Guidance from the State of North Carolina
N.C. Treasurer Guidance on Reporting, Auditing of ARP Funds
Updated May 28 - Read full post here
Receiving and holding funds:
We don’t see the need to open a separate bank account for these funds unless it is the only way the unit has to track the receipts and expenditure of the ARPA funds. If an entity can track both the revenue and expenditures within its accounting system without using a separate bank account, we believe that is acceptable.
Do not comingle ARPA funds with CVR/CARES Act funds!
ARPA funds cannot be used to build reserves. If an entity has unexpended ARPA funds at June 30, 2021 (and many of you will), it is likely best to put those funds in a Special Revenue Fund. If the funds will be spent on enterprise activities (utility infrastructure for example) they can be recorded directly in the Enterprise Funds. It is probably not a good idea to record the funds in the General Fund, because it could be construed as attempting to build reserves, and it will skew your revenue and expenditure trend information for your General Fund.
At this time, it appears that the guidance states these funds are granted with eligibility requirements. As such, any unspent funds at year end will be recorded as a liability (not a deferral). We are awaiting additional guidance on this topic.
Another area we are seeking more information on is the treatment of investment earnings. State statute requires that investment earnings are restricted in the same nature as the grant funds. ARPA guidance seems to say that if funds are comingled, the investment earnings are unrestricted. Only if they are not comingled are they restricted to the same purpose as the grant. Again, we are awaiting more guidance on this topic.
There is no reason to believe these funds will not be subject to single audit and yellow book requirements. However, it is important to remember that the thresholds for these audits is based on funds expended, not funds received. With some restraint, local entities that had not expected to be subject to yellow book or single audit requirements for 2021 can manage those expectations by not spending ARPA funds by June 30, 2021 in amounts that would exceed the threshold, including all other Federal and/or State grant funds.
ARPA funds must be appropriated before they are obligated. Units that intend to obligate any of these funds on or before June 30, 2021, must amend their budgets to include the funds. Units that do not plan to obligate these funds on or before June 30, 2021, can likely get by without amending their 2021 budgets.
An option that many local governments may want to consider is to budget ARPA funds in a Grant Ordinance, allowed by G.S. 159-13.2, which can be established for a grant that covers both capital and operating funding. The budget spans the life of the grant rather than a given fiscal year.
All units that are receiving ARPA funds must ensure that the funds are included in the 2021-2022 budget, either in the original ordinance, or added with an amendment on or after July 1, 2022. Budgets must be in place before the funds are obligated!
The UST has revised the deadline for expending ARPA funds to 2026, as long as the funds are obligated by 2024. This should give units some breathing room on their decision making with regards to these funds. It is not likely that local governments will see this level of federal aid again for many years. Units need to be thoughtful about how the funds are spent, not only to ensure compliance with the restrictions on the funds, but also to ensure they are put to their highest and best use. There will likely be multiple opportunities to leverage local dollars with State dollars for needs such as infrastructure. In addition, there are other sources of funds for purposes such as education, transportation, and affordable housing. Units should consider all available sources of funds before committing to spend their local dollars. This will require some patience by local officials but should lead to more informed decision making.
Many units are asking questions about the restrictions on these funds, and we encourage units to seek guidance before spending the money. ARPA funds cannot be used to fund general operations or to provide for general capital needs. ARPA funds will be subject to audit, and units can expect to be required to repay funds that are not spent in accordance with the restrictions. Again, units have several years over which to spend these funds and there likely will be opportunities to leverage funds to achieve more significant outcomes. Please plan strategically and thoughtfully!
Checklist: Pre-Funding Requirements
With the launch of the American Rescue Plan's Coronavirus State and Local Fiscal Recovery Funds program on May 10, 2021, CDBG cities in N.C. will now be able to request funding directly from the U.S. Treasury. The 26 cities that can request funding directly from the federal government are identified in this document (link).
All other municipalities in N.C. will receive their funds through the state of North Carolina. To receive that funding, those non-CDBG cities will required to complete several pre-funding steps.
The North Carolina Pandemic Recovery Office has created a checklist for non-CDBG cities and towns to follow to ensure that the funding process proceeds quickly and seamlessly. That checklist is below, and can be downloaded here (link).
With questions, please visit our FAQ page. If additional assistance is needed, please reach out to us at email@example.com. Questions about the Vendor Electronic Payment Form should be directed to N.C. PRO at firstname.lastname@example.org.
PLEASE NOTE: We have been made aware of scams targeting our members. DUNS and SAM registration is free through the federal government and resources are available to assist you if need be. You do not need to pay to register your town with the federal government.
Presentation Slides: Pre-Funding Process Walk-Thru from NCPRO
Updated May 11
In addition to the checklist shared above, NCPRO has published a helpful presentation that walks through the process of completing the pre-funding requirements.
To watch a video series from NCPRO on this issue, please visit our blog post on the topic here.
View slides from LGC's June 16 webinar on ARP guidance and accounting, hosted by NCLM.