This requirement addresses the use of Head Start grant funds within a specific time period. Grantee and delegate agencies will find this information useful when spending and obligating awarded funds.
Obligation and Expenditure of Funds
Audit Requirements Related Links
Related Department of Appeals Board Decisions
Overview of Requirements
Based on the Federal regulations, at 45 CFR 74.28 and 92.23, where a funding period is specified, a grantee may charge only allowable costs resulting from obligations incurred during the funding period to the award. The grantee also may charge any pre-award costs authorized by the HHS awarding agency. For Head Start and Early Head Start grants, the funding period is each grantee’s own annual budget period.
In effect, this means that grant funds may only be used in the budget period for which the funds were awarded. Grantee agencies are not allowed to obligate more grant funds in one year than they were actually awarded, with the expectation of paying the excess amount with the following year's Head Start grant funds. If a grantee agency does obligate itself for more debt than it has grant funds to cover, then the grantee must use agency funds or other sources of funding to pay the excess. They may not use Head Start grant funds.
Grantee agencies must liquidate all obligations incurred under the award no later than 90 days after the end of the funding period to coincide with the submission of the annual (final) Financial Status Report (SF-269).
Grantees that do not obligate all of their grant funds during the year, and end with a remaining balance of unobligated Federal funds, are not allowed to automatically carry the funds over into the following grant year. There are situations where ACF will grant approval to carry over an unobligated balance of funds from the prior year for grantee use during the current funding period, however, these are viewed on a case-by-case basis and the approval must be in advance and in writing.
To prevent either the over-obligation or under-obligation of grant funds, it is essential that grantees periodically monitor reports showing budgeted and actual costs, especially as the end of the funding period nears.
Allowable costs mean those charges to an award that the Federal awarding agency determines to be allowable in accordance with the applicable Federal cost principles or other terms and conditions contained in the Federal Assistance Award. Attachments to the applicable cost principles identify and describe the factors affecting the allowability of cost.
Budget period means the annual 12-month, or other, interval of time into which the project period is divided for budgetary and funding purposes.
Carry-over balance (or C.O.B.) means the unobligated funds of the grantee from a previous funding period under a grant that are authorized for use to cover allowable costs in a current funding period.
Expenditures. See outlays.
Funding period means the period of time when Federal funding is available for obligation by the grantee.
Liquidation means the issuance of payment for an obligation.
Obligations means the amounts of orders placed, contracts and subgrants awarded, goods and services received, and similar transactions during a given budget period that will require payment by the grantee during the same or a future budget period.
Outlays (or expenditures) mean the charges made to the federally sponsored project or program. They may be reported on a cash or accrual basis.
- For financial reports prepared on a cash basis, outlays are the sum of actual cash disbursements for direct charges for goods and services, the amount of indirect expense charged, the value of in-kind contributions applied, and the amount of cash advances and payments made to delegate agencies.
- For financial reports prepared on an accrual basis, outlays are the sum of actual cash disbursements for direct charges for goods and services, the amount of indirect expense incurred, the value of in-kind contributions applied, and the net increase (or decrease) in the amounts owed by the grantee for goods and other property received, for services performed by employees, contractors, subgrantees, and other payees, and other amounts becoming owed under programs for which no current services or performance are required, such as annuities, insurance claims, and other benefit payments.
Pre-award (agreement) costs are obligations or expenditures made prior to the beginning date of an initial grant for a new grant.
Prior approval means written permission provided by the authorized granting official from the HHS awarding office before the grantee may undertake certain activities, expend funds, or exceed a certain dollar level. This must be written approval by an authorized HHS official evidencing prior consent.
Project period means the total time stated in Block 9 of the Financial Assistance Award document (including any amendments) for which Federal support is approved. The period may consist of one or more budget periods. The total project period comprises the original project period and any extensions. Head Start grants generally have "indefinite" project periods that are refunded annually in 12-month budget periods.
Unliquidated obligations mean, for reports prepared on a cash basis, the amount of obligations incurred by the grantee that has not been paid. For reports prepared on an accrued expenditure basis, it means the amount of obligations incurred by the grantee for which an outlay has not been recorded.
