• Procurement in state and local governments has evolved into a strategic function that safeguards compliance, mitigates risk, and enhances public trust.

• Best practices include modernizing systems, expanding vendor diversity, prioritizing value over cost, and strengthening workforce development.

• CFOs and procurement officers must embrace strategy, innovation, and transparency to deliver sustainable, long-term value to taxpayers.

—

In today’s complex fiscal environment, procurement in state and local governments must serve not only as a mechanism for acquiring goods and services but also as a strategic function that safeguards compliance, mitigates risk, promotes access, and delivers value to taxpayers. This article discusses what CFOs and procurement officers need to consider related to best practices, risk, and the evolving role of technology in state and local government procurement. For years, the procurement officer was seen as the organization’s gatekeeper, but their role is much more important than that — they are an organization’s risk manager, compliance protector, and strategic enabler.

Best Practices in Procurement for State and Local Governments

Procurement today is expected to balance regulatory compliance, fiscal discipline, access, and innovation. The following best practices reflect the most current standards across jurisdictions: 

• Strengthen Strategic Procurement Planning
• Modernize and Digitize Procurement Processes
• Uphold Regulatory and Grant Compliance
• Expand Vendor Diversity and Local Economic Development
• Focus on Value, Not Just Lowest Price
• Strengthen Risk Management and Contractor Oversight
• Prioritize Sustainability and Resiliency
• Enhance Transparency and Public Trust
• Invest in Workforce Development
• Adapt to Emergency and Cooperative Purchasing Needs

The following sections provide insight into how state and local governments can effectively implement these best practices.

Strengthen Strategic Procurement Planning

By strengthening strategic procurement planning, governments can align activities with broader organizational goals. This consists of:

• Centralizing or standardizing procurement policies across departments, where possible.
• Developing multi-year procurement plans aligned with budget forecasts, strategic initiatives, and grant cycles.
• Using category management (grouping similar goods/services) to leverage buying power and manage vendor performance across agencies.

Example: A city establishes a centralized IT procurement team to reduce redundant purchases across departments and better negotiate volume discounts.

Modernize and Digitize Procurement Processes

Modernizing and digitizing procurement processes streamlines operations and enhances efficiency. This consists of:

• Adopting eProcurement platforms for solicitation, bidding, contracting, and vendor communication.
• Using contract management systems to automate renewals, monitor performance, and enforce compliance.
• Verifying systems can handle hybrid work environments and providing real-time reporting on procurement activity.

Example: A county implements an eProcurement platform to manage RFPs, vendor scoring, and award transparency.

Uphold Regulatory and Grant Compliance

Upholding regulatory and grant compliance safeguards against legal pitfalls and improves  funding opportunities. This consists of:

• Training procurement staff regularly on Uniform Guidance (2 CFR 200) and other federal and state-specific requirements.
• Documenting full and open competition processes meticulously, especially when using federal grant funding.
• Preparing procurement files to withstand audits or public information requests (e.g., bids, scoring, award justifications).

Note: Federal programs often have strict procurement and documentation standards that are actively audited (e.g., EPA’s Greenhouse Gas Reduction Fund, FEMA Disaster Recovery Funds).

Expand Vendor Diversity and Local Economic Development

Expanding vendor diversity fosters local economic development and promotes access. This consists of:

• Implementing or strengthening small, minority-owned, and women-owned business engagement programs.
• Increasing the pool of potential vendors to allow broader participation.
• Using targeted outreach, training, and pre-bid meetings for underrepresented businesses.

Example: A city revises its scoring criteria for evaluating RFPs to award points based on vendor diversity criteria.

Focus on Value, Not Just Lowest Price

When appropriate, focusing on value rather than just the lowest price provides quality and long-term benefits. This consists of:

• Using best value procurement (BVP) approaches rather than defaulting to lowest bidder, which means prioritizing the overall value of a product or service and considering factors beyond just price. It involves evaluating different options based on criteria like quality, knowledge and experience, performance, and total cost of ownership, rather than solely on the lowest bid. This approach aims to increase the benefits and decrease risks associated with a procurement decision, establishing a long-term, sustainable outcome. 
• Evaluating proposals based on total cost of ownership, vendor qualifications, risk, and long-term value.
• Implementing weighted evaluation criteria with clear documentation.

Example: A school district awards an IT managed services contract after evaluating a host of factors, including service quality, scalability, and risk mitigation plans – not just cost. 

Key Principles of Best Value Procurement (BVP)

BVP is a procurement method that focuses on achieving the best overall value for a project or purchase, rather than simply selecting the lowest bid. The approach emphasizes quality, performance, and cost-effectiveness, taking into account factors such as:

1. Quality and Performance – evaluating the quality and performance of goods or services offered by vendors to make sure they meet the required standards and specifications.
2. Cost-Effectiveness – considering the total cost of ownership, including initial costs, maintenance, operation, and disposal costs, rather than just the upfront price.
3. Vendor Experience and Capability – assessing the experience, knowledge, and capability of vendors, including their history and reliability to deliver the project successfully. 
4. Risk Management – identifying and mitigating potential risks associated with the procurement process and the vendor’s ability to manage those risks effectively.
5. Innovation and Value-Added Services – encouraging vendors to offer innovative solutions and additional services that can enhance the value of the procurement.

BVP aims to make sure the procurement process results in the best possible outcome for the organization, balancing cost with quality and performance.

Strengthen Risk Management and Contractor Oversight

Strengthening risk management and contractor oversight can mitigate potential issues and enhance project success. This consists of:

• Conducting pre-award risk assessments on vendors (especially new or small firms).
• Building performance milestones and liquidated damages clauses into contracts, where appropriate.
• Increasing vendor monitoring for large projects (e.g., construction, IT systems).

Note: Many governments are now tying payment schedules to verified deliverables instead of time periods.

Prioritize Sustainability and Resiliency

Prioritizing sustainability and resiliency address environmental concerns and prepares for future challenges. This consists of:

• Including sustainability criteria in procurements, where practical.
• Sourcing vendors with green certifications (e.g., Energy Star, LEED).
• Considering supply chain resiliency and utilizing vendors with varied sourcing and continuity plans.

Example: A city requires fleet vehicle purchases that meet minimum hybrid or EV standards.

Enhance Transparency and Public Trust

Enhancing transparency builds public trust and accountability. This consists of:

• Publicly posting online the procurement opportunities, bid tabulations, and award decisions.
• Establish clear conflict-of-interest disclosures for procurement officials and evaluators.
• Respond proactively to public records requests.

Example: A state posts all RFP responses and scoring matrices within 10 days of contract awards.

Invest in Workforce Development

Investing in workforce development equips staff with the skills needed for evolving procurement demands. This consists of:

• Requiring continuing education and certifications (e.g., Certified Public Procurement Officer (CPPO), National Institute of Government Purchasing – Certified Purchasing Professional (NIGP-CPP)).
• Creating succession plans for procurement leadership and technical staff.
• Training on new risks like cybersecurity clauses, AI tools, and federal compliance changes.

Note: Workforce shortages are a significant risk and developing internal capacity is critical.

Adapt to Emergency and Cooperative Purchasing Needs

Adapting to emergency and cooperative purchasing needs allows for responsiveness and collaboration in times of crisis. This consists of:

• Creating pre-approved emergency procurement policies for disasters (e.g., waiving competitive bids temporarily with documentation).
• Leveraging cooperative purchasing agreements (e.g., Sourcewell, NASPO ValuePoint) to expedite access to competitively bid contracts.

