to avoid the risk of costly litigation and potential repayment of disaster aid is to ensure appropriate internal controls.

Resources available

Visit Baker Tilly’s Disaster Recovery and Uniform Guidance resource centers for additional information to help your organization navigate administration of federal awards during this challenging time. Our specialists routinely work with governments and not-for-profits receiving federal funding and can help position your organization for compliance success.

You can access an additional resource issued by the Department of Homeland Security Office of Inspector General entitled Audit tips for managing disaster-related project costs.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.