• 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.

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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

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• 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.

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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.

• Poor documentation, unallowable costs, and misallocated spending are frequent issues that can lead to audit finding and jeopardize program funding.
• Regular financial reviews, data analysis, and technology-driven tools are essential to improve compliance monitoring and prevent misuse of grant funds.
• Targeted training, simplified guidance, and consistent communication help you better understand your responsibilities as grantees and reduce any costly errors.

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Grant program offices are responsible for managing and allocating funds to support various initiatives. Managing the complexity of financial regulations and grant governing rules makes confirming grantee compliance a significant challenge. Those who do not adhere to financial regulations and rules risk non-compliance, resulting in fund misuse, audit findings, and jeopardizing the overall effectiveness of grant programs. An area often found most contentious in grantee audits is how operational expenses are incurred, categorized, and recorded. Operational expenses – costs associated with a grantee’s operations – include utility bills, repair and maintenance expenses, office supplies, leases, and other operating expenses.

Three common scenarios related to operational expenses can result in non-compliance:

1. Missing and/or Lack of Sufficient Documentation to Support Transactions: Inadequate documentation to validate expenses under review can be a major problem for grant program compliance. This includes missing original invoices, statements, or receipts for the expenses incurred. Financial oversight challenges can also arise when there is no proof of payment to confirm that an expense was paid to the appropriate vendor, such as bank statements, credit card receipts, or cancelled checks.
2. Unallowable Costs: Another common compliance issue is unallowable costs, which are unauthorized expenses charged to the grant according to the Code of Federal Regulations (CFRs) and relevant Program Guides.
3. Incorrect Allocation and/or Inappropriate Spending: When a grantee misallocates transactions or uses grant funds inappropriately, they may be cited for non-compliance. For example, buying gift cards and providing them to clients or employees is a risky purchase since they are difficult to track and can be used to purchase.

Strengthening Financial Oversight

There are several strategies grant program offices can use to strengthen their financial oversight and monitoring processes. Tasks may include performing a thorough review of the Federal Financial Reports (FFR) SF-425s and Single Audit Reports, monitoring and analyzing unusual and high dollar general ledger entries, testing payroll and operational expenses, and performing programmatic reviews. Additionally, leveraging technology to assist in creating tools and resources can also enhance understanding and retention of compliance requirements and monitoring.

Educate Grantees to Minimize Non-Compliance

Grant program offices can implement a multifaceted educational strategy to simplify the complexities of compliance and minimize instances of non-compliance. Strategies can include:

Offer Technical Assistance and Training Sessions

Training sessions like in-person workshops or virtual webinars for new grantees can help explain compliance requirements, reporting obligations, and allowable costs associated with their grants, and help reduce confusion and challenges for those who are new to funding. For grantees who have unique needs and challenges, grant program offices can provide targeted training and resources specific to their type of grant. Additionally, existing or legacy grantees may have questions as well. Offering refresher courses and training sessions may help minimize common mistakes even experienced grantees could make.

Provide User-Friendly Guides and Resources

Creating easily accessible, simplified, user-friendly guides that outline compliance requirements, documentation standards, and processes can provide quick, go-to resources for grantees. Providing access to online resources such as FAQs, compliance checklists, and best practice examples from successful grantees , can also help create and encourage a community where grantees can share their experiences and solutions.

Establish Regular Communication and Updates

Establishing regular communications (e.g., newsletters, emails) can help keep grantees informed and up to date on changes in compliance regulations, deadlines, or reporting requirements. Setting up one-on-one consultations or dedicated office hours for grantees to ask questions and seek clarification on compliance issues in a personalized setting is a quick way to address challenges and help foster a relationship between grant offices and grantees.

Implement Monitoring and Feedback Mechanisms

Regular monitoring of grant compliance and constructive feedback can help identify common compliance pitfalls and allow the Grant Program Office to proactively address these areas with grantees.

By adopting these strategies, grant program offices can empower grantees with the knowledge and resources needed to stay in compliance and improve the overall effectiveness of grant programs.

