The Accounting Podcast

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Blake Oliver: Hello, everyone, and welcome back to the show. I'm Blake Oliver. We're talking today about the Trump administration's federal funding freeze, which has stopped billions and billions of dollars from flowing from the Treasury to state governments and nonprofits and organizations throughout the country, around the [00:00:30] world. And joining me today to discuss this is Geralyn Dressler and Hattie Cutshall from Iptc. Iptc, also known as your part time controller, is the 65th largest accounting firm in the country, according to Accounting Today, serving over about 2000 nonprofits and about 800 staff. So I'm really excited to have both of you on today to talk about the impact of this federal funding freeze on nonprofits, because it seems like that has been who has really [00:01:00] been impacted a lot. So Jerilyn, I'd like to start with you. One of the topics we've been discussing on the podcast is the way that money flows from the federal government to nonprofits. Can you give us an explanation of, like, how this funding freeze has impacted them and what is happening with your thousands of clients?

Jerilyn Dressler: I think there is a general misunderstanding of how nonprofits function in our society, especially alongside and hand in hand with our various governments. [00:01:30] So if you think about the federal government and how it takes our taxpayer dollars and sends them out to communities around the country for various purposes, a lot of it is for entitlements like Social Security, Medicare and Medicaid, that kind of thing. That's not our realm. There's a whole other, um, pot of funds that gets allocated, um, directly to the states, and then the states in their agencies and their capacities work directly [00:02:00] with nonprofits, but the federal government has 26 granting agencies, and I believe the number from last year was that there are 56,000 grants that charities or nonprofits work directly with the federal government, and that is.

Blake Oliver: 56,000 grant.

Jerilyn Dressler: Grants.

Blake Oliver: Yeah, and 26 agencies.

Jerilyn Dressler: Yeah. Yeah.

Blake Oliver: Okay. That's a lot.

Jerilyn Dressler: It is a lot. And so, like I said, in that case, it's an organization usually a 500 and 1C3 that is working directly [00:02:30] with the federal government. Because if you think about the work of our government, they don't want to be in the business of building homeless shelters or running food banks or providing education, you know, K through 12. It's the nonprofits that work in communities large and small, all around the country that really understand the needs of those communities, the culture and the fabric of what it is to work with the folks in those communities to get them the services that they need from an efficiency perspective and also [00:03:00] from getting the funds, you know, from our taxpayer dollars to the places where they're needed. Most nonprofits serve a very vital function.

Blake Oliver: Okay, so what is happening as a result of this funding freeze? It's billions of dollars. And so has this just shut off these programs that nonprofits are running.

Jerilyn Dressler: So interestingly, the news is moving so quickly on this lake. And a judge just decreed last night that, [00:03:30] um, all of the funds have to be turned back on.

Blake Oliver: Okay, that's news to me.

Jerilyn Dressler: Yeah. It was like late yesterday. I mean, if you think about it, these are contracts. You know, these are very big involved contracts. And they're and these are using funds that have been appropriated by Congress and agreed to. And where it gets really challenging for nonprofits. Is that the way that the government works as far as getting these monies to the nonprofits, is that the nonprofits have to submit reimbursements, so they have to put [00:04:00] the money out first. And this is, by and large, how it works. There's very small instances where the money is advanced, but the nonprofits have to show payroll registers. They have to show receipts because they've already paid out these funds in advance of their mission. So especially organizations that are working in social services, they don't have they're not sitting on huge reserves like they need those funds to continue operating, to pay staff, to keep the lights [00:04:30] on, to keep the meals flowing. So that's why this has been really hard.

Blake Oliver: That's one of the questions we had on the accounting podcast in one of our recent episodes, was how this money actually moves from the governments to these organizations, because it seems like and maybe, Patsy, you can educate me on this. It seems like, you know, the states can access the federal funds through some sort of website. They log in and that was turned off. And can they just [00:05:00] request funds? Like I guess my question is, how does this all work? And what safeguards are in place to make sure that this money is being spent according to Congress's directive, according to the law? Because I think that was a concern of a lot of people. And perhaps the motivation for freezing these funds was, are we actually making sure that the money is being spent properly?

