Avoid common SEFA missteps. Learn where FQHCs often stumble — and how stronger processes support accuracy and audit readiness.
For Federally Qualified Health Centers (FQHCs), preparation of your Schedule of Expenditures of Federal Awards (SEFA) should be more than an annual compliance exercise — it's a way to demonstrate stewardship of funding and maintain audit readiness.
The Uniform Guidance — particularly 2 CFR §200.502 and §200.510 — outlines the requirements for reporting federal expenditures. And yet, common errors still exist within the industry.
Purpose and requirements of the SEFA
Auditees must prepare a SEFA that includes all federal awards expended during the period, using the same basis of accounting as the entity’s financial statements. This includes identifying each federal program by Assistance Listing Number (ALN) and disclosing pass-through entities and award numbers when applicable.
Errors in the SEFA can lead to audit findings, increased scrutiny from regulatory agencies and follow-up inquiries.
We tend to see a few common errors in practice,” says Chris Manderfield, Principal. “Providing additional training and establishing a strong grants management process can help FQHCs avoid these missteps.
Common error #1: Incomplete reporting of federal expenditures
Why it happens
Incomplete SEFAs often happen when there is a lack of a robust process confirming all federal awards — across departments — are captured. Many FQHCs have a diverse funding stream that includes a mix of grants from federal agencies, state departments, and local counties and cities. Additionally, if you operate a decentralized grants management process, this can increase susceptibility for errors within your SEFA.
Why it’s important
SEFAs must include all federal expenditures for your fiscal year and are the starting point for an audit performed in accordance with the Uniform Guidance. An incomplete SEFA can result in the wrong grants being tested as major programs or an insufficient number of programs being tested.
Recommendations
- Conduct a year-over-year comparison by ALN to identify potential omissions
- Establish a standardized grant award intake process to capture key data fields (ALN, project period, award number, pass-through details)
- Involve program and development staff in periodic completeness checks
Common error #2: Incorrect treatment and presentation of pass-through and subrecipient funding
Why it happens
Grant details can change from year to year, even for an award that has existed for numerous years. The risk of this happening with funding received from a pass-through entity is even greater as the pass-through entity may elect to change the source for the pass-through funding.
Additionally, some awards contain both a federal and non-federal component to the grant. This is most common when receiving funding via a state department. When payments are received in these situations, the funding agency may not explicitly identify which funding category the payments are coming from.
If your FQHC passes federal funds to other organizations, the total provided to subrecipients must be reported. This is often missed, particularly when the amounts are embedded in program budgets rather than tracked separately.
Why it’s important
SEFAs must include the name of the pass-through entity and identifying number assigned by the pass-through entity for all subrecipient awards received (2 CFR §200.510(b)(2)). Stale pass-through identifying numbers or outdated award references can create challenges related to subrecipient monitoring and could result in a required reissuance of the SEFA.
Furthermore, SEFAs must include the total amount provided to subrecipients from each federal program.
Recommendations
- Review grant agreements at inception and maintain a centralized, version-controlled repository of all relevant grant details. This listing should include any grants that may contain a federal and non-federal component. Many times, if the funding is split between federal and non-federal, this will be noted in the grant agreement.
- Some pass-through agencies will provide an annual report to grant recipients detailing which amounts paid during the year are considered federal dollars and therefore should be reported on the subrecipient’s SEFA.
- When in doubt, reach out directly to your granting agency and request confirmation of the amount of federal dollars passed through during your fiscal year. This should also be done when there is uncertainty related to which ALN the funding should be reported under.
- Track subrecipient disbursements separately within your general ledger, in order to provide greater visibility.
Common error #3: Lack of reconciliation to the general ledger
Why it happens
FQHCs are typically familiar with the process of requesting drawdowns from the Payment Management System (PMS). However, drawdowns received from PMS may not always occur during the same fiscal year as when the expense was incurred.
Why it’s important
The SEFA is a mandatory supplementary schedule for single audits and must be prepared using the same basis of accounting as the financial statements (accrual for most FQHCs). Reconciliation works to accurately reflect all federal award spending, as required by federal regulations. The SEFA reports the amounts expended, not the amount received during the fiscal year. A SEFA that cannot be reconciled to the entity’s financial records raises audit flags and risks misstatement of federal expenditures.
Recommendations
- Prepare a formal SEFA-to-general-ledger reconciliation as part of year-end close. This should consider amounts recorded as grant revenue but not yet received (i.e., receivables) in both the current and prior years. Similarly, if amounts were advanced from a funding agency prior to incurring the necessary expenditures, the associated liability should be factored into the reconciliation.
- Use distinct grant revenue accounts within the general ledger for federally funded grants vs. non-federal grants.
- Set up classes or another dimension with your accounting system to track grant revenues and related expenditures by award, and generate a new, separate class for each project period. If financial statements are prepared on an accrual basis, reimbursable grants should reflect grant expenditures equal to or greater than associated grant revenues.
How CLA can help
CLA has extensive experience working with FQHCs and other organizations that receive annual federal funding. Performing more than 1,500 single audits each year gives us exposure to a wide variety of funding streams.
With the continued evolution of federal funding, we welcome the opportunity to talk with you about how you can strengthen your overall grants management process and establish strong controls to help avoid common errors.