Example: After a disaster, a county uses pre-existing cooperative contracts to quickly procure generators and emergency equipment.

Key Challenges Driving These Best Practices

1. Federal grant funding expansion with strict compliance.
2. Public pressure for transparency following high-profile procurement fraud or mismanagement cases.
3. Cybersecurity and data privacy risks in vendor selection, inflation, and supply chain instability complicating procurement timelines and budgets.
4. Sustainability goals expand the strategic role of procurement.

Modern procurement is no longer a back-office function—it is a critical component of risk management, public accountability, and strategic execution. CFOs and procurement officers must actively engage in policy design, system upgrades, and workforce development to make sure procurement delivers both value and integrity.

How MGO Can Help

At MGO, we understand the growing complexities facing state and local government procurement leaders. Our SLG team provides tailored services that help your organization modernize its procurement processes, strengthen compliance, expand vendor diversity, and mitigate risk. From strategic planning and technology implementation to workforce training and audit readiness, we work with governments to align procurement practices with broader organizational goals. With MGO’s guidance, procurement can become not just a purchasing function, but a driver of trust, accountability, and long-term value for the communities you serve. Contact us to learn more.

Written by Lee Klumpp. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com

The post Enhancing Procurement Practices: Strategic Considerations and Best Practices for State and Local Governments appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• A structured procurement cycle, from needs assessment to strategy updates, makes sure you’re compliant, fiscally responsible, and aligned with your community goals. 

• Strategic considerations such as risk management, transparency, sustainability, and technology help governments to build resilient procurement processes. 

• You should adhere to regular policy reviews and robust risk management practices to strengthen your accountability and maintain public trust. 

—

In today’s intricate fiscal landscape, procurement for state and local governments has evolved beyond simple acquisition. It now serves as a strategic function that balances regulatory compliance, fiscal discipline, access, and innovation. This article provides a detailed exploration of procurement processes, key considerations for management, best practices, and risk management, offering valuable insights for CFOs, controllers, business managers, and procurement officers.

What Does the Procurement Cycle Look Like?

The procurement cycle to purchase or obtain goods and services for state and local governments is a multifaceted journey that requires careful planning and execution at every stage. From initial planning and needs assessment to the final closeout and lessons learned, each phase is critical in making sure procurement activities align with strategic goals and deliver value to the community.

This section outlines the key considerations at each stage of the procurement process, providing a comprehensive framework for effective management. By focusing on activities like confirming funding sources, drafting solicitations, evaluating proposals, awarding contracts, and monitoring performance, government entities can navigate the complexities of procurement with confidence. These considerations are designed to maintain fairness, transparency, and compliance while prioritizing best value and sustainability. Through diligent attention to these aspects, procurement professionals can enhance their strategies and contribute to the successful achievement of organizational objectives.

Procurement Process for State and Local Governments

The diagram above depicts the entire procurement cycle for an individual transaction from the initial award through the procurement closeout and lessons learned. However, this relates to an individual procurement – the process is much more complicated and there are some additional steps that are just as important including monitor contract performance, conduct post-contract review, and update procurement strategies. A structured procurement process is essential for achieving strategic alignment and fiscal responsibility. 

Step 1: Identify Needs

The procurement journey begins with identifying the specific needs of the government entity. This involves a thorough assessment of requirements to make sure that procurement aligns with the organization’s strategic objectives. Engaging stakeholders early in the process can help clarify needs and set the stage for successful procurement.

Step 2: Develop Procurement Plan

Once needs are identified, the next step is to develop a procurement plan. This plan should align with the strategic objectives and budget so that procurement activities support broader organizational goals. A well-crafted procurement plan serves as a roadmap, guiding the entire process and helping to manage resources effectively.

Step 3: Conduct Market Research

Conducting market research is crucial to understanding the vendor landscape. This step involves identifying potential vendors, including diverse suppliers and cooperatives, to establish a competitive and inclusive procurement process. Market research helps uncover opportunities for cost savings and innovation.

Step 4: Draft and Issue Solicitation

With market insights in hand, the next step is to draft and issue a solicitation. Whether it’s a Request for Proposal (RFP), Invitation for Bid (IFB), or Request for Quotation (RFQ), the solicitation must include a clear scope and evaluation criteria. This allows vendors to understand the requirements and can provide accurate and competitive responses.

Step 5: Evaluate Responses

Evaluating responses is a critical phase where the best value approach is applied. Using a scoring matrix helps objectively assess each proposal, bid or quote against predefined criteria. This provides transparency and fairness in the selection process, leading to the best possible outcome for the government entity.

Step 6: Negotiate and Award Contract

After evaluating responses, negotiations with the selected vendor begin. This step involves finalizing terms and confirming proper documentation and notice of the award. Effective negotiation can lead to better contract terms and conditions, benefiting both the government and the vendor.

Step 7: Monitor Contract Performance

Monitoring contract performance is essential to making sure deliverables are met and payments are made according to the contract terms. Tracking risk indicators and maintaining open communication with vendors helps mitigate issues for project success.

Step 8: Conduct Post-Contract Review

Once the contract is completed, conducting a post-contract review provides valuable insights. This step involves evaluating vendor performance and identifying lessons learned. Such reviews are crucial for continuous improvement and enhancing future procurement activities.

Step 9: Update Procurement Strategies

The final step is to update procurement strategies based on data and insights gained from the post-contract review. This continuous improvement approach helps procurement processes remain effective and responsive to changing needs and market conditions. By following these nine steps, state and local government CFOs and procurement officers can streamline procurement processes, achieve strategic alignment, and meet fiscal responsibility. Embracing these best practices will lead to more efficient and effective use of public funds, ultimately benefiting the communities they serve.

Key Considerations in the Procurement Process

The following demonstrates the stages of the procurement process, the related activities, and key considerations for management: 

Other Key Strategic Considerations Throughout Procurement

Strategic considerations extend beyond the immediate transactional aspects. These considerations encompass a broader spectrum of questions that make sure the procurement process not only meets immediate needs, but also aligns with overarching goals and values. Addressing these critical questions is essential for fostering a procurement environment that is compliant, equitable, transparent, and resilient. By focusing on regulatory compliance, risk management access, transparency and public trust, best value, sustainability and resilience, and technology enablement, governments can enhance their procurement strategies to deliver long-term value and maintain public trust.

This section explores these key strategic considerations, providing a framework for thoughtful and effective procurement practices.

How Often Should Procurement Policies and Procedures be Reviewed?

Procurement policies should be formally reviewed at minimum every two to three years. Interim updates may occur more frequently, especially when regulations change, audit findings arise, or new technologies are implemented. Proactive management oversight makes sure policies remain current, enforceable, and aligned with strategic goals.

Procurement Risk Management Checklist

Effective procurement requires a robust risk management strategy. The following checklist outlines key risk categories, areas of concern, and best practice risk mitigations:

1. Compliance Risk

• Key Risk Areas: Inadequate competitive bidding; missing federal documentation
• Best Practice Mitigation: Train staff on requirements under the Uniform Guidance (2 CFR 200) and state laws; use standardized checklists; conduct pre-issuance legal reviews

2. Financial Risk

• Key Risk Areas: Vendor overcharges; contract overruns
• Best Practice Mitigation: Include cost control clauses; milestone payments; regular audits

3. Operational Risk

• Key Risk Areas: Vendor non-performance; supply delays
• Best Practice Mitigation: Prequalify vendors; build performance benchmarks and termination clauses

4. Reputational Risk

• Key Risk Areas: Conflicts of interest (COI); favoritism; transparency concerns
• Best Practice Mitigation: Publish solicitations, bids, and awards publicly; require COI disclosure

5. Strategic Risk

• Key Risk Areas: Misalignment with goals (e.g., sustainability)
• Best Practice Mitigation: Include evaluation criteria for strategic priorities; monitor key performance indicators (KPIs) after award

6. Cybersecurity Risk

• Key Risk Areas: Vendor access to sensitive systems/data
• Best Practice Mitigation: Require minimum cybersecurity standards; conduct IT security reviews pre-award

By embracing these best practices and considerations, state and local governments can streamline procurement processes, mitigate risks, and enhance public trust, ultimately benefiting the communities they serve.

