Preparing the SEFA- It's Not for Beginners

The Schedule of Expenditures of Federal Awards (SEFA) isn’t just a formality; it’s a foundational tool for financial integrity, regulatory compliance, and continued access to federal support, making it crucial for entities to prepare. Generally presented as a supplemental financial report to the financial statements of a government or a non-profit, the SEFA is required for organizations that expend a certain amount of federal funds during their fiscal year, detailing how the funds were spent throughout the year.

Preparing the SEFA is essential because it promotes transparency in the use of public federal funds. It enables entities and external stakeholders to monitor compliance and performance across federal grants, allowing the public to gain insight into how federal funds were received and spent.

Key Takeaways

• The Schedule of Expenditures of Federal Awards (SEFA) is a crucial supplemental financial report for maintaining financial integrity, regulatory compliance, and access to federal support for entities expending significant federal funds.
• Inaccurate SEFA reports can damage relationships with funding sources, resulting in significant consequences like the loss of future federal funding.
• To enhance SEFA preparation, organizations should understand their federal awards, accurately reconcile financial records, verify subrecipient relationships, coordinate internally, and seek professional guidance to maintain accuracy and compliance.

Understanding the SEFA

The SEFA is a supplemental financial report required for organizations that expend a certain amount of federal funds during their fiscal year. Non-federal entities, such as non-profit organizations, universities, tribal governments, or state/local governments, that expend $750,000 or more in federal awards during their fiscal year must prepare a SEFA. This threshold increases to $1 million for fiscal years beginning on or after October 1, 2024, per Uniform Guidance 2 CFR Part 200.

Components of the SEFA

As a required document for many entities, it’s essential to be aware of the key components that can help mitigate potential risks or discrepancies. Key components include:

• Federal Agency and Pass-Through Entity identify the source of the federal funds, whether received directly from a federal agency or through a state/local government or another organization.
• Federal Assistance Listing Number (ALN) is a five-digit identifier (formerly CFDA number) that classifies the federal program. It helps auditors and agencies track and categorize the funding.
• Federal Program Name and Award Number specify the name of the program and its unique award number for reference and verification.
• Expenditures report on the total amount of federal funds expended for each program during the fiscal year. This includes cash and non-cash assistance and may require special treatment for loans, guarantees, or Medicaid payments.

Common Challenges in SEFA Preparation

Failure to prepare the SEFA, or to prepare it correctly, can have significant consequences. During the Single Audit, the entity must provide a SEFA to the auditor. Since many federal agencies rely on SEFA data for reporting and monitoring purposes, inaccuracies or omissions can damage relationships with funding sources and potentially result in delays or the loss of future federal funding. Therefore, depending on the internal controls over the SEFA preparation, the auditor will tailor audit procedures to detect such errors in forming an opinion. Common challenges throughout the preparation period include:

Omitting Federal Awards

• Error: Forgetting to include certain federal programs, especially those received through pass-through entities or as non-cash assistance (e.g., food commodities).
• Fix: Maintain a centralized grant tracking system and cross-check with the general ledger and award documents.

Incorrect Assistance Listing Numbers

• Error: Using outdated or wrong ALNs
• Fix: Verify ALNs against the current Assistance Listings on SAM.gov

Reporting Budgeted Amounts Instead of Actual Expenditures

• Error: Listing the amount awarded or received rather than what was actually spent
• Fix: Use actual expenditure data from your accounting system. The SEFA must reflect expenses, not allocations

Misclassifying Direct vs. Pass-Through Awards

• Error: Confusing direct federal awards with those received via another entity (most commonly the state)
• Fix: Review award letters and contracts carefully. Pass-through awards must include the name of the pass-through entity and its assigned ID number.

Missing Subrecipient Information

• Error: Not reporting amounts passed through to subrecipients
• Fix: Track subrecipient disbursements throughout the year and include them in SEFA with proper identifiers

Essential Steps and Best Practices for Successful SEFA Preparation

For a successful SEFA, organizations should follow these essential steps. By doing so, you are better positioned for a more efficient process and a more accurate report.

1. Understand federal awards 
   • Identify all federal funding sources received and expended during the fiscal year through a dedicated and unique accounting mechanism in the general ledger, such as a fund, cost center, department, etc.
   • Include both direct and pass-through awards.
   • Document each award with relevant identifiers such as the Assistance Listing Number (ALN) and grantor information.
2. Reconcile with financial records 
   • Match federal awards to the general ledger.
   • Confirm reported expenditures align with actual financial activity.
3. Classify expenditures accurately 
   • Categorize expenses by program and funding source.
   • Prevent misreporting and support audit readiness.
4. Verify subrecipient relationships 
   • Identify subrecipients and document pass-through amounts clearly and accurately.
5. Coordinate internally 
   • Maintain timely communication with program managers and grant administrators. 
   • Confirm that all relevant data is captured.
   • Reflect matching, cost-sharing, and indirect cost allocations properly.
6. Review for compliance 
   • Check the document for completeness and consistency with Uniform Guidance requirements.
   • Reduce the risk of audit findings and SEFA inaccuracies through review. The use of a checklist or practice aid is a recommended best practice.
7. Follow a structured approach 
   • Use a step-by-step process to simplify SEFA preparation.
   • Strengthen transparency and accountability in federal fund management.

Seeking Guidance: A Best Practice for SEFA Preparation

Professional guidance is invaluable during the SEFA preparation process, especially for organizations navigating complex federal funding structures. Professionals specializing in federal compliance and accounting bring a deep understanding of Uniform Guidance requirements, verifying that all federal awards are accurately identified, classified, and reported.

At EisnerAmper, our team has decades of experience in federal regulations, accounting, and audits, enabling us to help you maintain compliance, streamline documentation processes, reduce time consumption, and save resources. Contact us today to learn how our trusted team can help you navigate SEFA preparation with confidence.