Unobligated balance means the portion of the funds authorized by the HHS awarding agency that has not been obligated by the grantee, and is determined by deducting the cumulative obligations from the cumulative funds authorized.
Period of Availability of Funds
Grantees may charge to the grant award only allowable costs resulting from obligations incurred during the funding period (and any pre-award costs authorized in advance by ACF). For Head Start grantees, the "funding period" is each grantee's own annual budget period.
Funds awarded to grantees remain available for obligation at any time during the budget period with the following exceptions:
- Grant funds may not be used for obligations or expenditures made prior to the beginning date of an initial grant for a new project unless pre-agreement costs (also called "pre-award costs") are specifically provided for in the approved budget and have been approved in writing by ACF.
- Grantees may not obligate grant funds to conduct project activities after grant support ends (meaning after the expiration of the grant funding period, termination, or denial of refunding of the grant). In certain cases, approval may be given to fund closedown costs associated with grant termination.
- ACF assumes no liability for project costs that exceed the total amount of Federal funds authorized on the Financial Assistance Award (FAA). This means that, if a grantee's obligations exceed the amount of Federal funding for that budget period, then the grantee will have to find a non-Federal funding source to pay for the excess costs. Grant funds awarded for the following year may not be used to pay for these excess costs.
- For grants with "indefinite" project periods, such as Head Start, grant funds remaining at the end of one annual budget period may not be used as "carryover" to pay for obligations incurred during a subsequent budget period unless prior written approval is requested and obtained from ACF.
Obligations (When does an obligation occur?)
The point in time when an obligation occurs depends on the type of property or services for which the obligation is made. The following table illustrates when an obligation that is directly charged is considered to occur (i.e., to be made) for various kinds of property and services:
|If the obligation is for:||The obligation is made:|
|Services by an employee of the grantee||On the date the services are performed|
|Services by a contractor||On the date the grantee makes a binding written commitment to obtain the services or work; or|
On the date the services are received, if there is not an advance written commitment to obtain the services
|Public utility services||On the date the grantee receives the services|
|Travel||On the date the travel is taken|
|Acquisition of real property||On the date the grantee makes a binding written commitment to acquire the property; or |
On the date the property is received, if there is not an advance written commitment to obtain the property
|Rental of real or personal property||When the grantee uses the property|
|Acquisition of supplies, equipment, or other personal property||On the date the grantee orders from the vendor; or|
On the date the grantee makes a binding written commitment for the property
|Pre-agreement (i.e., pre-award) costs that were properly approved under the cost principles||On the first day of the effective date of the grant/sub-grant award period|
|Audit Services||In the period the audit is conducted.|
All obligations must be incurred by a grantee before the end of the project period, and must be liquidated (i.e., spent) within no more than 90 days after the end of the project period, and reported on the final Financial Status Report (SF-269). For grantees with indefinite project periods (such as Head Start), all obligations must be incurred before the end of the annual budget period, and liquidated within no more than 90 days after the end of the budget period, to coincide with the due date for submission of the final SF-269 to ACF.
There may be a time when it is not possible for the grantee to totally liquidate all obligations within the 90-day period. (If, for example, funds were obligated for the purchase of a Head Start bus by ordering it from the dealer, but the vehicle ordered will not be received by the grantee in time to meet the 90-day time frame.) On these occasions, the grantee must notify ACF in writing and request approval for either a specific extension of time in which to liquidate the obligation, or approval to "carryover" the funds to the following budget period as additional funds.
If an extension is approved, an interim or provisional SF-269 report should be submitted when the final report would be due, and every 90 days thereafter until all funds are liquidated indicating in the comments field the reason for delay. The final SF-269 should be submitted when all liquidations are completed.
If a carryover is approved, the grantee must cancel the obligation in the prior period and submit a final SF-269 showing $0 unliquidated balance and the carryover amount as an unobligated balance.