How MGO Can Help

At MGO, we understand the complexities of public sector procurement and the importance of balancing compliance, efficiency, and strategic alignment. Our State and Local Government team provides tailored consulting, audit, and risk management services to help state and local governments strengthen procurement processes, safeguard public funds, and enhance community outcomes.

Whether you need support with policy reviews, compliance oversight, or implementing technology-driven solutions, MGO is here to help your organization achieve greater accountability and impact. Contact us to learn more.

Written by Lee Klumpp. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com

The post Understanding Procurement Risk Management appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The One Big Beautiful Bill Act accelerates clean energy tax credit deadlines and tightens eligibility for state and local governments and Tribal nations.

• Key credits for EV fleets, charging stations, and clean power generation now require faster project timelines to qualify.

• Acting now could help your government or Tribal nation preserve access to millions in federal clean energy funding before it disappears.

—

In recent years, federal incentives have made it easier for state and local government and Tribal nations to fund sustainability projects such as electric vehicle (EV) fleets, charging stations, and renewable energy power infrastructure. But many of these benefits are now expiring sooner than expected.

The One Big Beautiful Bill Act (OBBBA) accelerates the deadlines and narrows the eligibility criteria for several cornerstone energy tax credits. These changes are already affecting planning decisions for fiscal year 2025 and beyond. If you don’t take action soon, your government or Tribal nation could lose access to millions of dollars in direct federal support for clean energy projects.

From the IRA to OBBBA: How We Got Here

When Congress passed the Inflation Reduction Act (IRA) of 2022, it dramatically expanded clean energy incentives across the country. Most notably, it introduced elective pay (also called direct pay) starting with tax years beginning after December 31, 2022 — giving state and local governments and Tribal nations the ability to receive the full value of qualifying clean energy tax credits as a cash payment from the IRS even if they have no federal tax liability.

The elective pay option helped governments, Tribes, and nonprofits (tax-exempt) launch projects that previously lacked financial viability. However, with the passage of the OBBA on July 4, 2025, new restrictions are coming into play. Understanding these changes is essential if you want to stay on track — and fully capture the credits you’re eligible for.

What’s Changing — and What It Means for Your Government or Tribal Nation

Several key clean energy tax credits have been modified under the OBBBA. Here’s what’s changing and how it could affect your clean energy initiatives:

Commercial Clean Vehicle Credit (§45W)

If your government or Tribal nation is planning to transition to electric buses, trucks, or light-duty fleet vehicles, this credit likely plays a critical role in your funding model.

Previous Rule:

Credit available through December 31, 2032

OBBA Update:

Accelerated expiration — vehicles must be placed in service by September 30, 2025

Credit Value:

• Up to $7,500 per vehicle under 14,000 pounds
• Up to $40,000 per vehicle over 14,000 pounds

What This Means for You:

Fleet upgrades must be finalized soon. Procurement and delivery timelines are critical — if vehicles aren’t placed in service by the deadline, you may miss out entirely.

Alternative Fuel Infrastructure Credit (§30C)

If you’re installing EV charging stations or alternative fuel infrastructure (like hydrogen), this credit directly offsets installation costs.

Previous Rule:

Available through December 31, 2032

OBBA Update:

Accelerated expiration — equipment must be placed in service by June 30, 2026

Credit Value:

• 6% base credit, up to $100,000 per unit/port
• 30% credit when prevailing wage and apprenticeship requirements are met

What This Means for You:

If you have eligible projects in the pipeline, now is the time to accelerate timelines — ideally placing ports in service by the end of the current calendar year. This strategy could help you preserve credit eligibility.

Clean Electricity Investment and Production Credits (§48 and §48E)

These credits apply to large-scale clean energy generation projects — including solar, wind, and other qualifying technologies.

OBBA Update:

• Construction on wind and solar projects that begins by June 2026 (12 months from the passage of the OBBBA) is not subject to the accelerated placed-in-service date. These projects can be placed in service within four calendar years after the year construction begins.
• Accelerated timeline applies to wind and solar projects starting construction after June 2026. These projects must be placed in service by December 31, 2027.
• Prohibited foreign entity restrictions and material assistance applies for projects starting construction in 2026 or later, disqualifying projects with certain supply chain components.

Credit Value:

• 6% to 70% for investment credit
• Production credit varies depending on source and place-in-service date. Credit is between 0.3 cents to 2.8 cents/kWh.

What This Means for You:

Project lead times are long, especially for solar and wind. Now is the time to meet with relevant departments to identify project timelines and prioritize needs to begin construction by mid-2026. You should also assess any foreign involvement in current or planned energy projects as materials or partnerships linked to prohibited foreign entities could affect eligibility starting in 2026, and why starting construction by December 31, 2025, may be necessary for eligibility.

What You Should Do Now

These accelerated timelines mean waiting is no longer an option. To protect your ability to access elective pay and federal clean energy credits, you should:

• Engage tax and legal advisors immediately to review your current project portfolio and identify which initiatives can realistically meet the new requirements. Consider safe harbor strategies that might preserve current credit rates for projects already in development.
• Accelerate project timelines for any clean energy projects in your pipeline. Review permitting, financing, and construction schedules to ensure they align with new deadlines.
• Secure allocations and submit documentation now rather than waiting for more convenient timing. The administrative processes for these credits can be complex and time-consuming.
• Coordinate across departments to ensure your legal, tax, engineering, and procurement teams are aligned on the urgency of these changes and new timeline requirements.
• Explore transitional provisions or grandfathering opportunities that might apply to projects already in your planning pipeline.
• Stay agile with your project planning given ongoing legislative uncertainty around continued support for renewables under current terms.

Why These Changes Matter to Your Government or Tribal Nation

These credits represent not just funding — but flexibility. They make it possible to stretch your budget, pursue larger projects, and deliver visible environmental and economic benefits to your community. With federal support shifting, your ability to act decisively today will shape your portfolio for years to come. Delays now could mean leaving millions in funding on the table.

How MGO Can Help

Our team of experienced Tax Credits and Incentives professionals helps state and local governments and Tribal nations navigate the evolving clean energy tax landscape with confidence. We work closely with you to assess project eligibility, interpret the latest credit rules, and prepare the documentation required to claim elective pay. Don’t miss out on this critical funding for your government or Tribal nation — reach out to our team today.

The post New Clean Energy Credit Deadlines Are Here — Is Your Government or Tribal Nation Ready? appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Energy tax credits like §45W and §30C face 2025/2026 phaseouts, placing urgency on electric vehicle (EV) and charging station timelines for businesses planning capital expenditures.

• Many mid-market companies haven’t aligned project timelines with placed-in-service deadlines, risking partial or lost clean energy credits.

• Wage rules, documentation, and foreign-sourcing bans can disqualify credits — early compliance checks help preserve full tax benefit.

