Capitol building of state government

State and local governments have received and are continuing to receive federal funding to respond to the COVID-19 pandemic, including Fiscal Recovery Funds (FRF) as part of the American Rescue Plan Act of 2021 (ARP). Many governments hope to use a portion of these funds to pay for, among other critical needs, consulting services to help develop a strategic approach to leveraging the full allocation. With federal funding of this magnitude comes a lot of uncertainty. In the below FAQ, Baker Tilly provides answers to commonly asked questions surrounding rules governing ARP funds.

Baker Tilly knows state and local governments are under a lot of pressure to spend ARP funds in a smart, strategic and resourceful manner. A significant dollar amount is involved – and it’s new money with a new set of requirements. Governments have procurement rules they need to follow when they are contracting with vendors, including consultants like Baker Tilly. Our goal is to ensure state and local governments fully understand the rules and know where to turn for additional guidance. We want to help avoid any misappropriation of funds, and certainly do not want anyone to get into preventable trouble.

Similar to the ARP, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provided state and local governments with federal relief funding, but, the circumstances were quite different. CARES Act money had to be spent quickly. By nature of their structure, governmental entities often need some lead time when awarding contracts. At the time of the CARES Act, however, given the pandemic emergency, these entities did not necessarily have to follow all the normal procurement requirements that governments generally have to abide by. On the other hand, with the ARP, the timeframe for spending is not as restrictive, so governments may find they need to comply with competitive bidding requirements found in the federal procurement guidance.

Another major difference between the ARP and CARES Act was administrative convenience in the CARES Act that allowed governmental entities to use funds on their public safety payroll. That was a convenient option for governments that existed last time around, but is no longer an option with funds distributed by the ARP. This means that governments need to be more mindful during the planning process to identify eligible projects and initiatives for which the ARP funding can be used.

On a simple level, the four key steps that governments should take are:

  1. Have an established procurement policy
  2. Ensure the procurement policy adheres to current federal guidelines
  3. When planning to spend FRF on projects where contracts are needed, follow the organization’s procurement policy, including all federal and local guidelines
  4. Maintain documentation that outlines the complete decision process

Governmental entities that have not previously been awarded federal funding should take additional precautions, such as ensuring boilerplate contract language is up to date.

Governmental entities should already have a procurement policy, or at least some procedures or guidelines in place. The policy should be written if not already done so. Governments must continue to follow their own policies, but if they have not been awarded federal funds previously, an experienced professional should examine their policies to make sure they align with federal, state and local requirements. For instance, the threshold requiring governmental entities to get a quote for a contract using federal funds is $50,000. However, the local requirement may be set at a lower amount, such as $25,000. In this case, the $25,000 threshold prevails. If they have dealt with federal awards before, their procurement policy may have already been subject to an audit. Regardless, it still can be valuable to take a fresh look at the policies and examine whether it still makes sense to maintain the current threshold levels.

Some state and local governments have staff members with the appropriate qualifications and experience to examine funding policies within the context of federal, state and local regulations. Baker Tilly’s public sector team can also assist with this process to ensure all policies and thresholds are exactly where they need to be.

Strategic planning advisory is the primary objective public sector entities seek assistance with these days. Governments need to decide how and where to spend their ARP funds, which includes budgeting, determining what community programs need to be established or improved and creating a spending plan.

The other consulting component that we see commonly is general funding guidance. We regularly examine the spending plans of governments to determine whether they comply with the eligible uses and allowable costs under the U.S. Department of Treasury (Treasury) umbrella. As part of this process, we compare initiatives to the guidance, assess risk of compliance issues and provide feedback to reduce or eliminate red flags.

Governments want to avoid questioned costs, which could result in the need to repay funds. This means the organization essentially spent money on something that was not eligible under the guidance. Generally speaking, governments do not have as much flexibility to replace costs at risk of becoming questioned costs – as opposed to the CARES Act, for instance – so there is pressure to get it right from the start.

Additionally, it is important to note that Treasury reserves the right to audit usage of ARP funding. In that event, Treasury could potentially examine the spending of funds from an even more stringent perspective, which again puts significantly higher importance on following the rules, adhering to the guidelines and documenting the spending process thoroughly and accurately.

Treasury’s ARP guidance is intended to ensure there is open competition promoted by the federal government when it comes to contracting using federal awards. Exceptions do exist, of course, including emergency situations and when there is a lack of qualified providers, which can occur if a governmental entity searches the marketplace and determines that there are not multiple qualified providers for a service. With the appropriate documentation in place, governments may use these exceptions and sole-source contracts without going through a competitive bidding process. Baker Tilly can help governments navigate potential exceptions as part of their search for goods and services funded by the ARP.

For more information on this topic, or to learn how Baker Tilly state and local government specialists can help, contact our public sector team.

Amanda R. Blomberg
Firm Director, CPA
Blue apartment building
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