Carryover, Offset, and Deobligation
Head Start grantee agencies that do not obligate all of their grant funds during the year, so that they end with a remaining balance of unobligated Federal funds, are not allowed to automatically carry funds over into the following grant year. There are situations where the ACF awarding agency will grant approval to carryover an unobligated balance of funds from the prior year for grantee use during the current funding period. The grantee agency must request approval from the ACF grants officer to carryover unobligated funds. After evaluation, if approval is granted, ACF will notify the grantee agency through issuance of an amended Financial Assistance Award.
Unobligated balances of grant funds remaining at the end of a grantee's budget period may be processed by ACF in one of the following ways:
- By "carryover" (i.e., adding) of the unobligated balance to the Federal share of the approved budget for the current period. This will increase the grantee's total Federal share dollars for the current budget period.
NOTE: Once a "carryover" is done, Federal funds may not be used to offset a deficit if the actual unobligated balance (based on the annual audit) turns out to be less than the amount reported by the grantee on the final Financial Status Report (SF-269). This means that grantees must be very sure of the amount remaining before requesting to carryover funds to the current budget period. Generally, ACF will request grantees to obtain a certification from their auditor that the funds truly are unobligated, before processing a grantee's request for carryover. Carryover of funds to the current budget period is not allowable without prior written approval from ACF.
- By "offsetting" (i.e., deducting) the unobligated balance from the Federal share of the approved budget for the current period. For example, $5,000 in unobligated funds from a prior year would be used in place of $5,000 appropriated for the current fiscal year. This will result in no dollar change in the grantee's total Federal share of funds in the current budget period.
NOTE: When reporting expenditure of the funds to the HHS/Payment Management System, via PSC-272, the grantee will report $5,000 using the Document Number for the prior year, and the balance of the expenditures using the Document Number for the current year.
- By "de-obligation" (i.e., withdrawal) of Federal funds. This will decrease the grantee's total Federal share dollars for the budget period. This is done sometimes to adjust the amount of the grant based on the latest information provided by the grantee. It also is done after a grant expires or is terminated, in order to deobligate the final unobligated balance of grant funds.
Under the Single Audit Act and OMB Circular A-133, auditors are required to assess internal control and compliance. In the A-133 Compliance Supplement, this area is a specific compliance requirement in Part 3, and an internal control issue in Part 6, under the title "Period of Availability of Federal Funds.” Specifically, the auditor will determine whether funds were expended within the period of availability.
Suggested audit procedures, from the OMB Circular A-133 Compliance Supplement, include the following tests for compliance and internal controls:
- Reviewing the award documents and regulations pertaining to the program and a determination of any award-specific requirements related to the period of availability and documenting the availability period.
- Testing a sample of transactions charged to the Federal award after the end of the period of availability to verify that the underlying obligations occurred within the period of availability and that the liquidation (payment) was made within the allowed time period (90 days for Head Start).
- Testing a sample of transactions that were recorded during the period of availability to verify that the underlying obligations occurred within the period of availability.
- Selecting a sample of adjustments to the Federal funds to verify that these adjustments were for transactions that occurred during the period of availability.
- Determining whether the grantee's accounting system prevents obligation or expenditure of Federal funds outside of the period of availability.
- Determining whether end of grant period cut-offs are met by such mechanisms as advising program managers of impending cut-off dates and review of expenditures just before and after cut-off date.
- Determining whether the system provides for periodic monitoring review by management of reports showing budget and actual expenditures for the period.
The most frequent audit findings in this area are:
- The grantee agency over-obligated funds for the prior year and then paid the bills from current year funds.
- The grantee agency had an unobligated balance of funds remaining from the prior year and used the funds to pay current year bills, without requesting and receiving prior authorization/approval from the ACF awarding agency.
|2 CFR 215.28||Period of availability of funds|
|45 CFR 74.28||Period of availability of funds|
|45 CFR 74.25(d)(1)||Pre-award costs|
|45 CFR 92.23||Period of availability of funds|
|45 CFR 92.30(d)(2)||Programmatic changes and extension of period of availability of funds.|
Related Department of Appeals Board Decisions
- DAB Decision No. 1916: Central Piedmont Action Council, Inc.
Obligation and Expenditure of Funds. Fiscal Assistant. HHS/ACF/OHS. 2007. English.
Last Reviewed: June 2009
Last Updated: November 13, 2014