—

For many businesses, the Inflation Reduction Act (IRA) was a green light to pursue electric vehicles, charging infrastructure, and other sustainable projects — backed by strong federal tax incentives. But in 2025, the rules have changed. And companies that haven’t adapted to new deadlines and eligibility requirements may leave valuable credits behind.

Tax provisions like §45W and §30C — which offer up to $7,500/$40,000 per EV and $100,000 per charging port — remain available. But with stricter placed-in-service timelines, prevailing wage requirements, and supply chain sourcing restrictions now in effect, the process has grown more complex.

At MGO, we’ve seen a growing sense of urgency among tax leaders and CFOs looking to retain the full value of these incentives. The common thread? It’s not enough to start building — you need to verify that your timeline, documentation, and sourcing all meet current standards.

What’s Changing — and Why It Matters

Businesses investing in clean energy may qualify for:

• §45W Commercial Clean Vehicle Credit: Up to $7,500 per eligible EV under 14,000 pounds (cars, vans, trucks, etc.) and up to $40,000 per eligible EV over 14,000 pounds (school buses, semi-trucks, etc.)

• §30C Alternative Fuel Infrastructure Credit: Up to $100,000 per qualified charging port

• § 48 (Pre-2025) Investment Tax Credit for Energy Property/§ 48E Clean Electricity Investment Tax Credit: 6% of qualified investment increased to 30% if a taxpayer meets prevailing wage and apprenticeship requirements or exceptions. Eligible to be transferred to an unrelated taxpayer.

But, beginning in 2025, these credits are affected by key IRS updates. Most notably:

• Credits are tied more strictly to placed-in-service deadlines

• For EVs, the deadline to place in service is September 30, 2025

• For charging ports, the deadline to place in service is June 30, 2026

• For wind and solar, allowed to be placed in service in four calendar years if construction occurs prior to June 30, 2026; if not, then deadline is December 31, 2027

• Bonus credits now require detailed compliance with wage and apprenticeship standards

• The foreign entity of concern rule may limit credit access based on component sourcing, particularly for EV batteries

In short, technical compliance now carries real financial consequences. Projects that would have qualified two years ago may fall short today — even if the investment itself hasn’t changed.

Where CFOs Stand on Readiness

During a recent MGO webinar, we asked mid-market tax leaders how ready they felt for the upcoming shift. Their responses reflected a common trend:

• 40% said they were not prepared

• 30% were somewhat prepared

• Only 5% were fully prepared

• 25% said it was not applicable to their business

This signals a significant planning gap. Despite rising investment in electric fleets and infrastructure, many companies haven’t realigned their tax strategy to fit the changing requirements. Without that alignment, even well-intentioned efforts can lose value.

Key Areas Where Companies Face Risk

Several issues have emerged as common barriers to full credit access:

• Project delays that affect placed-in-service eligibility

• Inconsistent wage documentation that disrupts bonus credit calculations

• Foreign-sourced components that invalidate certain credits

• Disconnection between tax and operations, leading to missed planning windows

As these rules evolve, companies that aren’t regularly reviewing their compliance posture may struggle to capture the full benefits — or may face clawbacks if later audited.

Planning Priorities for 2025

To prepare for the upcoming changes and protect your tax position, MGO recommends focusing on four core actions:

1. Check Placed-in-Service Schedules 

Review your project timelines to confirm that EVs, chargers, or facilities will be operational before IRS deadlines. Delays — even short ones — can affect eligibility. 

2. Coordinate with Tax Early

Bring your tax team into capital expenditure planning discussions to evaluate credit exposure and prioritize projects with the most favorable timelines and tax treatment.

3. Review Wage and Sourcing Documentation

Work closely with contractors and procurement teams to track wage compliance and verify sourcing for battery or component parts.

4. Run Credit Risk Scenarios 

Model potential loss of credits based on current projections, and adjust project sequencing or vendors accordingly to maintain incentive value.

How MGO Supports Clean Energy Credit Planning

MGO works with businesses across industries to evaluate, strengthen, and align your approach to energy tax incentives. Our teams help assess eligibility, document compliance, and provide the analysis you need to make informed decisions — especially as 2025/2026 deadlines draw closer.

If your organization is investing in EVs, charging stations, or energy property, now is the time to revisit how those projects connect to your tax strategy. Reach out to our Tax Credits and Incentives team today for support.

The post Clean Energy Tax Credits: 2025 Deadlines and Strategy appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Proactive compliance risk assessments help state and local governments avoid funding clawbacks, penalties, and reputational damage.

• Strong internal controls, continuous monitoring, and staff training are essential for preventing improper payments and managing regulatory complexity.

• Integrating compliance into broader risk management frameworks builds financial resilience and reinforces public trust.

—

Part III: Ensuring Compliance and Financial Integrity – Preventing Improper Payments and Managing Regulatory Risk

This is the final installment in our series, Navigating Fiscal Uncertainty. Having explored budgetary and revenue risks, we now turn to compliance — a cornerstone of public sector accountability.

—

Introduction

In an environment of heightened fiscal scrutiny and increasing regulatory complexity, compliance is not just a legal requirement – it is a cornerstone of public trust and financial integrity. For state and local governments, the prevention of improper payments and adherence to regulatory mandates are essential for maintaining both fiscal discipline and the public’s confidence. In Part III of our series, we explore how to conduct compliance risk assessments, prevent improper payments, and establish robust internal controls to manage regulatory risk.

Understanding Compliance Risk

Compliance risk encompasses the challenges associated with making sure all financial operations meet statutory, regulatory, and internal standards. For state and local governments, noncompliance can result in:

• Funding Clawbacks: The return of funds due to noncompliance.
• Penalties and Legal Challenges: Potential fines, litigation, or sanctions under laws such as the False Claims Act.
• Reputational Damage: Eroding the public’s trust in the management of government funds.

Example:

A local government might face a situation where insufficient documentation for vendor payments triggers an audit, resulting in the recovery of funds and significant negative media coverage. Such incidents underscore the importance of rigorous compliance measures.

Approaching a Compliance Risk Assessment

1. Inventory Regulatory Requirements

Mapping the Regulatory Landscape: Begin by identifying all applicable regulations – from federal requirements (such as 2 CFR Part 200 and OMB circulars) to state-specific mandates and internal policies.

Items to Consider:

• What specific federal, state, or local regulations govern your operations?
• Are there any recent regulatory changes that impact your current processes?
• How are these requirements documented and communicated across the organization?

Develop a Compliance Matrix: Create a detailed compliance matrix that links each regulatory requirement to specific internal controls and reporting deadlines. This matrix acts as a roadmap to make sure no requirement is overlooked.

Example:

A county government may develop a matrix that clearly outlines deadlines for submitting grant expenditure reports, documenting employee time for federally funded projects, and procedures for vendor verification. This matrix is reviewed regularly to make sure it reflects current regulations.

2. Evaluate Internal Policies and Controls

Review and Gap Analysis: Conduct a thorough review of existing internal policies, procedures, and controls. Compare these against the compliance matrix to identify any gaps or areas that need improvement.

Items to Consider:

• Are current policies up to date with the latest regulatory requirements?
• What internal controls are in place to prevent improper payments?
• How is documentation managed, and are records readily accessible in the event of an audit?

Documentation Practices: Establish rigorous documentation standards for all financial transactions, approvals, and compliance-related communications. Effective documentation is the first line of defense in audits and regulatory reviews.