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

How MGO Can Help

At MGO, we understand the pressures and complexities faced by grant program offices. Our experienced State and Local Government professionals work alongside public agencies to design and implement robust compliance frameworks, tailored to their funding sources and various operational needs. From reviewing financial reports to developing grantee training materials, we can help you reduce the risk of non-compliance and improve your overall grant program performance. Whether you’re addressing audit findings or proactively enhancing your oversight process, we offer the guidance, tools, and support you may need to drive impactful outcomes, using every dollar as intended. Contact us to learn how.

The post How to Improve Grantee Compliance Through Strategic Financial Oversight appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Build government resilience by proactively saving critical documents, questioning information, planning for emergencies, and revisiting your mission.

• Navigate uncertainty by implementing clear communication plans, verifying data sources, and prioritizing essential functions.

• Strengthen stability through strategic planning and reaffirming core values to guide decision-making during challenging times.

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In today’s socio-political landscape, priorities are shifting, government transparency is being challenged, and uncertainty within institutions, programs, and services reliant on government guidance and funding is intensifying.

Information, policies, funding, etc., are changing rapidly. What may exist today may be rescinded, withheld, or stuck in litigation tomorrow. In all, more confusion and more disruption in governing is an ongoing reality. As such, audit and consulting functions will need to adjust and operate accordingly.

Think, Question, Plan, Revisit (Repeat): A Framework for Stability in a Shifting Landscape

To navigate these uncertainties, proactive documentation, information vetting, and emergency planning are essential. Here are some key considerations to help guide your state or local government entity moving forward:

1. Think Ahead: Save Critical Documentation

If any of your engagements rely on federal regulations and guidance, it is advisable to save relevant documentation before it disappears. PDF and archive these materials, ensuring that file names include the print date. This is especially important for retrospective engagements where criteria may no longer be applicable but remain relevant to the period under review.

For example, if your work involves disadvantaged business enterprises (DBEs), now may be a good time to make sure you have associated federal regulations within your workpaper systems. If documentation has already been removed, consult archival resources like the Wayback Machine or public libraries, which may become increasingly valuable in maintaining access to historical records.

2. Question All Information Before Accepting or Distributing It

Conducting due diligence on data reliability and verifying sources of information is generally par for the course. However, further scrutiny of information will be necessary.

Evaluate the credibility of information by asking:

• What is the source of the data? Research the organization or individual behind the data, their mission, and their history of reliability. Be mindful of AI-generated data that may be biased or incomplete.

• What is being omitted? Examine methodologies, assumptions, and potential gaps in the analysis. Data omissions can skew conclusions — as seen during the COVID-19 pandemic when racial and ethnic data was frequently uncollected, impacting public health responses.

• Is there an agenda behind the message? Be aware of political biases and misinformation. Verify whether videos or stories are current and fact-check social media content before engaging with or sharing it. Seek comparative analyses from subject matter experts to understand the broader implications of policy changes. To that end, consider information from multiple sources — including independent journalists.

As misinformation spreads rapidly, developing internal fact-checking protocols can help prevent costly mistakes.

3. Plan for the Worst Before It Happens

Uncertainty within government can create daily crises. Rapid regulatory changes, disruptions in grant funding, and downsizing can all overwhelm operations. Emergencies will happen. The extent and magnitude of them will vary, and so will the impacts.

Generally, there are teams within organizations that conduct business continuity planning. This may include the IT team that focuses on cybersecurity threats and the emergency operations center (EOC) team that is ready to activate and respond at the onset of an emergency. However, it may be prudent to build emergency planning into daily operations and revisit emergency planning documents to make sure they are updated and relevant.

This includes:

• Communication plans: With changes in policies, programming, services, funding, etc., occurring daily, it is imperative to understand your entity’s core audience, the audiences’ needs, and potential impacts. Communicate promptly and continuously to minimize misinformation. Revisit and frequently test methods for mass communication (social media, emergency notifications, sign language interpreters, etc.) and internal communication guidelines.

