FIACCT 14-06_00 Grant Accounting – Cash Management Improvement Act (CMIA) – Overview

Effective: July 1, 1994
Revised: February 2, 2018
Reviewed: February 2, 2018

Purpose

This policy defines how the federal Cash Management Improvement Act of 1990, Public Law 101-453, and its implementing rules and procedures, published as 31 CFR Part 205, affect the State and its agencies.

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Background

The rules which implement the federal Cash Management Improvement Act of 1990 are aimed at eliminating incentives that have in the past led some federal agencies and some states to manipulate grant payments.

Federal agencies were concerned that states were drawing down federal grant funds well in advance of need—and keeping the interest earned on the funds. State officials, meanwhile, contended that early drawdowns were justified because their funds often had to be disbursed well before federal funds arrived.

The intent of the Act is to promote greater efficiency, effectiveness, and equity in the transfer of funds between the federal government and states. Neither the federal government nor the State should suffer or benefit financially as a result of the transfer of cash in support of State administered federal assistance programs.

Even though the preamble to the Act states: “The computation and payment of interest is not the objective of the law,” the interest calculation provisions cause the greatest difficulty in compliance with the law. States have to pay the federal government interest on federal funds that are held in a state account prior to the day the state pays out the funds for program purposes. On the other hand, the federal government has to pay interest to a state when the state uses its own funds to meet federal program obligations. Interest accrues between the day the state actually disburses funds and the day federal funds are credited to the state’s account.

The Cash Management Improvement Act applies to programs listed in the Catalog of Federal Domestic Assistance (CFDA). Larger programs meeting certain threshold levels are defined as “major” programs. These major programs have more stringent tracking and reporting requirements and must be included in an agreement between the State and the U.S. Treasury. That agreement describes how funds will be transferred between state entities and federal agencies. It also defines the interest liabilities which accrue when the timing of transfers of federal funds puts the State or the federal government at a disadvantage.

Detailed funds transfer procedures for major federal assistance programs are listed in the current treasury-state agreement, not this manual. The Division of Finance will monitor compliance with the treasury-state agreement on a monthly basis. To do this, state entities will be asked to supply various federal funds drawdown and expenditure information on a timely basis. Copies of the current treasury state agreement and the actual Cash Management Act itself are available from the Division of Finance.

Even though smaller programs are not required to be covered in the agreement with the U.S. Treasury, all programs must follow fair and efficient cash management procedures. Cash advances from the federal government should be limited to the minimum amounts needed and should be timed to be in accord with only the actual, immediate cash requirements of the state to carry out a program. The timing and amount of cash advances shall be as close as is administratively feasible to the actual cash outlay by the state for direct program costs and the proportionate share of any allowable indirect costs. Entities utilizing cost allocation plans or indirect cost proposals should request frequent reimbursement of these indirect costs. Where possible, these requests should be at the same time payroll is paid. The amount requested can be an estimated portion of the indirect costs incurred for the federal program. When the actual indirect costs incurred for the federal program are determined, any excess costs remaining can be drawn at that time. If certain state entities demonstrate an unwillingness or inability to follow equitable cash management practices, the Financial Management Service of the U.S. Treasury may compel those programs to be included under the more stringent requirements of major programs included in the treasury-state agreement.

All federal funds must be tracked daily in FINET using the reporting category functions of the Grant
Accounting Module. Detailed policies and procedures for dealing with federal revenue are in the
REVENUE section of this manual. All revenue and expense transactions related to federal assistance
programs must use reporting category codes as described in the GRANT ACCOUNTING section of this
manual. All state entities receiving federal funds should be familiar with the REVENUE section and the
GRANT ACCOUNTING section of this manual, as well as this CASH MANAGEMENT IMPROVEMENT ACT section.