Transcript Obligations, Tydings and Complying with Cash Management

Obligations, Tydings and Complying
with Cash Management
Requirements
Michael Brustein, Esq.
[email protected]
Brustein & Manasevit, PLLC
Fall Forum 2013
“Take Aways” from this session…
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When “obligations” matter?
When “expenditures” matter?
When may I begin to expend funds?
When does interest begin to accrue?
How do I prevent the lapsing of funds?
What are the OIG concerns on cash
management?
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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 Management
 Awards – “GAN”
 Obligations – Commitments made that will
require payments
 Unobligated Balances – Portion not obligated
from grant
 Expenditures - Outlays / Disbursements
 Liquidation – Disburse funds to satisfy
obligations
 Income – Gross income directly generated by
grant supported activity
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 Question:
Is the focus on “obligation” of
“expenditure”?
 Answer:
Depends!
Consider the following eight case studies
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Case Study #1
• Where a “funding period” is specified, a
grantee may charge to the award only
costs from “obligations” of the funding
period
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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
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• 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
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Case Study #3
 Subgrantees 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 made
 34 CFR 76.708 (c)
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• 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
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Case Study #4
• Carryover funds must be “obligated” in
accordance with new laws, regulations,
application
– 34 CFR 76.710
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Case Study #5
• Are interest calculations based on date of
“obligation” or date of “expenditure”?
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QUICK TUTORIAL ON THE
CASH MANAGEMENT ACT OF 1990
(CMIA)
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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
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• CMIA establishes the “Treasury-State
Agreement”
– Methods for calculating interest and
identifying federal programs subject to
“Subpart A” of 31 CFR 205
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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
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• For Subpart A programs, State must
minimize time elapsing between transfer
from treasury and State’s “payout”
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THREE DAY DRAWDOWN WINDOW
31 CFR 205.12(b)(4)
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• 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)
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• Subpart B programs (smaller programs)
are not subject to the agreement
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• Treasury requires, for Subpart B
programs, State must minimize time
between drawdown and disbursement,
and comply with A-102 (34 CFR Part 80)
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• Treasury regulations provide that States
must not incur interest liability for
programs under Subpart B
– 31 CFR 205.33(b)
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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
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• ED calculates interest based on date of
expenditures, not obligations
(Tab A)
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ED / CFO 9/5/13 (Tab A)
• Time between federal grant funds
“drawn” and date those funds are
“disbursed”
expenditure
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• ED/CFO Interprets “reimbursement” (34
CFR 80.21 9 (d)) as payment to grantee
after evidence of outlay / disbursement.
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• Compliance Supplement requires costs
must be paid by the recipient before
reimbursement is requested.
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Case Study #6
• FIFO Accounting based on “obligations”
– See 5/28/70 Memo (Tab B)
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Case Study #7
• “Linkage” and preventing “Lapsing”
based on “obligations”
– Appeal of California (Tab C)
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• “The legally relevant question is when
the obligation arose, not in what account
such obligation may have been initially
recorded” (Tab C)
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Case Study #8
 Question:
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
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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 passthroughs and federal agencies cannot
effectively monitor grantees
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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
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OIG - Cash Management
• Clarify the type of working capital analysis
that is required of federal agencies prior to
providing advance payments
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OIG - Cash Management
• All recipients should account for program
income using the “deduction method” unless
federal agency indicates otherwise
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OIG - Cash Management
• 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.
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OIG - Cash Management
• Recommends that federal funds never be
placed in non-insured depository accounts
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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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