• Critical and essential functions: Identify “critical and essential functions” to assist with prioritizing limited resources, time-sensitive situations, and/or narrowing the scope of focus as disruptions occur. “Critical functions” are time-sensitive activities that have a direct impact on life, on people, and on property (securing infrastructures, deploying critical personnel, etc.). “Essential functions” are also necessary for addressing and maintaining public health and safety during crisis but have a slightly longer timeframe for restoration (repairing infrastructure, payroll, etc.).

• Compliance with emergency preparedness standards: Make sure you are compliant with the required emergency plans and/or following best practice for preparedness. For example, the Code of Federal Regulations (Title 42, Section 491.12 Emergency Preparedness) currently requires rural health clinics and federally qualified health centers to establish and maintain an emergency preparedness program. Additionally, the National Incident Management System (NIMS) provides guidance to all levels of government, non-governmental, and private sector on emergency preparedness. Also, the California Emergency Services Act 2021 edition requires the Standardized Emergency Management System (SEMS) for managing multiagency and multijurisdictional responses to emergencies in California.

4. Revisit Your Values and Mission Statement

Many state and local government agencies will face difficult decisions as resources and funding become more constrained. The terms “resourceful,” “innovative,” and “resilient” have long been part of government lexicon, but today they carry more weight.

Now is the time to revisit your agency’s core values and mission statement as a guide for decision-making. When priorities shift and resources become scarce, your mission statement should serve as a touchstone to help you stay focused on what matters most.

• Are your programs still aligned with your agency’s purpose? In times of financial uncertainty, some initiatives may need to be scaled back or restructured. A clear mission statement can help you determine which services are essential and where adjustments are possible.

• Does your decision-making process reflect your core values? When facing difficult choices — whether it’s budget reductions, staff realignment, or policy shifts — lean on your agency’s foundational principles to navigate trade-offs while maintaining public trust.

• Are you communicating your values effectively? In uncertain times, public confidence can waver. Reinforcing your mission through clear, consistent messaging can help stakeholders, employees, and the communities you serve stay informed and engaged.

Preparing for the Winding Road Ahead

Resilience in government isn’t just about reacting to change — it’s about preparing for it. The challenges ahead may be unpredictable, but a proactive approach will help keep your entity stable and responsive in the face of uncertainty.

How MGO Can Help

With a dedicated State and Local Government team, we are here to help you navigate the uncertainty of the current environment. We offer a full suite of audit and consulting services to meet your specific needs, and we are always available to help you address any challenges or concerns that may arise. Reach out to our team today to find out how we can support you.

The post 4 Strategies to Keep Your Government Resilient in Uncertain Times appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• As ESG issues gain prominence, state and local governments must increase oversight, planning, collaboration, and transparency around these topics to maintain public trust and access financing. 
• Governments should develop, maintain, and regularly update public climate action plans outlining ESG risks, opportunities, impacts, and integration strategies. 
• Entities should explore green bonds as a growing option to raise ESG-tied funding while increasing related financial disclosures to satisfy investor expectations.

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Environmental, social, and governance (ESG) issues are taking center stage globally, and U.S. state and local governments — especially those issuing municipal bonds — are facing rising expectations from constituents and investors alike to manage these concerns. To maintain public trust and access to financing, your government should make ESG an increased area of focus, discussion, and disclosure. 

Here are a trio of ways your government can bring ESG efforts to the forefront: 

1. Prioritize Leadership and Collaboration 

The most successful government entities not only have designated ESG leaders (typically the “chief sustainability officer” or “head of environmental affairs”), but they have also established a direct line of oversight and communication with the government entity’s leadership teams (e.g., the mayor’s office, the office of the comptroller, etc.).  

While ESG strategy and risk identification will always be owned by the head of the environmental and social functions, collaboration with the finance functions is also vital. Collaboration ensures that financial professionals can contribute their knowledge and experience to assess the financial impact of ESG initiatives and align them with broader strategies of the government.  