Example:

A state department might notice through internal audits that certain expense claims are not supported by adequate documentation. By revising internal guidelines and conducting training sessions, the department improves its record-keeping practices, thereby reducing the risk of noncompliance.

3. Implement Continuous Monitoring and Training

Internal Audits and Real-Time Monitoring: Schedule regular internal audits focusing on high-risk areas like payroll, vendor payments, and subrecipient oversight. In parallel, use compliance management software to monitor key indicators in real time.

Items to Consider:

• What frequency is appropriate for internal audits of high-risk areas?
• Which automated tools can provide early warnings of compliance issues?
• How are audit findings communicated and remedied?

Employee Training and Culture: Invest in ongoing training programs for finance and administrative staff to make sure everyone understands regulatory requirements and proper procedures. Cultivating a culture of compliance helps prevent errors and fraud before they occur.

Example:

A municipal finance department might institute quarterly compliance training sessions and utilize an online learning platform to keep staff updated on new regulatory changes. This proactive approach not only minimizes errors but also reinforces the importance of ethical financial management.

4. Preventing Improper Payments

Segregation of Duties and Pre-Payment Reviews: Implement robust internal controls that separate the responsibilities for authorizing, processing, and reconciling payments. Pre-payment reviews are crucial to make sure each disbursement is supported by the necessary documentation.

Items to Consider:

• Are there clear, defined roles in the payment process to prevent conflicts of interest?
• What checks are in place to verify that payments align with approved budgets and vendor contracts?
• How are duplicate or erroneous payments detected and prevented?

Automated Detection Tools: Leverage technology like AI-driven analytics and duplicate payment detection systems to flag anomalies. These tools can analyze large volumes of transactions to identify irregular patterns that might indicate improper payments.

Example:

A local government might adopt a financial software system that automatically compares vendor invoices with contract terms. When discrepancies are detected – like a duplicate invoice or an invoice that exceeds the agreed-upon amount, the system alerts the finance team for further review.

Key Considerations and Concerns

• Evolving Regulations: The regulatory environment is continually changing. CFOs must stay informed about legislative updates and adjust internal controls accordingly.
• Subrecipient and Vendor Oversight: For organizations that distribute funds to subrecipients or rely on multiple vendors, making sure all partners comply with guidelines is essential. Lapses in oversight can have cascading effects on overall compliance.
• Integration with Overall Risk Management: Compliance should be integrated with broader risk management processes. This established that financial, operational, and regulatory risks are not viewed in isolation but are addressed holistically.

Strategic Recommendations for Compliance

• Build a Comprehensive Compliance Framework: Integrate compliance risk assessments into your overall risk management strategy. Use a combination of internal audits, automated monitoring tools, and periodic external reviews to establish ongoing compliance.
• Regularly Update Training Programs: Keep all employees informed about the latest regulatory changes and internal policy updates. Regular training and clear communication channels help reinforce a culture of accountability.
• Engage External Expertise: Consider partnering with third-party auditors or consultants to provide an objective assessment of your compliance framework. This external perspective can highlight blind spots and offer recommendations for improvement.
• Establish Clear Reporting Channels: Implement secure, anonymous channels for staff to report potential compliance issues or irregularities. An effective whistleblower program not only detects problems early but also reinforces organizational commitment to integrity.

Establishing compliance and preventing improper payments is a critical component of financial management for state and local governments. Through comprehensive compliance risk assessments, robust internal controls, continuous monitoring, and ongoing staff training, CFOs and directors of finance can safeguard public funds and maintain the trust of their communities. By proactively addressing compliance challenges, organizations can minimize legal risks, avoid funding clawbacks, and build a resilient financial infrastructure capable of withstanding future uncertainties.

Series Conclusion: A Proactive Roadmap to Fiscal Resilience

This three-part series has explored the essential elements of managing fiscal uncertainty in state and local government finance. We began with budgetary risk management – emphasizing realistic forecasting, monitoring, and contingency planning. We then examined revenue risk assessments – focusing on diversification, accurate forecasting, and cash flow strategies. Finally, we addressed the critical area of compliance – outlining how to prevent improper payments and manage regulatory risks effectively.

For CFOs and directors of finance, the challenges are significant, but so too are the opportunities. By integrating these risk assessments into strategic planning, leveraging technology, and fostering a culture of transparency and accountability, financial leaders can transform uncertainty into a catalyst for innovation and long-term stability. In doing so, they not only protect public funds but also reinforce the trust that the community places in its government institutions.

As you work to build a resilient financial framework, consider the insights and strategies outlined in this series as a roadmap to navigating today’s complex fiscal environment. Whether you are refining your budgetary forecasts, diversifying revenue streams, or enhancing compliance protocols, proactive risk management will empower your organization to thrive in even the most uncertain times.

How MGO Can Help

At MGO, we understand the unique compliance challenges facing state and local governments. Our experienced team works with public sector leaders to conduct detailed compliance risk assessments, strengthen internal control environments, and implement real-time monitoring systems that reduce your risk of improper payments. We also keep your teams informed and aligned with the latest regulatory changes.

Whether you’re building a compliance matrix, managing subrecipient oversight, or integrating compliance into your broader risk strategy, MGO delivers the experience and the tools to help you stay compliant, protect public funds, and uphold the trust of your community. Contact us to learn how we can support you in creating a stronger, more resilient financial future.

Written by Lee Klumpp. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com

The post Navigating Fiscal Uncertainty: Risk Management Strategies for State and Local Governments  — Part Three appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Clear, consistent classification of direct and indirect costs is critical for maximizing grant utilization and making sure you’re compliant.
• Choosing the right indirect cost recovery strategy (NICRA or de minimis) directly impacts a grant recipient’s ability to recover operational expenses.
• Misclassification or inconsistent treatment of costs can jeopardize your financial reporting accuracy and the long-term health of grant-funded programs.

—

Bottom Line Up Front

Grant recipients navigate multiple complexities when managing federal financial assistance, including defining costs as indirect or direct and selecting the most appropriate indirect cost recovery strategy to maximize utilization of grant funds and cost recovery. Further, a lack of clarity and understanding of the associated cost accounting practices and consistency of treatment of certain costs as direct or indirect can cause serious compliance challenges for grant recipients. 

In an environment where acceptable indirect cost rates is a topic of discussion and scrutiny from several federal grant-making agencies, it is critical for grant recipients to understand their current indirect cost methodologies and be prepared to revisit or adjust their strategies going forward to protect or enhance financial health.

What Are Direct and Indirect Costs?

Direct costs are costs grant recipients can attribute specifically to program operations, which are reimbursed at the full level of the cost allocated to the grant. Indirect costs refer to costs a grant recipient cannot easily assign directly to a particular cost objective that help manage the administrative functions of their operations (e.g., overhead costs). Indirect costs are charged to an award as a percentage of the direct costs, allowing grant recipients to recover the costs of these operational activities that cannot be directly attributed.

Since grant recipients incur both direct and indirect expenses, they must consider their cost methodologies in a way to fairly represent their operational expenses so they can accurately charge program expenses against grant funds. Reporting an ineffective or inaccurate indirect cost allocation methodology or making poor strategic decisions for direct and indirect cost treatment can risk the underutilization of grant funds that may jeopardize the financial health of the grant-funded program.

Some grant recipients find it challenging to appropriately identify expenses as direct or indirect as certain types of costs may fall into either category or overlap depending on the organization’s structure and/or cost accounting practices. Therefore, its critical for grant recipients to establish clear and consistent methodologies for how such costs are treated.

