Administrative Requirements of Federal and State Grants

Carol A Kraus, CFO
Illinois Department of Human Services
July 15, 2010

Applicability

Unless inconsistent with statutory requirements, this establishes uniform administrative requirements governing federal grants and agreements:

  • awarded to institutions of higher education, hospitals, other nonprofit organizations and commercial organizations
  • Subgrants or other subawards awarded by recipients of federal grants and agreements to institutions of higher education, hospitals, other nonprofit organizations and commercial organizations, including subgrants or other subawards awarded under federally funded grants and agreements administered by State, local and Indian Tribal governments
  • These requirements are the general rules for the administrative requirements.
  • Exceptions to these rules are included in specific program guidance including the grant agreement, code of federal regulations, memoranda issued by the US Office of Management and Budget, Federal Awarding Agency Memorandum and Bulletins.
  • If not included in federal guidance documents listed above all deviations must be approved in writing by the awarding agency.

Standards for Financial Management Systems

A State must expend and account for grant funds in accordance with State laws and procedures for expending and accounting for its own funds.

  • Fiscal control and accounting procedures of the State, as well as its subgrantees and cost-type contractors, must be sufficient to:
    1. Permit preparation of timely and accurate reports required by the federal and state statutes authorizing the grant, and
    2. Permit the tracing of funds to a level of expenditures adequate to establish that such funds have not been used in violation of the restrictions and prohibitions of applicable statutes.
      1. The financial management systems of other grantees and subgrantees must meet the following standards:
        1. Financial reporting. Accurate, current, and complete disclosure of the financial results of financially assisted activities must be made in accordance with the financial reporting requirements of the grant or subgrant;
        2. Accounting records. Grantees and subgrantees must maintain records which adequately identify the source and application of funds provided for financially-assisted activities. These records must contain information pertaining to grant or subgrant awards and authorizations, obligations, unobligated balances, assets, liabilities, outlays or expenditures, and income.
        3. Internal control. Effective control and accountability must be maintained for all grant and subgrant cash, real and personal property, and other assets.
    3. Grantees and subgrantees must adequately safeguard all such property and must assure that it is used solely for authorized purposes.
    4. Budget control. Actual expenditures or outlays must be compared with budgeted amounts for each grant or subgrant. Financial information must be related to performance or productivity data, including the development of unit cost information whenever appropriate or specifically required in the grant or subgrant agreement.
      1. If unit cost data are required, estimates based on available documentation will be accepted whenever possible.
    5. Allowable cost. Applicable OMB cost principles, agency program regulations, and the terms of grant and subgrant agreements will be followed in determining the reasonableness, allowability, and allocability of costs;
    6. Source documentation. Accounting records must be supported by such source documentation as cancelled checks, paid bills, payrolls, time and attendance records, contract and subgrant award documents, application of allocation methodologies, etc.
    7. Cash management. Grantees must establish and implement procedures for minimizing the time elapsing between the transfer of funds from the U.S. Treasury and disbursement by grantees and subgrantees must be followed whenever advance payment procedures are used.

Grantees must establish reasonable procedures to ensure the receipt of reports on subgrantees' cash balances and cash disbursements in sufficient time to enable them to prepare complete and accurate cash transactions reports to the awarding agency

  • When advances are made by letter of credit or electronic transfer of funds methods, the grantee must make drawdowns as close as possible to the time of making disbursements.
  • Grantees must monitor cash drawdowns by their subgrantees to assure that they conform substantially to the same standards of timing and amount as apply to advances to the grantees
    • An awarding agency may review the adequacy of the financial management system of any applicant for financial assistance as part of a preaward review or at any time subsequent to award.