Collaboratively embedding ESG efforts throughout your entity and not just siloing them to one specific department or group of individuals will give ESG the attention and investment it needs to make an impact. 

2. Develop and Maintain a Climate Action Plan

At present, most medium-to-large government entities have formally documented “climate action plans” available on their websites — indicating this type of transparency will be considered “table stakes” moving forward.  

Within the climate action plan, a clear strategy to identify and prioritize risks and opportunities is critical. A robust plan should specifically measure both the actual and potential impacts of ESG-related opportunities and risks on the government entity (such as on its financial planning and budgeting) and its stakeholders (e.g., investors and the communities the entity serves). Establishing and publicly communicating these on the entity’s website — or attached in the climate action plan — is key for accountability and understanding of these aspects of sustainability integration.  

Additionally, a subset of government entities with climate action plans are also proactively updating their plans — effectively recognizing the plan should be a living and breathing document that continues to evolve with the emergence of new risks and the shifting interest of investors, regulators, and the public at large.  

3. Explore the Potential of Green Bonds  

Due to the increasing importance of sustainability and ESG for state and local governments, the issuance of green bonds by government entities will also continue to grow. Investors are expecting more financial disclosures to help them make decisions and track both opportunity and risk.     

A green bond is a fixed income debt instrument occurring when an issuer (in this case, a state or local government) borrows a large amount of money from investors to use in projects focused solely on sustainability. They are similar in function to traditional bonds, except the funds acquired through them can only be dedicated to projects dedicated to energy efficiency or sustainability requirements and frameworks.  

Because investors face risk when it comes to investing in municipal securities (like green bonds), it is crucial for these municipalities to have dedicated ESG leaders, offices, and transparent budgets.  

Embracing ESG Principles and Building Positive Public Perception 

With intensifying investor and community demands, state and local governments can no longer view ESG as an afterthought. Implementing robust oversight frameworks with designated leadership, continually updated climate action plans, and increased financial disclosures can help you meet expectations, mitigate risks, and contribute to long-term fiscal sustainability. 

Need assistance implementing and managing your government’s ESG efforts? Our State and Local Government Practice offers ESG materiality and benchmark assessment, reporting and disclosure, data lineage and integrity, and net zero strategy development and monitoring. Reach out to our team today to learn how we can help you achieve your goals. 

The post 3 Steps Your Government Can Take to Establish Greater ESG Oversight appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Environmental, social, and governance (ESG) information helps investors, regulators, and the public-at-large understand and interpret a government entity’s risk profile and its ability to drive positive impact.
• To present this information publicly, government entities are developing robust “Climate Action Plans,” which are reviewed and refreshed on a periodic basis.
• As disclosing ESG-related information to the public becomes more common, government entities are also expanding ESG-related disclosures within annual financial reports.

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Coined in a 2004 United Nations report, the term “environmental, social, and governance” (and its accompanying acronym “ESG”) is less than 20 years old. Yet, you would be hard-pressed to find a boardroom today where ESG is not top of mind. It is not just businesses either — ESG is also an increasingly important topic of discussion within government organizations.

State and local governments use ESG-related information as a mechanism to measure and track priorities, footprints, and targets. As governments have matured their ESG reporting and presented information more consistently with year-to-year comparability, investors*, regulators, and the public-at-large have sought out this reporting to help them understand risk and the government entity’s ability to drive positive impact.

*Note: The term “investors” refers to those who are exploring and/or holding investments in government-issued securities (e.g., hedge funds, institutions, individuals, etc.).

The Increasing Importance of “Climate Action Plans”

To present ESG-related information to the public, many government entities develop and communicate robust “Climate Action Plans”. These plans highlight a myriad of information, including (but not limited to): 

• Governance structures (e.g., communication and reporting lines from environmental leadership into the mayor’s office) 
• Strategies to adapt to and combat climate change 
• Specific climate-related risks, which impact the government entity 
• Targets, metrics, and key performance indicators (KPIs) used to measure progress 

As Climate Action Plans continue to evolve, governments are commanding and allocating more financial resources to activate these plans. With the increased focus on climate-related initiatives presented in Climate Action Plans, we are seeing an expansion of ESG-related information disclosed within “Annual Comprehensive Financial Reports” across the country — a sign that financial disclosures are maturing to meet growing interests from investors, regulators, and the public-at-large. 

