obligations, tydings and complying with cash management requirements

Obligations, Tydings and Complying with Cash Management

RequirementsMichael Brustein, Esq.

[email protected] & Manasevit, PLLC

Fall Forum 2013

mailto:[email protected]

“Take Aways” from this session…

1. When “obligations” matter?2. When “expenditures” matter?3. When may I begin to expend funds?4. When does interest begin to accrue?5. How do I prevent the lapsing of funds?6. What are the OIG concerns on cash

management? Brustein & Manasevit, PLLC 2

Basic Rule

• All grantees / subgrantees must maintain accounting records on “source” and “application” of federal funds

–34 CFR 80.20 (b)(2)

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Basic Elements of Cash ManagementAwards – “GAN”Obligations – Commitments made that will

require paymentsUnobligated Balances – Portion not obligated

from grantExpenditures - Outlays / DisbursementsLiquidation – Disburse funds to satisfy

obligationsIncome – Gross income directly generated by

grant supported activityBrustein & Manasevit, PLLC 4

Question:Is the focus on “obligation” of “expenditure”?

Answer: Depends!

Consider the following eight case studies


Case Study #1

• Where a “funding period” is specified, a grantee may charge to the award only costs from “obligations” of the funding period


Case Study #2

• Under State-Administered programs, States may “obligate” if (1) Secretary may “obligate” and (2) State plan in “substantially approvable form”

–34 CFR 76.703


• A State cannot use “obligations” for matching or MOE purposes if obligations are made during a period when obligations are unallowable (black-out period)–58 Federal Register 65856, 12/16/93


Case Study #3Subgrantees may “obligate” for

“formula” programs if (1) State may “obligate” and (2) local plan is “substantially approvable”34 CFR 76.708 (a)

For competitive programs, subgrantees, may obligate after date subgrant is made34 CFR 76.708 (c)


• Under Bifurcated S/A Programs (ESEA, IDEA, Perkins), subgrantees may fund “pre-award” obligations (July 1 to September 30) retroactively, from 2nd installment (75%)

• Source: Oct 1, 2013 GAN


Case Study #4

• Carryover funds must be “obligated” in accordance with new laws, regulations, application–34 CFR 76.710


Case Study #5

• Are interest calculations based on date of “obligation” or date of “expenditure”?


QUICK TUTORIAL ON THECASH MANAGEMENT ACT OF 1990 (CMIA)


Goal of CMIA

• Improve the efficiency and effectiveness of fund transfers between the federal government and States

• Federal agencies determine if funds used for allowable purposes

• States required to ensure federal funds used solely for program purposes


• CMIA establishes the “Treasury-State Agreement”

–Methods for calculating interest and identifying federal programs subject to “Subpart A” of 31 CFR 205


What programs are subject to Subpart A?

If State total federal programs less than $10 billion, any program exceeding .60 percent of total amount.

If State total federal program is greater than $10 billion, then greater of .30 percent of total federal assistance of $60 million


• For Subpart A programs, State must minimize time elapsing between transfer from treasury and State’s “payout”


THREE DAY DRAWDOWN WINDOW

31 CFR 205.12(b)(4)


• For Subpart A programs, State interest liability accrues if federal funds are received by a State prior to the date the State “pays out” the funds–31 CFR 205.15(a)


• Subpart B programs (smaller programs) are not subject to the agreement


• Treasury requires, for Subpart B programs, State must minimize time between drawdown and disbursement, and comply with A-102 (34 CFR Part 80)


• Treasury regulations provide that States must not incur interest liability for programs under Subpart B–31 CFR 205.33(b)


But EDGAR 34 CFR 80.21(i)…

Interest earned, minus $100 annually, by grantees and subgrantees on advances shall be remitted to ED(Tab A)

No exception for LEAs or Subpart B programs

Direct conflict with Treasury


• ED calculates interest based on date of expenditures, not obligations (Tab A)


ED / CFO 9/5/13 (Tab A)

• Time between federal grant funds “drawn” and date those funds are “disbursed” expenditure


• ED/CFO Interprets “reimbursement” (34 CFR 80.21 9 (d)) as payment to grantee after evidence of outlay / disbursement.


• Compliance Supplement requires costs must be paid by the recipient before reimbursement is requested.


Case Study #6

• FIFO Accounting based on “obligations” –See 5/28/70 Memo (Tab B)


Case Study #7

• “Linkage” and preventing “Lapsing” based on “obligations”–Appeal of California (Tab C)


• “The legally relevant question is when the obligation arose, not in what account such obligation may have been initially recorded” (Tab C)


Case Study #8Question:How to measure the five

year statute of limitations to bar recovery?

Answer: Date of “obligation” plus five years.

“ED has consistently held that “expended” as used in the statute means “obligated.”- Appeal of the State of Michigan Docket No. 8(272)88, 9/14/89

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OIG Issues on Cash Management

Council of Inspectors General for Integrity and Efficiency (CIGIE)

20 Federal Agencies covering 94% of $1.2 trillion in direct federal awards covered by A-133


OIG• Request OMB require recipients and

subrecipients to provide interim financial statements

• Such statements must contain basic line item information on how federal funds are spent

• Without such interim statements pass-throughs and federal agencies cannot effectively monitor grantees


OIG - Cash Management

• Recommend specific time frames for which recipient can draw cash• Terms such as “minimize” or

“anticipated needs” are too general and not auditable



• Clarify the type of working capital analysis that is required of federal agencies prior to providing advance payments



• All recipients should account for program income using the “deduction method” unless federal agency indicates otherwise



• Align Circular with Compliance Supplement on “Reimbursement”

• Compliance Supplement requires that costs must be paid by the recipient before reimbursement is requested.

• Under accrual accounting, a cost could be expensed on an award that has not been paid.



• Recommends that federal funds never be placed in non-insured depository accounts


Disclaimer

This presentation is intended solely to provide general information and does not

constitute legal advice. Attendance at the presentation or later review of these

printed materials does not create an attorney-client relationship with Brustein & Manasevit, PLLC. You should not take any action based upon any information in this presentation without first consulting

legal counsel familiar with your particular circumstances.


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