Grant Payments

  • This section describes the basic standard and the methods under which a Federal agency will make payments to grantees, and grantees will make payments to subgrantees and contracts.
  • Basic standard. Methods and procedures for payment shall minimize the time elapsing between the transfer of funds and disbursement by the grantee or subgrantee, in accordance with Treasury regulations at 31 CFR Part 205.
  • Advances. Grantees and subgrantees may be paid in advance, provided they maintain or demonstrate the willingness and ability to maintain procedures to minimize the time elapsing between the transfer of the funds and their disbursement by the grantee or subgrantee
  • Reimbursement. Reimbursement is the preferred method when the requirements for the basic standard or advances in preceding slides are not met.
  • If the awarding agency concludes that the grantee or subgrantee does not meet the financial management system's cash management procedures requirements then they can amend the grant agreement to require the grantee to use the working capital or reimbursement method
  • Working capital advances. If a grantee cannot meet the criteria for advance payments, and the Federal agency has determined that reimbursement is not feasible because the grantee lacks sufficient working capital, the awarding agency may provide cash or a working capital advance basis.
  • Under this procedure the awarding agency shall advance cash to the grantee to cover its estimated disbursement needs for an initial period generally geared to the grantee's disbursing cycle. Thereafter, the awarding agency shall reimburse the grantee for its actual cash disbursements 
  • The working capital advance method of payment shall not be used by grantees or subgrantees if the reason for using such method is the unwillingness or inability of the grantee to provide timely advances to the subgrantee to meet the subgrantee's actual cash disbursements. 
  • Effect of program income, refunds, and audit recoveries on payment. 
    1. Grantees and subgrantees shall disburse repayments to and interest earned on a revolving fund before requesting additional cash payments for the same activity;
    2. Except as provided in paragraph (1) of this section, grantees and subgrantees shall disburse program income, rebates, refunds, contract settlements, audit recoveries and interest earned on such funds before requesting additional cash payments.
      1. (g) Withholding payments.
        1. Unless otherwise required by Federal statute, awarding agencies shall not withhold payments for proper charges incurred by grantees or subgrantees unless-
          1. The grantee or subgrantee has failed to comply with grant award conditions or
          2. The grantee or subgrantee is indebted to the United States.
        2. Cash withheld for failure to comply with grant award condition, but without suspension of the grant, shall be released to the grantee upon subsequent compliance. When a grant is suspended, payment adjustments will be made in accordance with federal enforcement regulations

Cash Depositories

A grantee or subgrantee shall maintain a separate bank account only when required by Federal-State agreement. Grant Funds should be and in some cases must be deposited into interest bearing accounts;

  • Interest earned on advances - grantees and subgrantees shall promptly, but at least quarterly, remit interest earned on advances to the Federal agency. The grantee or subgrantee may keep interest amounts up to $100 per year for administrative expenses.

Allowable Costs

Limitation on use of funds. Grant funds may be used only for:

  1. The allowable costs of the grantees, subgrantees and cost-type contractors, including allowable costs in the form of payments to fixed-price contractors;
  2. Reasonable fees or profit to cost type contractors but not any fee or profit (or other increment above allowable costs) to the grantee or subgrantee

For each kind of organization, there is a set of Federal principles for determining allowable costs. Allowable costs will be determined in accordance with the cost principles applicable to the organization incurring the costs.

For the costs of a: Use the principles in:
State, local or Indian tribal government. OMB Circular A-87
Private nonprofit organization other than an (1) institution of higher education, (2)hospital, or (3) organization named in OMB Circular A-122 as not subject to that circular. OMB Circular A-122
Educational institutions OMB Circular A-21
For-profit organization other than a hospital and an organization named in OMB Circular A-122 as not subject to that circular. 48 CFR Part 31. Contract Cost Principles and Procedures, or uniform cost accounting standards that comply with cost principles acceptable to the Federal agency

Period of Availability

Where a funding period is specified, a grantee may charge to the award only costs resulting from obligations of the funding period unless carryover of unobligated balances is permitted, in which case the carryover balances may be charged for costs resulting from obligations of the subsequent funding period.

  • Liquidation of obligations. A grantee must liquidate all obligations incurred under the award not later than 90 days after the end of the funding period (or as specified in a program regulation) to coincide with the submission of the annual Financial Status Report (SF-269). The Federal agency may extend this deadline at the request of the grantee.

Matching or Cost Sharing

Basic rule: Costs and contributions acceptable. With the qualifications and exceptions, a matching or cost sharing requirement may be satisfied by either or both of the following:

  1. Allowable costs incurred by the grantee, subgrantee or a cost-type contractor under the assistance agreement. This includes allowable costs borne by non-Federal grants or by others cash donations from non-Federal third parties;
  2. The value of third party in-kind contributions applicable to the period to which the cost sharing or matching requirements applies.

Qualifications and exceptions

  • Costs borne by other Federal grant agreements. Except as provided by Federal statute, a cost sharing or matching requirement may not be met by costs borne by another Federal grant. This prohibition does not apply to income earned by a grantee or subgrantee from a contract awarded under another Federal grant.

Cost or contributions counted towards other Federal costs-sharing requirements.

  • Neither costs nor the values of third party in-kind contributions may count towards satisfying a cost sharing or matching requirement of a grant agreement if they have been or will be counted towards satisfying a cost sharing or matching requirement of another Federal grant agreement, a Federal procurement contract, or any other award of Federal funds.

Costs financed by program income

  • Costs financed by program income, shall not count towards satisfying a cost sharing or matching requirement unless they are expressly permitted in the terms of the assistance agreement.