Examples of Direct and Indirect Costs

Note: If a grant recipient is choosing to identify cost types detailed above as a direct cost to a specific program or activity, it must also similarly attribute such expenses as direct costs to all other specific programs or activities it operates, regardless of funding source, and can only consider remaining items that truly support all operations in their indirect pool.

Applying Costs Against Awarded Grant Funds

Effective allocation of costs is critical to ensure expenses are appropriately charged to each program or activity and that the grant recipient can accurately track and report the charges to a grant program on its financial reporting. This includes the detail of costs included on a grant recipient’s invoices or reimbursement requests and its Federal Financial Reports (SF-425), a reconciliation the grant recipient is required to submit periodically that illustrates the financial health of the grant-funded program or activity.

There are different methodologies to calculate the amount of indirect costs charged to the grant. Grant recipients may elect to establish a Negotiated Indirect Cost Rate Agreement (NICRA), which is calculated based on the specific indirect costs incurred by each organization and reviewed and negotiated with the organization’s cognizant or oversight agency (the agency that represents the largest proportion of funds received by the organization). Establishing a NICRA allows a grant recipient to reflect the full cost to run its business and elect the most effective or appropriate distribution basis against which its indirect rate will be applied. Once in place, a NICRA must be accepted by any federal funding agency.

Recipients who choose not to (or may not be eligible to) pursue a NICRA can use the de minimis rate established in 2 CFR 200.414(f). This allows organizations without a current NICRA to use an indirect cost rate up to 15% (increased from 10% as of Oct. 1, 2024) of Modified Total Direct Costs (MTDC) charged to the grant. MTDC are direct costs, excluding equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward in excess of $50,000 (increased from $25,000 as of Oct. 1, 2024).

Examples of Direct and Indirect Costs

How MGO Can Help

Navigating federal grant compliance requirements can be complex, but you don’t have to do it alone. MGO’s State and Local Government team works closely with grant recipients to review cost allocation methodologies, assist with indirect cost rate development, and identify opportunities for better financial management and recovery. Whether you’re unsure how to classify certain costs or you need guidance on improving your reporting accuracy, our team can help you develop practical, defensible strategies that stand up to audit scrutiny and safeguard your funding. Contact us to learn more.

Written by David Clark and Dan Grossman. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com

The post Cost Category Considerations for Grant Recipients appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Changing government auditors is a strategic move that impacts transparency, compliance, and public trust.

• To make a smooth transition, focus on legal requirements, institutional knowledge, and communication style.

• Choosing an audit firm with deep public sector experience can deliver long-term value beyond just the lowest bid.

—

For state and local governments, changing auditors isn’t just a matter of compliance — it’s about trust, transparency, and public accountability. Whether you’re making a required rotation or looking for a fresh perspective, choosing a new audit firm involves more than a cost comparison. It’s an opportunity to reassess how your audit function supports your mission, enhances internal controls, and maintains the public’s confidence.

If you’re preparing to transition audit firms, here are five essential moves to keep your agency on track:

1. Align the Switch With State Requirements and Oversight Bodies

Unlike private companies, you operate in a regulatory environment that blends state laws, federal grant requirements, and oversight from entities like the Government Accountability Office (GAO) or single audit requirements under Uniform Guidance. Before you change auditors, take time to map out the legal and procedural requirements specific to your jurisdiction.

Some questions to ask yourself:

• Is auditor rotation required by statute or policy?

• Do procurement rules mandate an RFP process?

• Are there any reporting deadlines tied to federal funding that might impact your timing?

Failing to align with these standards can delay your financial statements or risk your standing with grantors. Check with your finance team and legal counsel to confirm compliance before moving forward.

2. Look for Government-Specific Experience

Auditing a city, county, school district, or special district isn’t the same as auditing a corporation. You need an audit team that understands fund accounting, GASB standards, budgetary compliance, and the unique challenges of public sector operations — like pension obligations, enterprise funds, or capital project reporting.

Ask potential firms:

• Do you have experience with similar-sized government entities?

• How familiar are you with GASB updates that affect our reporting?

• Can you provide guidance on complying with the Uniform Guidance if we receive federal funds?

This isn’t about general financial knowledge — it’s about understanding how to apply that knowledge in the context of the public good.

3. Create a Transition Plan That Protects Institutional Knowledge

A smooth transition isn’t automatic. If your previous auditors have been with you for years, they’ve likely developed deep institutional knowledge that won’t appear in a handoff memo. Losing that knowledge can affect the audit timeline and your team’s efficiency.

Start planning early:

• Assign a staff lead to coordinate the transition.

• Facilitate the successor auditors’ inquiries of the predecessor auditors by providing contact information early.

• Document major accounting treatments, past audit findings, and any open recommendations.

The more clarity you provide up front, the faster the new firm can ramp up — and the less disruption your internal team will face during the change.

4. Evaluate Communication Style and Accessibility

You know that a government audit doesn’t just result in a report — it may be discussed at public meetings, reviewed by oversight boards, or used by external stakeholders to assess performance. That makes the auditor’s communication style a critical factor.

When meeting with candidates, look for:

• Responsiveness: Will they answer questions promptly during audit season?

• Clarity: Can they explain complex issues in plain language to council members or board trustees?

• Proactiveness: Will they flag potential issues early instead of waiting until the final report?

A firm that keeps you informed and is available throughout the process can help you avoid surprises — and prepare you for responding to public scrutiny if tough questions arise.

5. Balance Cost With Public Value

Budgets are tight, and it’s tempting to go with the lowest bid. But remember — the audit is a public trust tool, not just a procurement line item. A low-cost provider who lacks specific government knowledge or experience may cost more in the long run if the audit takes longer or puts federal funding at risk.

Instead of focusing only on fees, ask:

• What’s included in the base fee? Are there charges for follow-up work or extra support?

• How many hours will be dedicated to planning and fieldwork?

• What’s your track record for completing audits on time?

Value means more than price — it’s about what you’re getting in return, and how the audit supports your long-term goals for transparency, accountability, and operational excellence.

Make the Move With Confidence

Switching auditors is more than a change in paperwork — it’s a strategic move that reflects your values and commitment to sound governance. When done thoughtfully, the transition can bring fresh insights, stronger internal controls, and more effective use of public resources.

Take the time to choose an audit team that understands the public sector, recognizes your operational complexities, and communicates clearly with your leadership. Because at the end of the day, this isn’t just about compliance — it’s about credibility.

How MGO Can Help

We help governments like yours navigate auditor transitions with clarity and confidence. With one of the largest and most experienced State and Local Government practices in the nation, we bring deep knowledge of GASB standards, single audit requirements, and performance expectations to support your goals for transparency, accountability, and operational excellence.

Reach out to our team today to find out how we can meet your audit needs.

The post Is Your Government Changing Auditors? Don’t Skip These 5 Steps appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• State and local governments should actively assess the reliability and timing of revenue streams to avoid disruptions caused by overreliance on volatile sources.

• Scenario-based forecasting, which is informed by historical trends and external factors, helps finance leaders plan for best, base, and worst-case outcomes.

• Maintaining liquidity reserves and exploring diverse funding sources, such as service fees or public-private partnerships, can protect against shortfalls and enhance your fiscal resilience.

—

Part II: Revenue Risk Assessments — Diversification, Forecasting, and Cash Flow Strategies

This article is Part II of our series on Navigating Fiscal Uncertainty. Building on our discussion of budgetary risk, we now turn to revenue risk — the unpredictability of income that can undermine even the most well-crafted financial plan.