Harriet "Hatsy" Cutshall,: Mhm. Now it's a good question because it's, it's a complex system and there [00:05:30] but there is a lot of accountability built in. Yeah. There's been a lot of news reports about governors that have uh sued or raised questions about not being able to draw down, but likewise much of the funding goes instead of going through the state and then to the nonprofits, a lot of that goes directly to the nonprofit through these online portals that are opened up and access is was provided, but only to the grant, [00:06:00] the award recipients. It's it's really not it's not a free for all at all. And yes, it's possible for an organization to go in and claim more money than they've spent, but they have to account for what they're pulling down, usually quarterly, sometimes more often. Some agencies allow them to pull the money on a monthly basis. Some even say if you need to pull the money down once a week, you can do that too. And then [00:06:30] some agencies, you have to submit a stack of a large PDF, which is Gerrilyn was mentioning, with receipts and payroll registers and proof of what was actually spent before the money is released. So it varies by agency and by program. Sometimes you can put in a claim for reimbursement and have the cash in your bank the next day, but in many cases, some agencies still want to go through all those stacks of [00:07:00] receipts before they'll release the funding, and that can lead to delays, even without a situation like we're seeing now.

Blake Oliver: So Geralyn mentioned there's 26 agencies. I think that was the number that have federal grants that give federal grants or give grants to nonprofits and over 50,000 of these grants. So do they all have their own systems? You mentioned a website. Is there a single place where nonprofits go to get their funding, or is it a bunch of different places?

Harriet "Hatsy" Cutshall,: There are 2 or 3 different [00:07:30] ones, and a lot of us would wish that there would be a single portal that worked the same way in every agency. But there it's not. There are not 26 different portals. There is some some uniformity across agencies, but even within a single agency, sometimes you'll see different processes prescribed in the administrative requirements, where some will allow you to pull down your A reimbursement [00:08:00] yourself. Others want to review the the receipts where they'll send the payment. So it can really vary.

Blake Oliver: So some agencies are okay giving the money in advance and then getting a report after the fact on how it was spent. And then some require a reimbursement process.

Harriet "Hatsy" Cutshall,: Right. And you'll see that there's a OMB issues what is called uniform guidance that is interpreted sometimes not uniformly uniformly, that governs how [00:08:30] agencies can spend the money, how that money must be accounted for. So for instance, EPA may use a system that's called a payment management system, PMS. And if you're getting an EPA award, you can submit a claim for reimbursement from EPA. But you have to be able to prove that you've already incurred those expenses. It's not an advance. You get the money in advance of having to pay the bills. Some of the bills anyway, [00:09:00] but usually the agents, the recipient has already incurred those costs. So if they don't get paid quickly, they're essentially subsidizing a government program in that situation.

Jerilyn Dressler: And I just want to jump in here because I think it's important to understand that this process for contracting with the government is really complicated. And it's interesting that the payment piece is like a little bit easier, because for everything [00:09:30] else that goes within this process, it's really hard. I mean, the uniform guidance that Hattie is talking about, plus the OMB circulars, it's thousands of pages of rules and regulations. And if you want to keep contracting with the government, you have to get it right, because there is a ton of oversight. And, Hattie, you can speak to more about that, but there's like audits galore, right?

Harriet "Hatsy" Cutshall,: And on top of that, they keep tweaking that guidance. So if you don't go back in and check it periodically, you might miss something. So it's it's a lot to keep up with. And on top [00:10:00] of the accounting for those payments, as Gerrilyn alluded to, there are also specific kinds of audits that must be conducted for any organization that's receiving federal money. And over a certain threshold, there are additional there's additional rigor into the compliance aspect of that. And then in addition to an annual audit, the organization may be subject to what are called desk audits by the agencies themselves up to three years after an award [00:10:30] is concluded. And those can be sometimes more hair raising than a typical financial audit.

Blake Oliver: Do you have an example you can share with me? Like trying to understand just how rigorous these, um, these audits are or the paperwork is. Like, if I got a grant from the EPA, Environmental Protection Agency to do some sort of cleanup work, What do I have to do to get that in the first place? I [00:11:00] mean, I know there's a lot to become to get federal money, right? There's a lot that has to happen. But like, let's actually, since we don't have that much time, let's skip to I've got the grant. What do I have to do to substantiate the money? Substantiate, you know, the reimbursements or the advances that I've received?

