CohnReznick’s Government team talks about potential changes to the FEMA Public Assistance Program and how these changes might positively or negatively affect recipients and subrecipients.

Congress recently passed H.R. 5641 – Small Project Efficient and Effective Disaster Recovery Act, or the SPEED Recovery Act which, if approved by the Senate, would have lasting impacts to FEMA’s Public Assistance (PA) Program. FEMA’s PA Program provides supplemental grants to governments, as well as some non-profit organizations, so that they can quickly respond to and recover from major disasters or emergencies.

In October of 2021, Representative Sam Graves (R-MO) introduced legislation to increase the threshold for what is considered a “Small Project” to $1 million under the Stafford Act. This is intended to streamline the recovery process for jurisdictions by reducing administrative burdens during the obligation and closeout process.

When presenting the bill, Representative Graves stated that historically, Small Projects account for about 95% of recovery projects in a disaster. However, due to the threshold not being adjusted for inflation and rising repair costs, only 75% of projects are Small Projects. He also said, “this will allow communities to have more control over their disaster recovery efforts and allow FEMA to focus their time and resources on larger and more complex projects.”

Q&A with Charles Smith, Manager, and Logan Hurley, Manager, of CohnReznick’s Government and Public Sector practice 

Q. Before we discuss how the SPEED Recovery Act might affect Public Assistance programming, will you please clarify the difference between a Large Project and Small Project as defined by FEMA?

Charles: The difference between Small Projects and Large Projects is centered in how the funding is administered by FEMA. While Small and Large Projects are both often initially obligated via a cost estimate, Large Project funding is adjusted to the actual cost to complete the eligible scope of work. Alternatively, Small Project worksheets are not adjusted to the subrecipient’s actual incurred amount. FEMA determines whether a project is Small or Large based on the final project amount, including any applicable reductions such as insurance. FEMA establishes a threshold each fiscal year for implementation of Simplified Procedures which serves as the threshold for Small and Large projects. Any projects that have costs equal to or above that threshold are classified as Large Projects, and those that have costs below the threshold are Small Projects. Additionally, a minimum project threshold is established and any projects that have costs under that threshold will not be processed by FEMA. For 2022 the minimum project threshold is $3,500 and the Small Project maximum threshold is $139,800.

Q. The bill’s author says that the smaller jurisdictions don’t have enough resources to “deal with the bureaucracy at FEMA.” How might the SPEED Recovery Act help lessen the administrative burden on small communities that are participating in the FEMA Public Assistance program? 

Logan: Small Projects typically do not require as much supporting documentation in order to be obligated, reimbursed, and closed out. Often, we see that smaller jurisdictions have limited staff, and those staff have to wear multiple hats and serve in many roles.  

So, while a large city may have dedicated finance staff for each of their departments that have all received training on how to code their disaster expenses, smaller jurisdictions may be relying on a single staff person to make sure all expenses are being captured appropriately. Keeping track of costs and supporting documentation across several projects can quickly become an overwhelming task. By requiring less documentation to get a project obligated and reimbursed, these jurisdictions with limited resources will benefit from a lessened burden on the front end. Essentially, subrecipients will have more time to compile Small Project costs as they are required to by regulation. 

Charles: Also, raising the Small Project threshold to $1 million may result in FEMA shifting more of its staff resources towards focusing on developing the more complex, Large Projects. This might result in more support from FEMA with regards to developing Large Projects.

That said, increasing the Small Project threshold to $1 million will likely result in less Large Projects and, thus, subrecipients will have to spend more time developing their Small Projects. FEMA has been gradually pushing subrecipients to take ownership of their own project development for years and we expect this to be the next step in that direction. 

Q. Congressman Sam Graves alludes to the headaches that applicants deal with as it relates to getting “the help they need to recovery and rebuild.” But he doesn’t mention the administrative burden after funds are received. Let’s say this bill passes and becomes law. What types of administrative requirements do applicants still have to abide by?

Logan: Regardless of a projects size, administrative requirements still need to be adhered to. Records retention requirements require that documentation be kept for three years after the closeout of an applicant’s last project for that disaster.

FEMA implemented the Validate As You Go program, or more commonly referred to as VAYGo, after the historic 2017 hurricane season. This was required by provisions of the Appropriations Act, as well as guidance from OMB that agencies should implement additional measures to identify and address improper disaster recovery payments. During this process, FEMA samples project documentation and conducts testing to verify that the costs were properly expended by the subrecipient or applicant.

This process is currently on hold as administration evaluates how to make it most efficient, but before that pause it had been expanded to other disasters and we foresee VAYGo to return and continue to expand. If the SPEED Recovery Act passes the Senate, I think there’s possibility it starts to incorporate the review of Small Projects.

While subrecipients and recipients will benefit if less supporting documentation is required up-front to drive project obligations, project awards, and disbursements after a disaster event, subrecipients and recipients will still be required to track expenses that are directly attributable to their federal grants and adhere to all documentation retention policies regardless of project size. Failing to keep complete records to support your Small Project can result in project closeout delays and even de-obligation of funding. 

Removing “red tape” from the grant life cycle in the pre-obligation and payment phase may give applicants a false impression that they do not need to track and support Small Project costs. That’s not the case. Applicants will need to compile this information before closeout in the event of a future audit. In conclusion, the SPEED Act will very likely expedite the recovery process as it occurs right after an event but it does not remove recipients and subrecipient responsibilities to track and support costs as required by federal regulation.

Q. Can you think of any new risks recipients or subrecipients need to consider if the Small Project threshold increases to $1 million?

Logan: As touched on previously, there’s almost certainly going to be a need to increase monitoring of Small Projects. Whether that means the recipient has to be the one who implements those increased monitoring efforts, or it comes through the federal side via a VAYGo-like audit, recipients and subrecipients should be prepared to provide all cost documentation for those Small Projects, or risk losing otherwise eligible funding.

Charles: Subrecipients who have not done a great job of tracking and supporting Small Projects costs in past disasters stand to lose more funding if the Small Project threshold increases to $1 million. Recipients need to know which subrecipients need additional training on the front-end, as well as increased monitoring, to avoid questioned costs and de-obligations.

Contact

Frank Banda, CPA, CFE, CGMA, PMP, Managing Partner – Government and Public Sector Advisory

301.280.1856