—

Introduction

Revenue stability is the lifeblood of any public sector organization. For state and local governments, the challenge is not only to predict revenue flows accurately but also to diversify sources and manage cash flow effectively amid uncertainty. In Part II of our series, we delve into revenue risk assessments, exploring how to evaluate revenue streams, forecast future revenues, and mitigate risks associated with revenue volatility.

Understanding Revenue Risk

Revenue risk encompasses uncertainties related to the reliability, predictability, and timing of revenue. This includes:

• Revenue concentration: High dependency on a sole source, like federal funding or property taxes.
• Timing mismatches: Differences between when revenue is expected versus when it is actually received.
• External factors: Economic shifts, policy changes, and demographic trends that can influence revenue generation.

Example:

Imagine a city that relies heavily on sales taxes. During an economic downturn, consumer spending might decrease, leading to lower-than-expected sales tax revenue. Without alternative revenue sources or sufficient reserves, this shortfall could force difficult budget cuts or service reductions.

Approaching a Revenue Risk Assessment

1. Identify and Categorize Revenue Streams

Mapping sources: Start by categorizing revenue into distinct streams:

• Federal and state funding (i.e., grants): Often one of the largest sources but subject to political and economic variability.
• Local taxes and fees: Property, sales, or service taxes that provide a more stable base.
• Contract revenues and service fees: Income from contracts or fee-for-service programs.

Items to Consider:

• What percentage of total revenue comes from each source?
• Which revenue sources are most volatile or subject to external pressures?
• Are there opportunities to broaden the revenue base?

Example:

A local government might discover that 60% of its revenue is derived from property taxes, while federal funding only account for 20%. Recognizing this distribution helps in understanding which areas might be more susceptible to shortfalls and where diversification efforts should be focused.

2. Forecast Revenue with Precision

Historical trend analysis: Review historical revenue data to establish trends and identify seasonal or cyclical patterns. Historical analysis can reveal underlying patterns that help refine forecasts.

Items to Consider:

• What are the historical growth rates for each revenue stream?
• Are there seasonal variations that affect revenue collection?
• How have previous economic downturns affected revenue?

Scenario forecasting: Develop different revenue scenarios to account for uncertainty:

• Optimistic scenario: Based on favorable economic conditions and full appropriation of funds.
• Base scenario: Reflects moderate growth consistent with historical trends.
• Pessimistic scenario: Incorporates potential cuts or delays in revenue.

Example:

A county government might use historical data to project a 3% annual increase in local tax revenue under normal conditions. However, by modeling a pessimistic scenario where an economic downturn leads to a 2% decline, the finance team can better prepare for cash flow challenges.

3. Monitor Revenue Realization and Manage Cash Flow

Regular reporting and reconciliation: Implement robust reporting processes that regularly compare forecasted revenue against actual collections. This involves setting up monthly or quarterly review cycles.

Items to Consider:

• Are revenue collection processes integrated with financial reporting systems?
• How frequently is revenue data reconciled against bank deposits and collection records?
• What mechanisms are in place to alert management when significant discrepancies occur?

Cash flow management: Revenue timing is critical. Even if overall revenue targets are met, delays in cash inflows can create operational challenges.

• Liquidity reserves: Maintain sufficient cash reserves to bridge gaps between revenue receipts and expenditure obligations.
• Timing strategies: Consider measures such as accelerating collections or negotiating payment terms to better align revenue timing with expense schedules.

Example:

A municipal finance department may notice that although annual revenue targets are met, monthly cash flow reports reveal recurring shortfalls during the first quarter of the fiscal year. By establishing a reserve fund and adjusting collection strategies (such as offering advance payment incentives), the department can mitigate cash flow issues.

4. Diversify Revenue Streams

Mitigate concentration risk: Diversification reduces the risk associated with dependence on a single revenue source. Explore new revenue opportunities or expand existing streams.

Items to Consider:

• Are there underutilized local assets that could generate additional income?
• Can fee-based services be expanded or enhanced to create steady revenue?
• What partnerships or innovative financing arrangements can be pursued?

Example:

A state government that relies primarily on federal funding to fund infrastructure projects may consider developing public-private partnerships for infrastructure projects. These arrangements can generate additional revenue streams while sharing risk with private sector partners.

Effective revenue risk assessments require a comprehensive understanding of your revenue sources, accurate forecasting, and proactive cash flow management. By categorizing revenue streams, forecasting with scenario-based approaches, monitoring real-time performance, and diversifying revenue sources, state and local governments can build a more resilient financial foundation. The key is to remain vigilant and adaptable — ready to adjust strategies as external conditions change, to make sure revenue uncertainties do not compromise public services or fiscal stability.

How MGO Can Help

At MGO, we understand that revenue uncertainty can undermine even your strongest budgets. That’s why we work with state and local governments to assess revenue risks with precision and insight. Our State and Local Government team helps you map and analyze revenue sources, build robust scenario-based forecasts, and design effective cash flow strategies tailored to your unique operational needs.

From improving reconciliation processes to identifying new revenue opportunities, we can support you in building a diversified and resilient financial foundation … so your community can thrive even amid the murkiest uncertainty. Contact us to learn more.

Written by Lee Klumpp. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com

The post Navigating Fiscal Uncertainty: Risk Management Strategies for State and Local Governments — Part Two appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The SLFRF program’s reporting deadlines have passed, but compliance reviews and documentation requests from the Treasury are now underway.

• A detailed checklist can help your government stay organized and responsive during this oversight phase.

• Proactively reviewing records and internal controls helps confirm your use of funds aligns with what was reported to the Treasury.

—

The State and Local Fiscal Recovery Funds (SLFRF) program, established under the American Rescue Plan Act, delivered $350 billion in federal aid to help state, local, territorial, and Tribal governments address the public health and economic impacts of the COVID-19 pandemic. While the program provided critical flexibility, it also came with deadlines and oversight requirements.

The key deadline to obligate SLFRF funds was December 31, 2024. Final reports were due earlier this year, and the U.S. Department of the Treasury has shifted its focus to compliance reviews, documentation requests, and potential fund recovery actions. That means your role isn’t over.

Even though the obligation and reporting windows have closed, there’s still time to strengthen your compliance posture. Whether you’re preparing for Treasury inquiries, reviewing internal documentation, or confirming your use of funds aligns with what you reported, this checklist is designed to help you stay proactive and prepared.

SLFRF Compliance Checklist for State and Local Government

Use this checklist to make sure you’re covered for SLFRF compliance and oversight:

1. Adequate Documentation

• Maintain detailed records of all obligations and expenditures.

• Ensure documentation substantiates obligations were made by December 31, 2024.

• Retain contracts, invoices, and procurement records.

• Keep records for at least 5 years after the end of the period of performance.

2. Reporting Requirements

• Submit final obligation reports:

• Quarterly reporters: by January 31, 2025

• Annual reporters: by April 30, 2025

• Review submitted reports for accuracy and completeness.

• Confirm that all obligated funds are eligible uses under SLFRF guidelines.

3. Treasury Communications

• Monitor for Information Document Requests from U.S. Treasury.

• Respond to Information Document Requests promptly and thoroughly.

• Watch for financial instructions to return unobligated funds if applicable.

4. Repayment (if applicable)

• Follow instructions for repayment options via pay.gov.

• Take note of deadlines and potential interest and penalties.

• Consult legal or financial advisors if repayment is disputed or unclear.