Harriet "Hatsy" Cutshall,: Mhm. You need to first hold on to a receipt for everything you spend any, any charge for travel, for supplies, what have you, that you might charge against that grant. [00:11:30] You've got to hang on to your receipt and be able to recover it quickly. Um, during any of these audits that we've talked about, the accounting system also needs to be set up in a way to segregate the EPA award from the HUD Award, from the DOJ Award, so that so that you can prove that you're not double dipping, if you will. You're not charging the same cost more than once. And then there's compliance reporting. You have to meet certain [00:12:00] deadlines. Certain compliance reporting, both for accounting purposes and programmatic narratives are required. And, um, programmatic narratives.

Blake Oliver: That means, like I write a report that says, here's what we did.

Harriet "Hatsy" Cutshall,: Right? Exactly.

Blake Oliver: Here's what we accomplished with the money.

Harriet "Hatsy" Cutshall,: Here's here's what we said we'd do. Here's what we did, okay? And it must align. It really should align with the proposal. Unless there's been unlike you know, oftentimes things change. And you you reach [00:12:30] out to your program officer at the agency to say, here's what we're running into. Can we change this, this meeting to this location or that location or something like that? But in addition to all that, one of the areas that a lot of organizations get hung up on is the way they account for labor costs, salaries and fringe and, um.

Blake Oliver: Allocating that to different funds.

Harriet "Hatsy" Cutshall,: Putting that in a way that proves and establishes that, yes, this person worked on [00:13:00] this award on this date and, and and the money follows those time sheets or whatever method you're using.

Blake Oliver: So I'm getting the picture that I have to save receipts for every, every expense that I'm going to charge to that grant got to submit that for reimbursement or submit it at some point if I've if I've already gotten an advance to prove my expenses. Who's looking at this stuff?

Harriet "Hatsy" Cutshall,: Federal workers. Employees [00:13:30] at the agencies that.

Blake Oliver: Somebody at the EPA, if it's an EPA grant, would be responsible for reviewing.

Harriet "Hatsy" Cutshall,: And our clients get questions back sometimes for, you know, 30 a 32 cent difference. I've seen that on I've seen questions about that that held up a, you know, a $500,000 reimbursement claim. So to some extent there may be more efficient ways of doing things. But, you know, they're they're under scrutiny as public servants. [00:14:00] And so they hold the nonprofits to those standards.

Jerilyn Dressler: And Blake, I'll also I just want to mention the audits, the financial statement audits. So almost every nonprofit needs some form of an audit. It's going to, you know, depend on federal and state thresholds. But the threshold for what is it called like a government, you know, single audit, single audit, I think you had a single audit. It's $1 million. So if you get $1 million or more across any kind of agency, so it doesn't have to be just within one grant. [00:14:30] You are required to be held to this higher standard. So a lot of times, you know, CPA firms that are doing these audits will have special teams that work with organizations because it's this whole other body of knowledge like the AICPA has separate conferences, you know, just dedicated to government award accounting. We have hats and we have an entire group that is dedicated to helping our clients track, account for, manage, do the auto prep on these grants because the bar is very high. You [00:15:00] know, as far as substantiating, you know, not just the record keeping, but, you know, also said the programmatic outcomes. Again, the government doesn't want to be running a homeless shelter. You know, they pay nonprofits to achieve these aims of, you know, keeping people off the streets and preventing them from ending up there in the future. So, you know, it's all very there's a high bar. There's a, you know, a high imperative to get this right, to continue providing these services.

Blake Oliver: So the single [00:15:30] audits are provided by public accounting firms. So those are required for anyone who has a government grant over $1 million.

Harriet "Hatsy" Cutshall,: If they spend $1 million if they spend their fiscal year. Right. Okay. Mhm.

Blake Oliver: And then what's the like I don't know if this is the right way to say it, but what is the audit rate on the government side. So how often does the EPA, for instance, look at in detail at a particular grant to [00:16:00] audit it? You know, like the way an IRS, the IRS would audit a tax return or something like that. Is there a rate for this?

