Navigating the federal energy grants landscape: PwC

With federal funding in high gear, keep these leading practices in mind

Energy and utility companies are set to receive billions of dollars in tax incentives, credits and government financial assistance awards (e.g., grants, cooperative agreements and government loans) in 2024 as clean energy, sustainability and infrastructure projects under the Inflation Reduction Act and the Infrastructure Investment and Jobs Act kick into high gear.

Recipients usually have to implement and monitor complex compliance requirements to qualify for these funds, and the programs will be administered by the Department of Energy (DOE) and its affiliated agencies. Some grants may also require audits by various government and independent agencies.

Being well prepared before the first dollar comes in is crucial for success. To help companies get ready, here’s an overview of the typical life cycle of a government grant and tips for how to deal with important compliance matters.

At the midpoint of the grant life cycle, important compliance requirements often begin to kick in. In the “notice of award” phase, the grant provider will request information to evaluate the recipient’s ability to comply with the grant’s requirements. A company may be asked to provide documentation of its internal controls and policies for compliance functions related to the grant, including procurement, cost allocation, monitoring and reporting. These requests often require information from many company departments, including legal, supply and accounting. Companies should consider creating a cross-functional group to handle this process.

Leading practices for post-award success

Once a grant is accepted and the post-award phase begins, the DOE and other agencies often focus on seven areas to evaluate a company’s compliance processes and controls.

Here are some compliance tips based on leading practices we’ve seen for core compliance and reporting issues typically associated with grant awards. Grant recipients will also have to consider the specific terms and conditions in each award when building their compliance program. And because some of this is uncharted territory even for government agencies, recipients should be prepared for changes in each award cycle as agencies learn more and determine what is critical to manage award portfolios and protect taxpayer funds.

Specific tracking of grant expenditures with attention to allowable costs is essential.

Project-based accounting can help. Companies should be able to demonstrate that their accounting system can record and report labor and expenses and remove unallowable costs from ledger detail.
Cost sharing between the company and the grantor also should be separately tracked.

Be aware of specific requirements for how materials and services are acquired and used to avoid claw back of funds. These requirements also typically apply to subrecipients, entities that receive grant funds by way of the initial grant recipient. The protocols vary depending on the size of a purchase.

Companies should document procurement decisions for transactions above the federal micro purchase threshold (currently $10,000 but may increase to $50,000 if certain criteria are met). That includes multiple quotes from vendors as well as competitive bidding for procurements or documenting sole source justification.
Companies may need to purchase materials produced domestically.
Companies also should monitor a subrecipient’s procurement processes to confirm that it complies with grant requirements. Companies may include these processes in contracts with subrecipients. Proper documentation can help avoid trouble down the road.

Companies seeking to recover indirect costs — general and administrative expenses, for example — may need to establish an indirect cost rate.

The rate should be based on a causal or beneficial relationship and should not include unallowable costs.
The de minimis rate, the indirect rate prescribed in the Uniform Grant Guidance for determining indirect costs, may be used with agency approval.

While the government does not own the property purchased or developed using grant money, it will often require specific tracking policies for grant-related assets.

Use incremental controls to maintain compliance with government property requirements. These controls may require lower thresholds than those used in a company’s inventory controls for financial reporting purposes, helping assets be unencumbered by agency approval.
Supplies, property and equipment greater than $5,000 purchased using federal funds require enhanced inventory controls, tracking, insurance and reporting.

Charges for labor costs should be based on records that accurately reflect the work performed.

Timesheets should be used to track employees' work time, even for work outside the grant, to demonstrate that the company captures 100 percent of time worked.
Companies should bolster internal controls around timekeeping, including reviews and approvals.

Companies receiving grant money may be independently audited to check for compliance with grant requirements. This may include providing a record of where funds were spent and the controls in place for compliance with grant requirements.

DOE grants require an annual external audit, and grant recipients can also be subject to separate audits performed by the DOE itself. The external audit requirement is triggered once the grant recipient spends $750,000 of the grant money. This threshold may soon increase to $1 million, although the timeline for such a change is uncertain.

The DOE audit requirements apply only to grants a recipient receives directly and do not include other non-federal grants. To the extent a company has funding from another agency, pass-through grants should be considered along with agency-specific guidance.

Different types of government audits may be required depending on the specifics of the award, and certain grants may come with quarterly and annual reporting requirements. Companies should make sure they understand these requirements.
Individuals responsible for preparing periodic reports should maintain underlying support documentation, leveraging technology wherever possible.
Reports should be reviewed and approved by appropriate personnel within the company. Those preparing reports should be trained on the federal reporting requirements and, if there are questions from the grantor, companies should have a process in place for timely, effective and consistent communication.
Companies should have processes in place to address instances of noncompliance with the requirements and the ability to take corrective actions in subsequent periods.

There is a continued emphasis from the government on environmental, social and governance (ESG) principles

The acceptance of federal funds may require companies to report specific environmental impacts and other socially driven compliance measures. That could include giving priority to small businesses in procurement as well as community benefit plans. Companies should have the appropriate controls in place for compliance with ESG-related requirements and to report outcomes.

How PwC can help

From grant identification and application support to standing up compliance and reporting functions, PwC can help companies manage and improve their federal grant strategy. We’ve also worked with companies to help identify long-term funding opportunities, align grant objectives with business goals and develop a plan to increase the impact of federal energy grants on a company’s overall strategy.

Peter Tynes was a contributor on this article.

Navigating the federal energy grants landscape

With federal funding in high gear, keep these leading practices in mind

Leading practices for post-award success

How PwC can help

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