Your government may be one of the many that have been hit by a disaster recently. The first instinct should always be dealing with human suffering and accounting for personnel and mission-critical systems. But then what?
Time is of the Essence
The first issue with FEMA Disaster Grants for Public Assistance is knowing time is not on your side. Natural disasters often strike with little to no warning. Tornados occur from coast to coast and may transpire in minutes. Therefore, preparation is paramount. Once a disaster has occurred, quick and efficient response will be the easiest route, including recognition that a disaster has occurred. FEMA can restrict the Federal Cost Sharing percentage for debris removal if quick response is not achieved. For most debris removal projects in the one to 30-day range, FEMA will reimburse governments up to 85% of their costs, with state governments matching an additional portion. However, on the 31st day, reimbursement percentages may drop from 85% to 80%, with corresponding decreases after 90 days. Consequently, quick identification of the scope and magnitude of each individual project, between government officials and FEMA representatives, will allow for maximum reimbursement.
Information must be gathered and documented as soon as possible. When disaster hits, FEMA representatives will want governments to document each disaster-related project extensively. The most common method for tracking expenses is the use of Project Worksheets (PWs), which are provided by FEMA representatives. These worksheets may include items such as employee and volunteer hours worked by individual project, hourly rate, hourly benefit rate, individual dates worked by project, equipment logs and any other miscellaneous purchases relating to those projects. It is imperative that governments are prepared to gather this information in real time. Gathering information quickly will not only help ensure appropriate funds are secured but will also aid governments in attaining matching requirements. In some cases, volunteer hours worked can be used to satisfy federal matching requirements. Governments may want to consider using sign-in sheets as a form of tracking volunteer hours, whether it be for filling sand bags or clearing debris.
PWs also require a strict review process at the individual government level to determine accuracy and completion of claims. Administration expenses need to meet equally stringent standards to be reimbursed for items such as postage and other miscellaneous expenses. FEMA representatives will verify PWs versus timecard information, hourly rates and payroll information, and many other overhead costs. This is where documentation comes into play. Procurement processes may need to follow emergency response plans during the disaster period, as well as regular procurement policies after the disaster period. FEMA representatives will undoubtedly question the costs of emergency vendors and contractors. Governments need to have as much documentation as possible to verify the use of vendors used in these emergency situations. Documentation may include procurements performed in the past.
FEMA grants cause several reporting issues and headaches since they can be reported differently than other grants. One distinction is that FEMA grants are not reported in the Schedule of Expenditures of Federal Awards (SEFA) until FEMA has approved the entity’s Project Worksheet and the entity has incurred eligible expenditures. However, if eligibility criteria have taken place, the financial statements may show grant revenues depending on the availability criteria. Highlighting these differences in the notes to the SEFA may help users understand the reporting differences.
Another reporting difficulty comes from 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.
Most recently, GASB released an Implementation Guide Q&A 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 Q&A is not effective until periods beginning after June 15, 2019. However, it may be used to provide clarity in deciding when to recognize revenue.
For further information, please reach out to your Eide Bailly professional.
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