Records.

  • Costs and third party in-kind contributions counting towards satisfying a cost sharing or matching requirement must be verifiable from the records of grantees and subgrantee or cost-type contractors. These records must show how the value placed on third party in-kind contributions was derived.
  • To the extent feasible, volunteer services will be supported by the same methods that the organization uses to support the allocability of regular personnel costs.

Some third party in-kind contributions are goods and services that, if the grantee, subgrantee, or contractor receiving the contribution had to pay for them, the payments would have been an indirect costs.

  • Costs sharing or matching credit for such contributions shall be given only if the grantee, subgrantee, or contractor has established, along with its regular indirect cost rate, a special rate for allocating to individual projects or programs the value of the contributions.

Program Income

Grantees are encouraged to earn income to defray program costs. Program income includes income from:

  • fees for services performed,
  • From the use or rental of real or personal property acquired with grant funds,
  • from the sale of commodities or items fabricated under a grant agreement,
  • and from payments of principal and interest on loans made with grant funds.
  • Except as otherwise provided in regulations of the Federal agency, program income does not include interest on grant funds, rebates, credits, discounts, refunds, etc. and interest earned on any of them.

Definition of Program Income

  • Program income means gross income received by the grantee or subgrantee directly generated by a grant supported activity, or earned only as a result of the grant agreement during the grant period. ''During the grant period'' is the time between the effective date of the award and the ending date of the award reflected in the final financial report.
  • Cost of generating program income. If authorized by Federal regulations or the grant agreement, costs incident to the generation of program income may be deducted from gross income to determine program income.

Use of Program Income

  • Program income shall be deducted from outlays which may be both Federal and non-Federal as described below, unless the Federal agency regulations or the grant agreement specify another alternative (or a combination of the alternatives).
  • In specifying alternatives, the Federal agency may distinguish between income earned by the grantee and income earned by subgrantees and between the sources, kinds, or amounts of income.
  • Deduction. Ordinarily program income shall be deducted from total allowable costs to determine the net allowable costs. Program income shall be used for current costs unless the Federal agency authorizes otherwise. Program income which the grantee did not anticipate at the time of the award shall be used to reduce the Federal agency and grantee contributions rather than to increase the funds committed to the project.
  • Addition. When authorized, program income may be added to the funds committed to the grant agreement by the Federal agency and the grantee. The program income shall be used for the purposes and under the conditions of the grant agreement.
  • Cost sharing or matching. When authorized, program income may be used to meet the cost sharing or matching requirement of the grant agreement. The amount of the Federal grant award remains the same.

Non Federal Audits

Basic rule. Grantees and subgrantees are responsible for obtaining audits in accordance with the Single Audit Act Amendments of 1996 and revised OMB Circular A-133, ''Audits of States, Local Governments, and Non-Profit Organizations.''

  • The audits shall be made by an independent auditor in accordance with generally accepted government auditing standards covering financial audits.

Audit Requirements

  • Subgrantees. State or local governments, as those terms are defined for purposes of the Single Audit Act Amendments of 1996, that provide Federal awards to a subgrantee, which expends $500,000 or more (or other amount as specified by OMB) in Federal awards in a fiscal year, shall:
    1. Determine whether State or local subgrantees have met the audit requirements of the Act and whether subgrantees covered by OMB Circular A-110, ''Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and Other Non-Profit Organizations,'' have met the audit requirements of the Act
  • Commercial contractors (private for-profit and private and governmental organizations) providing goods and services to State and local governments are not required to have a single audit performed. State and local governments should use their own procedures to ensure that the contractor has complied with laws and regulations affecting the expenditure of Federal funds;
    1. Determine whether the subgrantee spent Federal assistance funds provided in accordance with applicable laws and regulations. This may be accomplished by reviewing an audit of the subgrantee made in accordance with the Act, Circular A-110, or through other means (e.g., program reviews) if the subgrantee has not had such an audit;
    2. Ensure that appropriate corrective action is taken within six months after receipt of the audit report in instance of noncompliance with Federal laws and regulations;
    3. Consider whether subgrantee audits necessitate adjustment of the grantee's own records; and
    4. Require each subgrantee to permit independent auditors to have access to the records and financial statements. 