5. Internal Controls and Oversight

• Conduct an internal review of and track all SLFRF obligations.

• Implement or update internal controls to prevent misuse of funds.

• Ensure spending of SLFRF funds is in line with obligations made.

6. Stakeholder Communication

• Inform elected officials and stakeholders of compliance status.

• Prepare a public summary of SLFRF use and impact, if appropriate.

Stay Ahead of Compliance Risks

With the Treasury increasing oversight and requesting documentation from recipients, staying prepared is essential. This is your opportunity to review your internal records, verify alignment with what was reported, and make adjustments to avoid compliance issues. Proactive steps today can help you minimize the risk of repayment and preserve your funding impact.

For SLFRF reporting guidance and other resources, visit the U.S. Treasury website.

How MGO Can Help

Our dedicated State and Local Government team is ready to support you through the next phase of SLFRF compliance. From reviewing documentation to advising on Treasury communications or repayment concerns, we’re here to help you stay prepared.

Reach out to our team today to learn how we can support you.

The post Compliance Checklist: Is Your Government Prepared for SLFRF Oversight? appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• In a volatile fiscal environment, state and local governments have to proactively assess budgetary risks, create conservative forecasts, and prepare for multiple economic scenarios — rather than relying on ideal outcomes. 

• Implementing regular variance analyses and early warning systems allows finance leaders to detect deviations early, thus making informed adjustments and preventing budget shortfalls before they escalate. 

• Establishing contingency funds and budgeting with flexibility provides a safety net that makes sure your operational continuity is maintained in the face of emergencies or unexpected cost increases. 

—

Part I: Budgetary Risk Management and Financial Planning in Uncertain Times

In today’s rapidly changing fiscal environment, state and local governments face mounting challenges — from shrinking budgets and volatile revenue streams to an evolving regulatory landscape — that demands uncompromising financial integrity. As financial stewards, Chief Financial Officers (CFOs) and finance directors must not only plan for uncertainty but also proactively manage risk across every facet of their organization.

This article, the first in our three-part series, explores budgetary risk management in uncertain times, offering a framework to assess risks, strengthen forecasting practices, and implement real-time monitoring systems. We provide practical insights and examples to help finance leaders balance fiscal discipline with flexibility, ensuring their organizations remain resilient through economic and political turbulence.

Introduction

For state and local governments, the annual budgeting process is more than an exercise in accounting, it is a strategic imperative that must balance fiscal discipline with the need to respond to changing economic and political realities. In uncertain times, a misaligned budget can spell the difference between operational stability and disruptive fiscal shortfalls. In this first part of our series, we explore the process of budgetary risk assessment, outline the key items to consider, and share real-world examples that illustrate both pitfalls and best practices.

Understanding Budgetary Risk

Budgetary risk refers to the uncertainty and potential variability inherent in any financial plan. For state and local governments, these risks are compounded by factors like:

• Optimistic revenue projections: Assuming that federal, state, or local revenues will continue at historical levels without considering economic downturns.
• Unexpected expenditures: Rapidly rising costs in public service delivery, infrastructure maintenance, or emergency response can strain budgeted funds.
• Dependence on external funding: Federal or state appropriations, which may be subject to political shifts and policy changes, can be unpredictable.

Example:

Consider a local government that bases its annual budget on a projected 5% increase in federal funding, a figure derived from a period of robust funding. When a subsequent change in federal policy results in only a 2% increase, the shortfall creates a ripple effect forcing cuts to essential services and prompting a scramble to reallocate funds. This scenario underscores the importance of building conservative assumptions and contingency funds.

Approaching a Budgetary Risk Assessment

1. Establish a Historical Baseline

Gather and analyze data: Begin by reviewing multiple years of historical data to identify trends. Examine past budget-to-actual variances, cost overruns, and any recurring issues flagged by previous audits.

Items to Consider:

• What were the key assumptions made in previous budgets?
• How closely did actual spending match these assumptions?
• What corrective actions were taken in response to variances?

Example:

A mid-sized city might review its public works budget over the past five years. If the analysis reveals that capital project costs consistently exceeded estimates by 15% due to unforeseen environmental compliance costs, then future budgets must adjust the baseline assumptions accordingly.

2. Develop Realistic Forecasts and Scenario Planning

Budget assumptions: It is critical to document every assumption whether related to revenue growth, inflation, or anticipated costs. Use conservative estimates to guard against overly optimistic forecasts.

Items to Consider:

• Are revenue forecasts based on solid economic indicators and historical trends?
• Do expenditure projections account for rising costs in key areas like employee benefits, technology upgrades, or regulatory compliance?
• What external factors (e.g., economic downturns, political shifts) might impact the forecast?

Scenario Planning — Develop Multiple Scenarios:

• Best-case: Assumes favorable economic conditions and full appropriation of federal funds.
• Base-case: Uses moderate assumptions based on recent historical data.
• Worst-case: Accounts for funding cuts, unexpected cost increases, or economic shocks.

Example:

A county government might plan three different scenarios for its transportation budget. In the worst-case scenario, if federal funding were to drop by 20% due to a recession, the government would identify which projects could be delayed or re-scoped without compromising essential services.

3. Implement Monitoring and Early Warning Systems

Regular variance analysis: Establish a routine process (monthly or quarterly) to compare actual expenditures against the budget. This might include variance reports that highlight areas where spending deviates significantly from forecasts.

Items to Consider:

• What thresholds will trigger an investigation?
• How will information be communicated to decision-makers?
• Early warning systems: Utilize dashboards and automated tools that flag significant deviations in real time. These systems allow for timely adjustments and corrective actions.

Example:

A city’s finance department could implement a dashboard that tracks key performance indicators (KPIs) such as expenditure variances and budget burn rates. When the dashboard signals that a department’s spending is exceeding its monthly budget by more than 10%, an immediate review is triggered to understand and rectify the discrepancy.

4. Establish Adequate Contingency Planning

Contingency funds: Maintain reserves or rainy-day funds to address unexpected expenditures. These funds provide a buffer and help maintain operational continuity during fiscal shortfalls.

Items to Consider:

• What percentage of the overall budget should be allocated to contingencies?
• How frequently should the adequacy of these funds be reviewed and adjusted?

Example:

A state government might set aside 5-10% of its annual operating budget as a contingency reserve. If an emergency, like a natural disaster, suddenly requires additional resources, this reserve can prevent drastic cuts in other essential services.

Budgetary risk management is a dynamic process that requires continuous attention, realistic forecasting, and the flexibility to adapt as conditions change. For CFOs and directors of finance in state and local governments, establishing robust baseline data, developing conservative and flexible scenarios, and maintaining effective monitoring systems are essential steps to safeguard public funds. By planning for the unexpected and keeping a finger on the pulse of fiscal performance, finance leaders can steer their organizations through uncertain times with confidence.

Written by Lee Klumpp. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com

How MGO Can Help

At MGO, we work alongside state and local government leaders to help you navigate fiscal uncertainty with confidence. Our experienced SLG team offers tailored support in budgetary risk assessment, financial forecasting, and planning for any scenario. Ultimately, we aim to support you as you maintain fiscal discipline while staying agile and adaptable in changing times.

Whether you need to refine your baseline assumptions, build resilience into your budget, or implement real-time dashboards, contact us to learn how we can help you manage risk and protect the trust the public places in you.

The post Navigating Fiscal Uncertainty: Risk Management Strategies for State and Local Governments — Part One appeared first on MGO CPA | Tax, Audit, and Consulting Services.