Harriet "Hatsy" Cutshall,: Well, the single audits for for those agencies that get us what's called a single audit, it dates back to the Single Audit Act. There's a history there. But those single audits are then made public through what's called the Federal Audit Clearinghouse. So you anybody in the public can go up and see that audit report and what they did well, what they could improve [00:16:30] and so forth, and a single audit. The bar that's the bar that gets lifted for that single audit is on compliance specifically around approvals. Are the appropriate people approving the spending and are they documenting that approval. And that's that ties up a lot of time during a single audit and can lead to, of course, higher costs and time can be time consuming, but if you keep your books in good order as you go through the year [00:17:00] and make sure you you document things the way you should, it doesn't have to be a giant paper chase at the end of the year.

Blake Oliver: I guess my question is what I'm trying to say is, or what I'm trying to get to is, you know, we've got these compliance requirements with receipts, record retention, documentation. We've got the single audit requirement. So these nonprofits have to get audited by a public accounting firm. But I guess my question is like who in the government other than looking for like [00:17:30] 32 cent differences, is auditing to make sure that the funds are being spent properly according to Congress's wishes?

Harriet "Hatsy" Cutshall,: Mhm.

Blake Oliver: Like how do we know as taxpayers, as citizens that this is happening that that it's making the difference that we want it to make.

Harriet "Hatsy" Cutshall,: Every award is assigned both a program officer whose job is to liaise with the people doing [00:18:00] the real work at the nonprofit, as well as a finance officer whose job is more related to the work that we do at Ytc. But they work together, and it's their job to ensure that whatever was put in the proposal that met standards and were accepted, that things are being conducted according to those standards. So and they report up to people higher up other other federal officials and so forth. And as I said, they [00:18:30] can come back in in up to three years after the close of an award and rifle through every paper you have or every file you have, and make sure that that single audit that they reviewed each year was up to the standards that they would expect.

Blake Oliver: How often do nonprofits lose grants because they fail to accomplish their mission?

Jerilyn Dressler: Our clients don't lose grants, right? They [00:19:00] have us. I think that's a tough question to answer just because, again, we're not interacting with those organizations. But that's always the goal. If you're in if you exist to fulfill a type of service, you want to continue to be able to do that. So, you know, it's the same with any kind of grant relationship. You have to keep showing that you're delivering on the outcomes in order to continue to, to get, you know, the money. You know, I think like you're trying to get to, you know, efficiency and oversight and, [00:19:30] you know, is that really happening? I mean.

Blake Oliver: Right.

Jerilyn Dressler: We from an oversight perspective, like we see it all the time, like our clients are in generally in close contact with those program officers. Like there's a good relationship. There's a lot of communication that's happening because those program officers have been charged With those appropriated funds? Are they getting to the right places and doing the things that Congress approved them to do? So there's a lot of conversation. Some organizations have worked with program officers for years. They know each other. [00:20:00] You know, these aren't just like shadowy figures, you know, behind a phone or something like that. There's, you know, there's there's real people there. Now, you know, I mentioned earlier, there's thousands of pages of of guidance and rules here. Could a case be made, you know, that, you know, does it have to be so onerous? Clients come to us because they just got a federal grant, and they don't have the internal controls or the structures in place to, you know, account for it. So there's a lot of nonprofits out there that could be doing great work. Yeah, the [00:20:30] government needs them to do. But like if they have very small budgets and they don't have the, you know, the financial controls in place, they cannot take that money and then be able to do what the government wants them to do.

Blake Oliver: What I'm hearing is that there are a lot of controls in place to ensure that there's proper documentation, there's proper financial statements. The audits are being done. There's a lot of audits on non-profits compared to in the private sector or for profits. [00:21:00] The one thing that I am concerned about still, is that the people in the federal government who are responsible for making sure this money is spent effectively are doing that because it's a lot of money, right? It's 300. A quick search says 303 billion in government grants is awarded over 100,000 nonprofits in the United States every year. 303 billion is is a third of our discretionary [00:21:30] spending. Something like that. It's a lot.

Jerilyn Dressler: Right?

Blake Oliver: If you think about it in a way like our government has outsourced a lot to nonprofits. Yeah. And so that's what I'm trying to understand here. And I think that's what a lot of folks are concerned about when it comes to federal spending is how do we make sure that that money, that we're not just checking boxes to make sure that that money is being spent properly, but that we're actually making sure that that money is being spent properly. [00:22:00]

Harriet "Hatsy" Cutshall,: I've I can relate an experience I've had more than once where I was on site at a I used to work for an organization that helped small rural communities help find the funding and navigate how to improve their water and wastewater treatment systems, and that were funded largely by USDA and EPA at the time. And we had program managers from both USDA and EPA on site at the job [00:22:30] sites that were being paid for with these federal dollars, not necessarily doing technical inspection, but making sure that what we said we'd do by, you know, drilling this well or putting this filtration system on that, it really got put in place, you know, came to see it and run some tests themselves if necessary. So that does happen. And that's on the shoulders of the federal employees that administer these, these grants. They go out to the field to make [00:23:00] sure the work that they're paying for is getting done.

