In the wake of COVID-19, state and local government entities and certain private nonprofit organizations are eligible to apply for the Public Assistance Program. Eligible Emergency Protective Measures taken to respond to the COVID-19 emergency at the direction or guidance of public health officials’ may be reimbursed under Category B of the agency’s Public Assistance Program.
There’s much to consider when it comes to the impact of COVID-19.
What Is Category B in the Public Assistance Program?
Emergency Protective Measures are eligible under FEMA’s Public Assistance Program. These items have historically been for expenses relating to shelters or emergency care, sandbagging, emergency repairs, and emergency demolition. FEMA has many categories of emergency assistance; however, they are limiting assistance in this case to Category B in hopes of accelerating grant application and reducing documentation requirements.
Which Entities Are Eligible?
State and local governments are eligible for Public Assistance funding, as well as private nonprofit organizations as long as they own or operate medical care facilities. FEMA specifically addresses that for-profit hospitals are not eligible for Public Assistance funding unless they procure with nonprofit organizations to provide Emergency Protective Measures.
What Costs Are Eligible?
Incremental costs must be directly related to COVID-19 cases, therefore normal operating costs are not considered reimbursable. In addition, costs must be reasonable and necessary, procured within the entity’s procurement policy (unless meeting the exigency or emergency exceptions under federal regulations), and can only be submitted as a qualifying expenditure if costs are not reimbursed by another organization such as private insurance, Medicare, or another granting agency.
Qualifying activities may include:
Are There Reporting Issues to Consider?
GASB Implementation Guide
One reporting nuance was recently clarified by the recent Implementation Guidance relating to Governmental Accounting Standards Board (GASB) Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions [GASB Cod. Sec. N70]. A common accounting misconception with FEMA and other grants is that entities may not be able to recognize voluntary nonexchange revenue relating to grants unless the notice of the award occurred within the same financial reporting period.
GASB released an Implementation Guide question and answer on disaster accounting and financial reporting. Question 4.7 in the Implementation Guide Update 2019-1 contains the following clarification:
Q—A city government with a June 30 fiscal year-end incurred costs for debris clearing and increased public safety protection as a result of a natural disaster that occurred on May 30, 20X8. The president of the United States declared a natural disaster and approved funding for the region affected. The city applied for federal funding, and it received a notice of award on June 29, 20X8. The city executed the grant agreement on July 5, 20X8. Can the city recognize voluntary nonexchange revenue as of June 30, 20X8, for the reimbursement of costs incurred related to the natural disaster that occurred that fiscal year?
A—No. Paragraph 15 of Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, identifies expenditure-driven grant provisions to be a form of stipulation that “is considered an eligibility requirement . . . and affects the timing of recognition. That is, there is no award— . . . the recipient has no asset (receivable)—until the recipient has met the provider’s requirements by incurring costs in accordance with the provider’s program.” In other words, in the absence of an executed grant agreement before the end of the reporting period, the city cannot establish that it has incurred allowable costs and, therefore, cannot establish the existence of an asset (a receivable) at June 30, 20X8; that is the case even when the city has incurred costs that could be reimbursable once the grant agreement is executed. Assets and revenue should be recognized for allowable costs only after the grant agreement is executed.
This question and answer is not effective until periods beginning after June 15, 2019. However, it may be used to provide clarity in deciding when to recognize revenue. Note that the GASB has recently proposed extending the implementation of pending guidance including 2019-1 for an additional year. However, governments are always encouraged to early implement GAAP as long as they implement the entirety of the guidance in a GASB Statement, as applicable.
Public Assistance Grants & Schedule of Expenditures of Federal Awards
Another reporting distinction is that Public Assistance grants are not reported in the Schedule of Expenditures of Federal Awards (SEFA) until two requirements are met.
Highlighting these differences in the notes to the SEFA may help users understand the reporting differences.
What Is a Typical Timeline for Receiving FEMA Public Assistance Funding?
Here’s a typical timeline (located in the table below) from start to finish of the process of obtaining FEMA Public Assistance funding. The important item to note is the signed final grant agreement, in most cases the project worksheet, was not approved until nearly the end of the process. Therefore, any revenue recognized will most likely be recognized in the fiscal year in which the signed grant agreement or project worksheet was finalized.
Source: Federal Emergency Management Administration
The Importance of Understanding Compliance
There are relief provisions available for governments and certain private nonprofits. However, they can cause reporting issues and compliance errors if they’re not properly reviewed and documented. It’s important to not only understand the relief available, but also how to comply long-term.
Have questions on how to properly document and comply with FEMA Project Assistance Funding?
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