2022 Most Frequently Asked Questions about the American Rescue Plan Act (ARPA)

Article

April 7, 2022

The Federal Government, through the American Recovery Plan Act (ARPA), has released a total of $1.9 trillion in stimulus and recovery funds. Unlike other recovery funds, ARPA funds may require full compliance with the Uniform Grant Guidance (UGG) and cost principles. Organizations should begin preparing to administer, monitor, and report on ARPA awards in a manner compliant with fund requirements. As we have helped our clients, particularly in the State and local government sector, we have identified the most relevant Frequently Asked Questions (FAQ) below about ARPA and the Coronavirus State and Local Fiscal Recovery Fund (SLFRF).

What is ARPA?

ARPA is a 1.9 trillion economic stimulus bill that was passed and signed into law in March 2021. It builds on the CARES Act, which is the Coronavirus Aid Relief and Economic Security Act of 2020. The CARES Act is a 2.2 trillion economic stimulus bill in response to the economic fallout of the COVID 19 pandemic. Like the CARES Act, ARPA is intended to speed up the country’s recovery from the COVID 19 pandemic. There are a variety of programs under ARPA amongst various federal agencies including the Departments of Agriculture, Education, Transportation, Health and Human Services, and Treasury amongst others. Eligible uses of funds are pertinent to each program, as are compliance requirements. Generally, however, compliance requirements under ARPA are more stringent than those under the CARES Act. While organizations have successfully navigated the pre-award award and post-award phases of CARES funding, many organizations are just entering these phases for ARPA funding.

One of the more well-known programs is the Coronavirus SLFRF program. Treasury, through SLFRF, is providing over $350 billion in direct payments to states and local units of government to replace lost public sector revenue, address the negative economic impacts caused by the public health emergency, provide premium pay for essential workers, and invest in water, sewer, and broadband infrastructure.

Many Organizations Have Successfully Administered CARES Funding. Why is ARPA Different?

ARPA is different in the breadth of programs and, depending on the program under discussion, there is much more regulation under ARPA than CARES. For example, for the Coronavirus Relief Fund (CFR) under the CARES Act, the regulatory requirements under the Treasury Department were minimal. CRF awarded $150 billion in direct payments to state and local governments and required compliance with only 2 C.F.R. § 200.303 regarding internal controls, 2 C.F.R. §§ 200.330 through 200.332 regarding subrecipient monitoring and management, and Subpart F, Audit Requirements in the UGG. SLFRF, on the other hand, requires compliance with all sections of the UGG, a very different set of circumstances.

What Challenges Are You Seeing Organizations Face as it Pertains to Compliance Around ARPA Funds?

Organizations, both public and private, may not be adequately resourced or familiar with federal grants to effectively administer, monitor, and report on ARPA awards in a manner compliant with requirements. Many local governments have very little experience complying with federal regulations and struggle with understanding exactly what to do to comply.

The most significant challenges we see organizations face are:

Inappropriate fund usage;
Insufficient resources knowledgeable in federal grant management, the UGG, and specific reporting requirements;
Non-existent or immature processes, internal controls and governance over grant administration and sub-recipient monitoring; and
Not being prepared for a Single Audit.

All these challenges, if not properly addressed, could lead to an organization being front page news (and not the good kind).

The good news however is that eligible uses under many ARPA programs are written broadly. The Final Rule for SLFRF for example lists numerous enumerated uses under “Responding to the public health emergency or its negative economic impacts” such that most units of government identify a wide variety of acceptable uses. The Final Rule also provides a framework for identifying eligible non-enumerated uses. More good news is that SLFRF funds are available to both public organizations and private organizations such as non-profits which aids in finding eligible uses.

One of the most prevalent examples of an area with which local governments struggle is monitoring of subrecipients where local governments subaward funds to non-profits to respond to the COVID-19 public health emergency or its negative economic impacts. Federal regulations (§§200.330 to 332) require a great deal of oversight in these arrangements and local governments often need help structuring subrecipient contractual agreements to include financial and performance reporting, a method for recovery of indirect costs, and ensuring that funds are expended appropriately. Another example where local governments struggle is compliance with UGG cost principles (§§200.400). Local governments are often unfamiliar with differentiating between direct and indirect costs, developing indirect cost rates, and determining the allowability of various types of costs. We are often engaged to assist with revisions to policies and procedures to address these areas.

Even large counties and cities are sometimes challenged with addressing the finer details of SLFRF compliance requirements. For example, though the Final Rule provides latitude in determining eligible uses some local governments feel pressure to please certain constituencies and may strain the interpretation of the Final Rule to do so. In addition, even larger cities or counties sometimes do not have effective practices or procedures in place to identify and segregate unallowable costs, which is best done upon entry into the accounting system, but many are not practiced in that. The scrutiny that those expenditures would face under an audit could cause issues down the road.

Are There Any Challenges That You Think Organizations May Face Down the Road That They May Not Be Currently Aware Of?

One of the biggest challenge most recipients of SLFRF and other ARPA funds must face is the requirement for a Single Audit. Any organization that receives over $750,000 in federal awards (Subpart F) either as a recipient (directly) or subrecipient (indirectly) within a fiscal year must undergo a Single Audit for that year. Many recipients and subrecipients have never undergone a Single Audit and need to make sure they maintain sufficient documentation, have updated policies and procedures, and comply with approved uses of funds.

What are Some Important Best Practices to Consider as Organizations Look to Receive and Utilize Funds?

Take your time and be thoughtful on how best to utilize these funds to help your county or city and its constituents. This is a once in a lifetime, once in a career, opportunity to really make a difference for your community. And don’t forget the needs of your own organization. While citizen facing initiatives are important, the infrastructure of the government is important as well. This is an opportunity for the government to modernize. So, initiatives that may not be as visible to the constituents – but deliver services faster, better, and more efficiently – should also be considered.

We will continue to monitor ARPA developments and share updates as additional guidance related to the American Rescue Plan Act becomes available. If you have questions or want to learn more about the ARPA compliance, consult your Cherry Bekaert advisor or Cherry Bekaert’s Risk Advisory Government Sector leader.