Recipients of federal grant funds must use the funds as indicated by the grant agreement and must ensure that funds are expended in the time frame specified by the document. This publication discusses the period of fund availability, how the time period will influence the expending of funds, and how the time period affects the Single Audit process, also known as the OMB A-133 audit, an organization-wide audit of an entity that expends $750,000* or more of federal assistance received for its operations.
Period of Fund Availability
All federal grant funds have a limited time period in which the recipient must use them. While many organizations receive multiple federal awards during a year, individual grants are awarded for a specified time period, usually one year. Federal regulations prohibit the use of funds from a grant award outside its specified time period, unless authorized by a federal agency. Auditors will be looking at records of expenditures to verify that all expenditures have indeed occurred during the permitted time period.
It is worth noting that some federal agencies use the terms “performance period” or “funding period” to identify the period of fund availability.
For example, an organization receives a grant from the U.S. Department of Housing and Urban Development (HUD) with a period of fund availability of November 10, 2012, through December 15, 2013. The organization has expenditures for all of the grant funds except $12,500, and it is now December 20, 2013. Unfortunately, the organization is not permitted to expend the remaining balance because the lifespan of the funds has terminated. The surplus must be returned to the federal government.
Organizations that are using Grants Network: Tracking and Reporting can utilize the grants management system to track the period of availability for all grants received. The system can also ensure that the organization utilizes the principle of “first in first out.” In other words, organizations should use the monies received first followed by funds received at a later time. This is especially important to remember when the organization receives funds for the same program on a regular basis.
Extensions, Amendments, & Modifications
Most federal agencies recognize that there are often many factors that contribute to an organization not spending all its awarded funds. In fact, there are often factors that occur that are beyond the control of the organization. When an organization realizes that it will be unable to expend its awarded funds, contact with the assigned program officer should occur immediately. While you may communicate by phone, it is always best to put in writing your request for an extension or modification to the budget. Your written request should include the exact amount that you are requesting to spend outside the original period of fund availability. Request that the program officer respond to you in writing; include both your request and the approval for the request in your grant files. Your auditor will need to see both.
Returning to our example from above, if the organization had contacted the program officer and requested an extension or modification and had received an affirmative response, then the organization could feel comfortable expending the funds beyond the original grant period. Generally, this request will be responded to in the form of an amendment to the grant award agreement. Never assume that a verbal affirmation is your indicator to proceed. Always maintain written documentation to support changes.
What the Auditor Will Look For
The auditor’s objectives are to:
- Obtain an understanding of internal control, assess risk, and test internal control as required by OMB Circular A-133 §___.500(c).
- Determine whether federal funds were obligated within the period of fund availability and obligations were liquidated within the required time period.
As previously mentioned, the auditor will be ensuring that all funds expended were expended during the period of fund availability. The auditor will examine purchase orders/requisitions as well as invoices paid to verify that all expenditures did occur during the period of fund availability. It is important to note that having purchasing documents may not be sufficient. Most federal agencies have a 90-day liquidation period. It is during this period that final payments for all purchases must occur. In the event that expenditures have occurred outside the grant period, the auditor will look for written documentation from the granting agency approving an extension.
As an auditee, you can minimize questionable or possible disallowed costs or activities by incorporating the following:
Make copies of grant agreements available to staff involved with the grant program. Ensure that staff review the award documents and regulations pertaining to the program and determine any specific requirements related to the period of availability. Are pre-award costs authorized by the federal agency? For multi-year programs, can unobligated balances be carried over and charged for obligations of the subsequent funding period?
Have an account system in place to prevent obligation or expenditure of federal funds outside the period of availability. Automated notifications are especially useful.
Have the person knowledgeable about the grant review disbursements.
Upon receipt of grant agreements, organizations should verify their period of fund availability. This period is the time frame in which all grant expenditures must occur. Those expenditures that occur outside this time frame will usually be disallowed and could result in findings on the organization’s single audit report.
*Note: The OMB guidance from 2014 has since raised the threshold from $500,000 to $750,000.