A Growing Push from Investors and Regulators

The focus on non-financial risks (including, but not limited to, ESG-related risks) by investors and regulators continues to intensify. When we take a step back to analyze the trend, a few things become clear:

1. Interest in ESG-related information will only continue to grow with the increasing awareness of climate-related risks.

2. Escalating interest will lead to new or expanded disclosures related to ESG information.

3. As ESG-related disclosures continue to grow and expand, the finance functions within government entities will need to become more involved — helping to ensure that ESG-related information presented alongside traditional financial information is complete, accurate, and robust (i.e., considered “investor grade”).

To dive deeper into that last point, where would a finance function start? The short answer is by increasing the integration and collaboration between a government entity’s environmental leaders and the finance functions. The longer answer is that government entities need to develop holistic approaches to collecting and reporting robust ESG-related information to meet the expectations of investors, regulators, and the public-at-large.

The bottom line: As the issuance of and investment in municipal securities continues to grow, the quality of ESG-related information disclosed to the public will need to be enhanced to meet the demands of investors.

Transparency in Budgets and Financial Reporting

With an increase in ESG-related disclosures in annual financial reports by government entities, recent interpretive guidance from the Governmental Accounting Standards Board (GASB) indicates that government entities can expect further scrutiny and regulation as these types of disclosures become more commonplace.

Essentially, it is important for your government to have a robust, well-communicated ESG “story” within a Climate Action Plan — but you also must provide investor-grade transparency within audited financial statements. Government entities are already beginning to meet this challenge. Two examples of local governments with a growing presence of ESG-related information in their Annual Comprehensive Financial Reports are the City and County of San Francisco and the City of Fremont.

The City and County of San Francisco transparently discloses both environmental and social initiatives, capturing details related to its Environmental Protection Fund, as well as specific details related to revenues received from state, federal, and other sources for the preservation of the environment.

The City of Fremont — which is much smaller in terms of population (~230,000) and financial resources (roughly $1.5 billion in total primary government assets from “government activities”) — depicts ESG-related information throughout its annual report, including but not limited to qualitative information in the “management discussion and analysis” section, as well as quantitative information related to “community development and environmental services.”

The Path Forward: Enhancing Your ESG Reporting

With ESG-related information becoming more integrated into investor decision-making, your government needs to focus on enhancing its Climate Action Plans and developing “investor grade” disclosures related to ESG risks and opportunities for inclusion within your traditional financial reporting. These initiatives will require additional financial resources and human capital to create and maintain — and further collaboration between environmental, social, and financial leaders will be needed to drive the change.

How MGO Can Help

Incorporating ESG disclosures into financial reporting can pose challenges to states and local governments unfamiliar with ESG reporting standards. With experience providing ESG solutions, our State and Local Government Practice will work with your team to meet requirements and make information “investor-ready,” while also ensuring accountability and transparency.

The post Is Your Government Overlooking ESG Disclosures? appeared first on MGO CPA | Tax, Audit, and Consulting Services.

Previously, you were not mandated to include independent contractors under the state’s new hire reporting requirement; now you’ll have to add them to the list of other new hires or rehires to report.

If your organization falls into one of the following categories, you’re required to report your new hires for tax purposes:

• Labor organizations, including union-operated placement offices (I.e., hiring halls),
• Employers of individuals performing domestic services,
• Government entities excluding federal agencies.

Your organization will have to report those new hires or rehires, including independent contractors, within 20 calendar days from the date hired. The hiring date is defined as the first day the employee or contractor:

• Is eligible to collect commissions for any job performed based only on commissions,
• Completes the services for which they will be paid (collecting tips, wages, commissions, or another agreed-upon compensation).

