The Shuttered Venue Operators Grant (SVOG), administered by the Small Business Administration’s (SBA) Office of Disaster Assistance, was created to support the ongoing operations of eligible performing arts related entities affected by the COVID-19 pandemic. As the grant period is winding down, there are a few factors to consider for entities that have received these funds.
Will my nonprofit be subject to an audit for Shuttered Venue Operators Grant Funds?
If an entity expended more than $750,000 of federal funds across all federal sources within the fiscal year, it will be subject to a third-party compliance audit, the compliance requirements of which differ depending on whether the entity is a for-profit entity or a non-federal entity (states, local governments, or nonprofit organizations).
Non-federal entities are subject to the requirements as outlined in Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) Subpart F which requires a single audit or a program-specific audit (if SVOG funds are the only source of federal funding). A program-specific audit includes a review of the SVOG program compliance, internal controls, and the financial system and recordkeeping.
For-profit entities may elect to have either a single audit or program specific audit consistent with the Uniform Guidance or they may elect to have an audit of the financial statements. The SBA is expected to release additional guidance for audits of for-profit entities with SVOG funding.
What are the requirements for grant compliance with SVOG funding?
The Office of Management and Budget released the 2022 Compliance Supplement in April 2022, which is applicable only for audits of non-federal entities. The Compliance Supplement included information about SVOG, including key program requirements subject to testing during the audit of an entity’s grant compliance. The 2022 Compliance Supplement is effective for entities with fiscal year ends of June 30, 2022 and later; however, the 2022 Compliance Supplement allows year-ends prior to June 30, 2022 to follow the guidance released in the 2022 Compliance Supplement.
For both for-profit and non-federal entities, the SBA is not requiring strict compliance with procedural mandates (such as prior approval restrictions under 2 CFR Part 200) for costs incurred between March 1, 2020 and the date before the initial grant award is issued. However, after that date, these standards are expected to be followed and could be subject to testing.
SVOG requirements allow a wide range of costs to be charged to the grant, including:
- Payroll costs
- Rent payments
- Utility payments
- Scheduled mortgage/debt payments (not prepayment of principal) for any debt incurred in the ordinary course of business prior to February 15, 2020
- Worker protection expenditures
- Payments to independent contractors (not to exceed a total of $100,000 in annual compensation for any individual employee of an independent contractor)
- Ordinary and necessary business expenses (including maintenance)
- Admin costs (fees and licensing)
- State and local taxes and fees
- Operating leases in effect as of February 15, 2020
- Insurance payments
- Advertising/production transportation/capital expenditures related to producing a theatrical or live performing arts production (although this may not be the primary use of funds)
While there is a wide range of uses, the costs charged under SVOG cannot be used for reimbursement under another federal program, such as a Paycheck Protection Program loan, Employee Retention Credits, or Family First Coronavirus Response Act credit.
The SBA also outlines several non-allowable uses such as the purchase of real estate, payments of loans originated after February 15, 2020, investment or lending, and contributions/expenditures related to political parties. Grantees will want to ensure they have documentation of the allowability of the costs, including that they were not charged under multiple federal programs.
The SBA also requires the funds to be used within the set period of performance, which is March 1, 2020 through December 31, 2021 or through June 30, 2022 (for entities that received as supplemental award). Grantees will need to ensure that the costs charged to the grant are within the period of performance to remain in compliance.
Once the funds have been fully expended or the budget period for the timeframe during which the award funds can be spent has ended, grantees must initiate closeout (reporting). This close out process consists of various action items and reports to be submitted to the SBA, summarizing the use of the funds. Grantees have 120 days from the end of the budget period to initiate award closeout.
For the Expense Report Action Item, grantees are required to subtotal the award expenses by allowable cost category. Grantees may also need to provide a property inventory depending on the types of costs charged to the grant. No supporting documentation is required to be provided to the SBA at the time of completing the Expense Report Action Item; however, support should be retained through the record retention period (three years for all expenditures and four years for employment related expenditures). Support will need to be provided to the SBA if the grantee is selected for random monitoring.
If subject to a single audit or program-specific audit, the auditors will also require supporting documentation for their testing, such as invoices, receipts, check copies, etc. This documentation should include support showing that the transactions were properly reviewed and approved as single audits and program-specific audits require testing of internal controls over compliance in addition to testing of compliance. Expenses may be reallocated among allowable cost categories in this report without prior-SBA approval (and thus will not have to match the final budget submitted).
What is Form SF-425?
Once the Expense Report Action Item is approved, the SF-425 Action Item will be made available. The Form SF-425 is the standard Federal Financial Report that is required to be filed on the use of grant funds. The Notice of Award received may indicate that the SF-425 is to be submitted within 15 days of expending the funds; however, the SBA subsequently updated their guidance and the SF-425 will be made available once the Expense Report Action Item is approved, which will not necessarily occur within 15 days of expending the funds. As part of completing the SF-425 Action Item, grantees must upload documentation that any unspent grant funds have been returned, and that the Federal share of proceeds for any property purchased with grant funds that have been sold has been repaid. If neither of these apply, no additional document uploads are required.
Continued preparation and compliance for COVID-19 related relief funds is important for nonprofits.