The recent passage of the American Rescue Plan earmarked billions of dollars for local governments to support citizens struggling through the economic impact of COVID-19.

Throughout the pandemic, local governments have done crucial, life-saving work, but resources have been stretched thin. This latest round of funding poses fresh challenges.

Verifying Eligibility & Allowability

It’s crucial that available funds are rapidly distributed to people who urgently need financial assistance. But it’s also important that the eligibility of recipients and allowability of the funds distributed is verified.

In a climate of urgency, there is an increased likelihood that funds are dispersed to ineligible applicants or for disallowed purposes. Case and point: implementation of the PPP program and the CARES Act saw billions distributed to unqualified applicants.

Haste is not the only culprit for this mistake. Another dynamic is when conflicts of interest arise, and government employees approve funding for family, friends, and neighbors.

The American Rescue Plan Act mandates certain eligibility criteria and reporting requirements. Officials must balance quick distribution of funding with verification processes. A lot is at stake.

The Risks of Non-Compliance

Failure to enforce eligibility requirements could lead to disastrous economic and reputational consequences for local governments.

Any improperly distributed funds must be returned to the federal government, dollar for dollar. In many cases, there is a significant amount of money involved. For example, New Jersey received $2.4 billion in CARES Act funding, while Pennsylvania received nearly $4 billion. These numbers mean that even small errors could result in huge liabilities.

How to Ensure Compliance: Proactive or Reactive Approaches

Two main approaches exist to ensure American Rescue Plan funding is allocated appropriately: a proactive approach and a reactive approach.

A proactive approach sets up frameworks to ensure funds are distributed accurately from the start. Local governments work with experienced advisors, like those at Mercadien, to develop processes outlining clearly-defined procedures and controls. These will stipulate protocol for the entire funding process that can help identify errors early and give local governments insight into their potential exposure before funds are distributed.

A reactive approach is similar to an audit. An external partner takes a sample of the funding allocated, and checks approvals against eligibility requirements. This catches errors made in funds distributed and identifies corrective actions to be completed to limit potential future errors and financial exposure.

The American Rescue Plan has funding set aside for assistance in distributing funds. Consider partnering with a trusted advisor to ensure efficient operations.

How Mercadien Can Help

Local governments can benefit significantly from working with expert advisors in this area. Mercadien has an established track record partnering with local governments to effectively distribute federal funds and ensure compliance.

Our goal is to streamline processes so that funding goes to those who need it most. We’re not here to detract from the invaluable work of local governments; rather we act as a trusted partner, offering insight and guidance so that everything progresses the right way.

If you have any questions regarding the American Rescue Plan Act and what it means for your organization, please contact us at mdaly@Mercadien.com or dpatel@Mercadien.com.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought. It is possible that if additional information from the SBA, Treasury Department and/or your lender is forthcoming, our observations and comments noted herein could be materially different.