Revisions of Budget or Program Plans

Recipients are required to report deviations from budget and program plans, and request prior approvals for budget and program plan revisions. For non-construction awards, recipients shall obtain prior approvals for one or more of the following program or budget related reasons:

  1. Change in the scope or the objective of the project or program (even if there is no associated budget revision requiring prior written approval).
  2. Change in the project director or principal investigator or other key persons specified in the application or award document.
  3. The absence for more than three months, or a 25 percent reduction in time devoted to the project, by the approved project director or principal investigator.
  4. The need for additional Federal Funding
  5. The inclusion, unless waived by the awarding agency, of costs that require prior approval in accordance with applicable OMB Cost Circulars;
  6. The transfer of funds allotted for training allowances (direct payment to trainees) to other categories of expense
  7. Unless described in the application and funded in the approved award the subaward, transfer or contracting out of any work under an award. This provision does not apply to the purchase of supplies, material, equipment or general support services.
  8. The inclusion of research patient care costs in research awards made for the performance of research work. The HHS awarding agency is authorized at its option, to waive cost related and administrative prior written approvals required by this part and its appendixes.
  9. Transfers between budget lines items of 10% or more.

Additional waivers may be granted authorizing recipients to do any one or more of the following:

  • Incur pre-award costs up to 90 calendar days prior to award, or more than 90 calendar days with the prior approval of the awarding agency. However, all pre-award costs are incurred at the recipient's risk: the awarding agency is under no obligation to reimburse such costs if for any reason the applicant does not receive an award or if the award to the recipient is less than anticipated and inadequate to cover such costs.
  • Initiate a one-time extension of the expiration date of the award of up to 12 months.

One Time Extensions

For one-time extensions, the recipient must notify the awarding agency in writing, with the supporting reasons and revised expiration date, at least 10 days before the date specified in the award. This one-time extension may not be exercised either by recipients or awarding agencies merely for the purpose of using unobligated balances. Such extensions are not permitted where:

  • The terms and conditions of award prohibit the extension;
  • The extension requires additional Federal funds;
  • The extension involves any change in the approved objectives or scope of the project.
  • Carry forward unobligated balances to subsequent funding periods

Record Retention

Financial records, supporting documents, statistical records, and all other records pertinent to an award shall be retained for a period of three years from the date of submission of the final expenditure report, the only exceptions include:

  1. If any litigation, claim, financial management review, or audit is started before the expiration of the 3-year period, the records shall be retained until all litigation, claims or audit findings involving the records have been resolved and final action taken
  2. Records for real property and equipment acquired with Federal funds shall be retained for 3 years after final disposition.
  3. When records are transferred to or maintained by the awarding agency, the 3-year retention requirement is not applicable to the recipient.
  4. Indirect cost rate proposals, cost allocations plans, etc Copies of original records may be substituted for the original records if authorized by the awarding agency.

Termination of a federal award

Awards may be terminated in whole or in part only if (1), (2), or (3) applies.

  1. By the awarding agency, if a recipient materially fails to comply with the terms and conditions of an award.
  2. By the awarding agency with the consent of the recipient, in which case the two parties shall agree upon the termination conditions, including the effective date and, in the case of partial termination, the portion to be terminated
  3. By the recipient upon sending to the awarding agency written notification setting forth the reasons for such termination, the effective date, and, in the case of partial termination, the portion to be terminated

However, if the awarding agency determines in the case of partial termination that the reduced or modified portion of the award will not accomplish the purposes for which the award was made, it may terminate the award in its entirety

Enforcement

If a recipient materially fails to comply with the terms and conditions of an award, whether stated in a Federal statute or regulation, an assurance, an application, or a notice of award, the awarding agency may take one or more of the following actions:

  1. Temporarily withhold payments;
  2. Disallow (that is, deny both use of funds and any applicable matching credit for) all or part of the cost of the activity or action not in compliance.
  3. Wholly or partly suspend or terminate the current award.
  4. Withhold further awards for the project or program.
  5. Take any other remedies that may be legally available

In taking an enforcement action, the awarding agency will provide the recipient or subrecipient an opportunity for a hearing, appeal, or other administrative proceeding to which the recipient or subrecipient is entitled under any statute or regulation applicable to the action

After the Award - Close Out

  • Recipients shall submit, within 90 calendar days after the date of completion of the award, all financial, performance, and other reports as required by the terms and conditions of the award.
  • a recipient shall liquidate all obligations incurred under the award not later than 90 calendar days after the funding period or the date of completion as specified in the terms and conditions of the award or in agency implementing instructions
  • In the event a final audit has not been performed prior to the closeout of an award, the awarding agency retains the right to recover an appropriate amount after fully considering the recommendations on disallowed costs resulting from the final audit.
  • The closeout of an award does not affect any of the following:
    1. The right of the awarding agency to disallow costs and recover funds on the basis of a later audit or other review.
    2. The obligation of the recipient to return any funds due as a result of later refunds, corrections, or other transactions.
    3. Audit requirements

Questions?