Grant Accounting
Policy
FIACCT 14-06_13 Grant Accounting – CMIA – Funding Techniques
Effective: July 1, 1994
Revised: February 2, 2018
Reviewed: February 2, 2018
Purpose
This policy describes the allowable funding techniques which may be used by the State for transferring funds between agencies of the federal government and entities of the State of Utah.
Definitions
Pay out funds for program purposes
To debit a state bank account for the purpose of making a payment. In other words, not just issuing a check, but when that check actually clears the State’s bank account. Also, the payment must be made to a person or entity not considered to be a part of the State, unless that state entity is the actual provider of goods or services to the federal program.
Policy
A. The time elapsing between the transfer of funds from the United States Treasury and the pay out of funds for program purposes by the State shall be minimized. Entities of the State shall limit the amount of funds transferred to the State to the minimum required to meet the State’s actual, immediate cash needs. All federal agencies allow the State to submit requests for funds as often as daily. A federal agency shall deposit funds in the State’s account no later than the next business day after receiving a request for funds.
B. Reimbursable funding is a method of transferring federal funds to the State after the State has paid out its own funds for program purposes. Reimbursable funding is prohibited, except where mandated by federal law.
C. Entities of the State must select one of the following four funding techniques for each federal program. (Entities may apply more than one funding technique or funds transfer procedure to a program with multiple, separate cash flows.) For major federal assistance programs, the funding technique(s) used will be described in the treasury-state agreement. Funding techniques cannot be changed until the treasury-state agreement is amended.
1. Zero balance accounting is a method of transferring federal funds to the State based on the actual amount of funds that are paid out by the State each day after a disbursement. Neither the federal government nor the State will incur an interest liability when this funding technique is properly applied. (This technique is almost impossible to implement in Utah. The State’s financial institution would have to request and receive federal funds on the same day checks are presented or electronic payments are settled. It is totally contingent on cut-off times. Usually the bank cannot supply the amount of checks which cleared today in time to make the Federal Reserve Bank’s cut-off for same day request and receipt of funds.)
THE FOLLOWING THREE METHODS REQUIRE THE DEVELOPMENT OF A CLEARANCE PATTERN FOR THE PROGRAM, BASED ON WHEN CHECKS HAVE BEEN HISTORICALLY PRESENTED FOR PAYMENT:
2. Projected clearance is a method of transferring federal funds to the State based on the projected amount of funds that are paid out by the State each day after a disbursement. Neither the federal government nor the State will incur an interest liability when this funding technique is properly applied. (Over the long term, the amounts of federal funds drawn down and the amounts of checks presented for payment will approximate the historical clearance pattern.)
3. Average clearance is a method of transferring federal funds to the State based on the dollar- weighted average number of days required for funds to be paid out by the State after a disbursement. Neither the federal government nor the State will incur an interest liability when this funding technique is properly applied. (A state may request approval to use the average clearance funding technique, but must provide the Bureau of the Fiscal Service of the U.S. Treasury with adequate justification for its use in lieu of projected clearance.)
4. Pre-issuance funding is a method of transferring federal funds to the State prior to the day the State issues checks or initiates electronic funds transfer payments. When this funding technique is applied, the State will incur an interest liability to the federal government from the day federal funds are credited to a state account to the day the state pays out the funds for program purposes. Federal funds may not be requested more than 3 business days prior to the day on which the State disburses the funds.
D. In addition to the four funding techniques listed above, only for indirect costs and administrative cost grants, and only if the State and the Bureau of the Fiscal Service of the U.S. Treasury agree in the treasury-state agreement, the following funding conventions may be used:
1. A prorated amount of an administrative cost grant may be drawn down on the date of the state payday.
2. If an indirect cost rate is applied to a program, the federal funds request will include a proportionate share of the indirect cost allowance in each drawdown by applying the indirect cost rate to the appropriate direct costs of each drawdown.
3. If costs must be allocated to various programs pursuant to a labor distribution or other system under an approved cost allocation plan, federal funds should be drawn down to meet cash outlay requirements based on the most recent, certified cost allocations, with subsequent adjustments pursuant to the actual allocation of costs.
E. The currently selected funding techniques for each major federal assistance program are listed in the current treasury-state agreement.