man with calculator and computer
Article

Treasury stimulus: what you need to know to remain in compliance

On April 22, 2020, the U.S. Department of Treasury (Treasury) issued guidance for state, territorial, local and tribal governments on the funding available through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Coronavirus Relief Fund (the Fund). The Fund appropriated $150 billion to be distributed to states, local, and tribal governments based on a funding formula stipulated by Treasury. Of the $150 billion, $8 billion is set aside for tribal governments.

The guidance issued on April 22 affirmed what many feared would be a narrow focus on the spending of the relief funds. This leaves many tribal leaders, who do not have a local tax base to rely upon, looking to subsidize the loss of revenue from various enterprise operations. The CARES Act provides that funding payments may only be used to cover costs that:

  • Are necessary expenditures incurred due to COVID-19;
  • Were not accounted for in the budget most recently approved as of March 27, 2020; and
  • Were incurred during the period between March 1, 2020 and Dec. 30, 2020

The guidance also contained Treasury’s interpretations of the spending limitations and allowable uses of the funding. Of note to tribal governments:

  • It explicitly states that funding cannot be used to cover lost governmental revenues.
  • It does not include infrastructure/property, plant and equipment as an example in the broad eligible expenditures list, nor the ineligible expenditures list; however, the FAQ released subsequently remarks that they can purchase fixed assets, so long as the asset is consistent with the limitations noted in this document.
  • The “nonexclusive” examples of eligible expenditures given appear to be restrictive, while at the same time, consider the broad relief that may be needed by including example No. 6, which states, "Any other COVID-19-related expenses reasonably necessary to the function of government that satisfy the Fund’s eligibility criteria.”
  • Interpreting compliance may be difficult given the attempt to include state, local and tribal governments under a single set of guidance with very different measures, and given the lack of clarity in the current guidance. The Frequently Asked Questions, which Treasury will build upon, may provide greater clarity going forward.
  • Expenditures must have been incurred from March 1 to Dec. 30, 2020.  Governments will have to return unspent funds to Treasury.

Of paramount importance for tribal leaders, who are navigating the volume of funding and the ambiguity of the requirements, is to ensure that the funding is adhering to a compliance framework and is accompanied by a clear and consistent spending or allocation methodology.

Helpful reminders for tribal entities receiving federal funding include:
  • Start with a funding pursuit plan, which includes both competitive and noncompetitive funding opportunities to maximize overall benefits and impact. Think about how these COVID-19-related funding opportunities could be leveraged with previously available options.
  • Review terms, conditions and grant agreements for reference to a specific compliance framework. Most often, funding received from the federal government is subject to Uniform Guidance, which can be indicated by reference to the related Catalog of Federal Domestic Assistance (CFDA) number.
  • Review policies and procedures to ensure they contain the necessary elements required or outlined in the compliance requirements, grant agreements or federal regulations. Entities should pay specific attention to procurement policies and policies associated with review and approval of expenditures.
  • Develop and document a spending methodology and ensure to retain record of the existing guidance available at the time of adoption. It is critical that once adopted, the methodology be consistently applied and updated as necessary for changes to the regulations or interpretations.
  • Understand the allowable uses of the funding, including applicable cost principles (e.g., 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards).
  • Understand the cash management requirements, if any, associated with the funding, and ensure a clear accounting of the sources and uses of stimulus dollars.
  • Review cost tracking and accumulation to ensure all costs eligible for reimbursement are captured, contain adequate documentation and are easily accessible for necessary reporting requirements. It is critical that qualified expenditures are applied only to one funding source (e.g., no “double dipping” of expenditures).

With tribal governments receiving large amounts of funding from various federal agencies, it is crucial for entities to have a thorough understanding of the compliance component of their spending plan. Spending of funds for unallowable purposes or not in accordance with the compliance requirements may result in the loss of future funding and reimbursement of funding received and spent for unallowable purposes.

Questions you may be asking as you review the current guidance:

It depends. Included in Treasury’s FAQ is an example of a payment transfer from a state to a local government, indicating that the transfer is permitted so long as it qualifies as a necessary expenditure incurred due to the public health emergency and meets the other criteria of section 601(d) of the Social Security Act. While this example may not be the same or similar circumstance, it does indicate Treasury’s handling of a transfer payment from one recipient entity to another. In this scenario, it is important to note that the funds are being used in accordance with the specified requirements outlined in 5001(a) of the CARES Act, or are intended to be spent by the recipient entity in accordance with such act. 

Funds may be used to construct or purchase physical assets if the purchase meets the definition of an allowable cost as described in section 5001 of the CARES Act. If used for the construction of a physical asset, qualifying expenditures must be used to respond to the public health emergency, not provided for in a previously approved budget and incurred during the period March 1, 2020 through Dec. 30, 2020.

Additionally, as noted in Treasury’s FAQ issued on April 22, 2020, an entity may retain assets purchased if the asset purchase was consistent with the limitations provided by section 601(d) of the Social Security Act.

As outlined in the guidance published by Treasury on April 22, 2020, expenses associated with the provision of economic support in connection with COVID-19, specifically, “expenditures related to a state, territorial, local or tribal government payroll support program,” are allowable. Tribal entities wishing to establish such a program should establish or use an existing policy that clearly outlines the eligibility requirements and amount of assistance. Additionally, entities are also permitted to expend funds “related to the provision of grants to small business to reimburse the costs of business interruption caused by required closures.” 

In both cases, it will be important for the tribe to establish a methodology that is consistently applied and document all determinations made with respect to eligibility and disbursement of the funding, including other assistance that may have been provided to tribal members.

The guidance from Treasury indicates that expenses must be “incurred” during the period that begins on March 1, 2020, and ends Dec. 30, 2020. Further, they define a cost to be incurred “when the responsible unit of government has expended the funds to cover the cost.” Further, it would be assumed that, similar to other areas of the CARES Act, the term “incurred” is measuring costs that were reasonably obligated and satisfied during the covered period to avoid instances where an entity is pre-paying expenses in an effort to maximize the use of the funding, but for which the entity does not have a legal obligation to pay such costs (e.g., pre-paying rent, utility or other contractual obligations).

Treasury has provided a nonexclusive example of eligible expenditures in the guidance released on April 22, 2020. The three critical factors as noted above are providing the tribes with discretion as to how the funds may be spent, but narrowly focus the attention on responding to the public health emergency. Treasury’s interpretation provides examples, but the list is not exhaustive and should be used as a guide. Memorializing the spending and ensuring entities are following the procurement guidance is key.

Relevant resources

We are here to help

Our tribal services team is ready and eager to help you navigate the many programs you may qualify for, and we’ve structured our services to advise you exactly where you need it most.

For more information on the outlined relief programs or how to best position your organization for eligibility, application and compliance, contact our tribal leadership team directly.

Contact us

arrowCreated with Sketch.
Joel M. Laubenstein
Principal
Next up

Is curbside pickup jeopardizing your tax-exempt status?