If you are an employer looking for clarification regarding additional reporting requirements in New York State (including how to actually file), please contact MGO’s tax team to talk to an advisor who can comprehensively walk you through the steps and ensure you avoid any missteps that could affect your organization.

The post New York State Updates Employer Reporting Requirements appeared first on MGO CPA | Tax, Audit, and Consulting Services.

Much like a traditional CPA firm can provide different types of services related to an entity’s financial statements, i.e., audit, review, or compilation, based on need, when government agencies are considering an independent evaluation of performance of their programs or operations, the CPA firm’s advisory or consulting arm can step in and offer a number of engagement types based on the agency’s unique needs: consulting services engagements, attestation engagements (e.g., agreed-upon procedures), and performance audits. It all depends on if, and at what level, assurance is needed. The primary driver of what type of product should be considered is typically based on, for instance, issue complexity, taxpayer concerns or expectations, statute requirements, or increased need for transparency on the efficiency and effectiveness of operations. While the driver of the engagement may differ, time constraints and budget are also determining factors.

The primary focus of this article is to discuss the differences of the three aforementioned types of engagements — consulting services, agreed-upon procedures, and performance audits — and to provide guidance when a performance audit might be an option.

It is important to identify the differences between (1) performance audits, (2) consulting services engagements, and (3) agreed-upon procedures attestation engagements. On numerous occasions throughout my government service career and also while serving clients, questions have come up regarding the objectives sought, the scope of the engagement, and the engagement type when considering an evaluation of performance for a particular program or area of operations. Each of these engagements differ in purpose and reporting requirements, as well as potential cost, as shown below in Figure 1.0. These engagements are governed by different standards, formal reports are not always required for each, and independence is not always required (i.e., consulting services).

Performance Audits Defined

Performance audits are defined as engagements that provide objective analysis, findings, and conclusions to assist management and those charged with governance and oversight to, among other things, improve program performance and operations, reduce costs, facilitate decision making by parties with responsibility to oversee or initiate corrective action, and contribute to public accountability. *1

Furthermore, GAGAS states that management and officials of government programs are responsible for providing reliable, useful, and timely information for transparency and accountability of these programs and their operations. Legislators, oversight bodies, those charged with governance, and the public need to know whether (1) management and officials manage government resources and use their authority properly and in compliance with laws and regulations; (2) government programs are achieving their objectives and desired outcomes; and (3) government services are provided effectively, efficiently, economically, ethically, and equitably. *2

Agreed-Upon Procedures (AUP)

Based on my experience, it usually comes down to identifying a few factors that determine the engagement. First, the agency must determine the purpose and scope of the work, specifically what questions they would like to have answered. These questions can be broad or very narrow. For example, in an AUP, management may make an assertion about whether a subject matter is in accordance with, or based on, established criteria that is the responsibility of a third party and hires a CPA to add credibility to that assertion by performing specific procedures to test compliance with the criteria. If an agency needs to know something very specific and wants an independent party to perform specific procedures and tell them what was found, then an AUP is appropriate. However, an AUP report does not provide recommendations, an opinion, or conclusion about whether the subject matter is in accordance with, or based on, the criteria, or state whether the assertion is fairly stated. While the agency may want to use an AUP, some key steps that are taken in consulting engagements and performance auditing, such as planning, are not required in an AUP engagement. Also, risk is not assessed in developing the scope, nor does the auditor use a risk-based approach, which is required in a performance audit. Finally, in an AUP, auditors do not perform sufficient work to be able to develop elements of a finding or provide recommendations.