Jerilyn Dressler: And then you also mentioned the Federal Audit Clearinghouse. So like the reports are public and then nonprofits financial information is also public. You can go on GuideStar, you can pull down the 990 of any nonprofit in the US and see how they're doing. And there's actually, um, like a metal rating system, you know, and everybody wants to get that, that highest, uh, platinum. Platinum level. Yeah. Because they want to be as transparent [00:23:30] as possible selling, telling your story, you know, through your numbers. And, you know, we help our clients a ton with this. That brings in more trust and therefore more donors and, you know, enhances the reputation of these, these organizations. So they have every incentive to get this right and be as transparent as possible with what they're doing, not only with the funds, but what are the actual outcomes of these programs that they're being paid to do.

Blake Oliver: So Jerilyn, as you mentioned, [00:24:00] when we scheduled this interview, the funds were frozen. But last night, yesterday, they were unfrozen by a judge's order. We'll see if the Trump administration complies with that. There's been questions about whether or not this will create some sort of constitutional crisis as a result, but hopefully not. So now that let's assume the funds are unfrozen, now the funds are flowing again. What is top of mind for you in this new administration when it comes to helping your clients [00:24:30] succeed? What are you what are you worried about? What are you hopeful for? Well any predictions?

Jerilyn Dressler: No predictions. At the end of the day, Blake, we are. We are accountants. You know, Patsy and I are both CPAs. We both have service clients at our firm for many, many years. We're now in different leadership roles. But you know, we're in this because we are very passionate about the work that these organizations are doing throughout their communities, and everybody who works for us feels the [00:25:00] same. And, you know, I like I said in the beginning, I do think that the general public doesn't necessarily understand the role that nonprofits play in their communities, not to mention the impact on the economy. 12.8 million people work for nonprofits around the country, and that's everything from your local food bank, you know, to your shoreline management crew who's planting, you know, native vegetation to prevent, you know, erosion to higher ed and hospitals. These are organizations that [00:25:30] are essential, ingrained in communities where people live. They're your neighbors. They're your family members. You know, there's real consequences to these services not being provided. You know, infrastructure that's part of, you know, the role that government plays as well. Bike lanes in Philadelphia. We have a very vocal nonprofit that helps attain that. And so I think if we all take a step back and think about holistically how what our quality of lives are and how they could be, that that quality could decrease [00:26:00] if these services go away. And it's the same for big cities and rural communities, too. There are nonprofits helping, you know, every step of the way. You know, we need to think about as a general voting public, you know, what do we want the people who represent us to do what's important to us? What are the values that we share? So for us, we're going to keep trudging ahead. The work that our clients do is very important to us. We are mission driven. They are mission driven, and we want to do whatever we can from an accounting perspective to help them, you know, continue to achieve [00:26:30] that mission.

Blake Oliver: Jerilyn and Hansi, thank you so much for joining me. Hansi, it sounded like you had something you'd like to add to that.

Harriet "Hatsy" Cutshall,: One further thought. In the current situation is from a more technical standpoint, we're making sure that our clients are crossing T's and dotting i's, following the administrative requirements and all their federal awards to the letter so that there cannot be so that they don't come, come under further scrutiny for [00:27:00] for not following those rules as expected.

Blake Oliver: Yeah, I that that would probably be something that we can reliably predict will come to happen is that there will be more scrutiny over the next few years on nonprofits. So cross your t's, dot your I's. Be ready for, for, uh, something somebody or some eye perhaps to dig into your numbers. Yeah. We'll see.

Harriet "Hatsy" Cutshall,: Yeah.

Blake Oliver: I've been speaking with Gerrilyn Dressler and Patsy [00:27:30] Cutshaw from Iptc. Thank you both for your time.

Jerilyn Dressler: Thanks for having us.