John Heveron gave you some tips a few weeks ago on preparing for your financial audit. Just a reminder — if you spent $750,000 or more in federal funds last fiscal year, or will this fiscal year, you are required to have this more extensive audit. Any year that you spend $750,000 in federal funds, this audit is required. For many centers, the CARES Act funding pushed them over that threshold.
But an astute CIL director asked me , “How can I afford those audit costs next year when CARES Act funds are gone?”
This is a good question. We cannot typically carry over funds to the next year with either Part C or CARES Act. What can we do to cover the audit expenses when we are back to our basic pre-COVID budgets? The “single audit” costs are required specifically because the CARES Act funds temporarily increased your income over this two-year period. So can the CARES Act pay their share of those costs? It doesn’t make sense for Part C to pay for costs generated by the CARES Act funds, does it? In fact I might argue that you CANNOT use a funding source to pay an expense incurred by a different project or cost objective.
You are allowed to pay for actual expenses of your federal grants after their closing date IF those costs were encumbered during the grant year (Prior to September 30, 2021 in this case.) Encumbered funds are monies that are intentionally set aside to pay for future obligated or planned expenses. Although encumbered funds are not released until the payment for the future expenses is due, the funds cannot be used for anything other than their specified purposes.
It seems allowable, to us, to develop a contract now for your single audit, to sign it prior to the end of the fiscal year. This would then encumber those dollars so that they cannot be used for any other purpose. You should be able to draw them down prior to December 31 and utilize them to pay the CARES Act portion of the audit expenses.
Remember that you still have to properly allocate all your shared expenses, including this audit, so your other grants will pay a share as well. If you have not had single audit/compliance audits in the past, you should meet with your auditor or another auditor qualified to do this and ask them to explain the process, including what they would expect from you, and tell you what their fee would be.