1 See Paragraph 1.21 of GAGAS.
2 See Paragraph 1.02 of GAGAS.

Consulting Services Engagement vs. Performance Audit

For a consulting services engagement or performance audit, the initial questions are then turned into the objectives of the engagement. If the agency wants an objective review of operations or a program to assist them in making decisions, for example, to assess the management of specific funds, and wants findings and recommendations to improve operations, then the agency should discuss the options of a consulting services engagement or a performance audit. From here, the decisions are truncated. The agency needs to consider whether the report is for an internal audience, such as governing officials, management, or staff, or an external audience, e.g., a regulatory agency or the public. If the communication is intended for internal use, then a consulting services engagement with observations and recommendations may suffice. For these engagements, findings, recommendations, and a conclusion is provided to assist management in decision making. Or, an independent third party, such as a CPA or an internal auditor, may be asked to answer the engagement’s objectives to an external audience, in which case a performance audit may be more appropriate due to the need for an independent, objective report that can withstand scrutiny and is subject to peer review. Sometimes there isn’t a choice; some agencies are bound by the government code or local ordinance to conduct audits under GAGAS.

Performance audits are typically the more costly engagement type of the three, given the amount of work required to conduct an audit and adhere to stringent standards. As we’ll explore in later articles, performance audits conducted under GAGAS provide the highest level of assurance among the three options, based on the level of work required. These audits involve developing the required elements of a finding and the documentary evidence required for planning, fieldwork, and reporting. The amount of work involved is much greater than in consulting services engagements, where observations and recommendations will suffice. Consulting services engagements are not audits and, therefore, offer no assurance. Similarly, in attestation engagements, where only specific procedures are performed, no assurance is provided. *3

Conclusion

Having been on both sides of deciding what engagement to recommend, either for an agency I worked at or to a client, it’s important to discuss the level of work required for each engagement type, the number of hours required to do the work under the appropriate standard within a reasonable time period, and the available budget. Finally, and most importantly, clients should understand that performance audits and consulting services engagements each have their place and serve unique purposes. A performance audit offers independence and objectivity at a step above a consulting services engagement, and might be the best option if a rigorous audit of a program or agency is needed. This is where the consideration of the agency’s need is paramount. There may not always be the budget or time available to conduct a comprehensive performance audit, nor a need for an in-depth evaluation or a legislative requirement to do so. In these instances, a consulting services engagement is a good option, especially when time and budget are factors. A consulting services engagement can provide a sufficient report with recommendations and advice. However, it’s important to make the agency aware of the limitations of non-audit services. In addition, the audience of the final report product and any regulatory requirements should strongly influence the decision-making process.

Forthcoming articles in this series will drill down and focus in more detail on the professional standards associated with performance audits as compared to other types of engagements, “why” an agency would want a performance audit instead of a consulting engagement or an agreed-upon procedures engagement, when a performance audit would be recommended, what key factors should be considered, and what are the expectations of the audience of the report. The third article in this series will focus on the reporting elements of a performance audit and a sample performance audit report.

*3  Attestation engagement standards are covered in GAGAS Chapter 7, and include agreed-upon-procedures, reviews, and examination engagements. Attestation examinations have the highest level of assurance, as an opinion is given; not so for the others. Auditors may use GAGAS in conjunction with other professional standards such as American Institute of Certified Public Accountants (AICPA), International Auditing and Assurance Standards Board (IAASB), or Public Company Accounting Oversight Board (PCAOB) standards. For financial audits and attestation engagements, GAGAS incorporates by reference for AICPA Statements on Auditing Standards and Statements on Standards for Attestation Engagements. In addition, the AICPA promulgates the consulting standards. AICPA standard committees have taken the position that only the U.S. Government Accountability Office (GAO) sets performance audit standards.

Sources of Information and Documentation Considered:

• Government Auditing Standards, issued by the Comptroller General of the United States
  – July 2018 Revision (effective for performance audits beginning on or after July 1, 2019; effective for attestation engagements for periods ending on or after June 30, 2020; early implementation is not permitted)
• United States General Accounting Office. Best Practices Methodology – A New Approach for Improving Government Operations. May 1995

Disclaimer: The views expressed in this article are those of the author and do not reflect the official policy or position of the GAO, AICPA, or Macias Gini & O’Connell LLP.

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