Federal Assistance Manual Chapter 5-55

CHAPTER 5-55 DRAWDOWN ANALYSIS: POLICIES AND PROCEDURES

• 5-55-00 Purpose
  
• 5-55-10 Applicability
  
• 5-55-20 Background
  
• 5-55-30 Policy
  
• 5-55-40 Responsibilities
  
• 5-55-50 Procedures for Conducting Reviews
  
• 5-55-60 Reporting Results of Reviews

5-55-00 PURPOSE

This chapter establishes OSM policies and procedures for conducting and reporting the results of periodic reviews of grantees' use of Federal funds.

5-55-10 APPLICABILITY

This chapter is applicable to all grants and cooperative agreements financed through the Department of Treasury's Automated Clearinghouse (ACH).

5-55-20 BACKGROUND

1. Section 203 of the Intergovernmental Cooperation Act of 1968 provides that "Heads of Federal departments and agencies responsible for administering grant-in-aid programs shall schedule the transfer of grant-in-aid funds consistent with program purposes and applicable Treasury regulations, so as to minimize the time elapsing between the transfer of such funds from the United States Treasury and the disbursement thereof by a State, whether such disbursement occurs prior to or subsequent to such transfer of funds."

2. Section 106(b) of the Indian Self-Determination and Education Assistance Act provides "The transfer of funds shall be scheduled consistent with program requirements and applicable regulations, so as to minimize the time elapsing between the transfer of such funds from the United States Treasury and the disbursement thereof by the tribal organization, whether such disbursement occurs prior to or subsequent to such transfer of funds. Tribal organizations shall not be held accountable for interest paid on such funds, pending their disbursement by such organization.

3. The Department of the Treasury requires that periodically the Federal program agency shall review each recipient's use of funds. The purpose of the review is to determine (a) the difference, if any, between the total amount of funds drawn and the total disbursements related to the Federal program; (b) that cash is being withdrawn only in accordance with program disbursement needs; and (c) the available balance for a grant. The reports should be reviewed for agreement with Federal program agency accounts and reasonableness of cash balances on hand and the timing of drawdowns by payment voucher and request for payment or advances by direct Treasury check.

4. Treasury Circular 1075 (31 CFR 205) requires that "cash advances to a recipient organization shall be limited to the minimum amounts needed and shall be timed to be in accord only with the actual, immediate cash requirements of the recipient organization in carrying out the purpose of the approved program or project. The timing and amount of cash advances shall be as close as is administratively feasible to the actual disbursements by the recipient organization for direct program costs and the proportionate share of any allowable indirect costs."

5. The Grants Management Common Rule provides the following guidance on the use of the SF 272, Federal Cash Transactions Report: For grants paid by Treasury check advances or electronic funds transfer, the grantee shall submit the Standard Form 272, Federal Cash Transaction Report, and when necessary, its continuation sheet, Standard Form 272a, unless the terms of the award exempt the grantee from this requirement. [Note: OSM's grant agreement does exempt the grantee from this requirement.]

5-55-30 POLICY

1. Advances of Federal funds shall be limited to the minimum amount needed and be timed to be in accord only with actual disbursement needs.

2. Recipients shall disburse Federal funds as soon as is administratively feasible under the recipient's financial management systems.

3. RCCs/FOs shall conduct reviews of recipient organizations' use of Federal funds. The timing, magnitude and complexity of these reviews shall be determined by each RCC/FO.

5-55-40 RESPONSIBILITIES

1. Each recipient organization shall:
   1. Maintain financial management systems which comply with State or Federal requirements, as appropriate; and

   2. Comply with the requirement that advances of Federal funds be limited to the minimum amounts necessary for immediate disbursement needs.

2. RCCs/FOs have the primary responsibility for monitoring recipient organizations' use of Federal funds. In fulfilling this responsibility each RCC/FO shall conduct reviews of recipient organizations' use of Federal funds obtained through the ACH to ensure that (a) the amount of advances made are not excessive; (b) the advances are properly accounted for; and (c) cash is not maintained by recipients in excess of immediate need.

5-55-50 PROCEDURES FOR CONDUCTING REVIEWS

1. Level I Review
   1. Objectives: To perform initial reviews of grantees' systems or reviews after significant changes to the grantees' systems in order to:
      1. Understand the grantee's system(s) for requesting and disbursing Federal funds; and

      2. Determine, in calendar days, what is minimally administratively feasible for the grantee to disburse Federal funds; or

      3. Document major changes or problems uncovered in subsequent reviews of the grantee's systems.

   2. Procedures: The following are the minimum steps to be completed in order to research and document the above objectives.
      1. Review the grantee's laws, regulations, policies, and procedures, regarding its financial management systems, including its processes for requesting and disbursing Federal funds.

      2. Flow chart the processes/steps according to:
         1. the grantee's written policies; and

         2. the actual procedures being followed.

      3. Test the procedures for requesting Federal funds. Test sufficient number of draws to address each type of grant.

      4. Test the procedures for disbursing Federal funds. All disbursements within the draws selected should be tested.

      5. Develop an expenditure rate for the grantee, as needed to determine whether significant trends exist or are developing.

      6. Determine the frequency rate for draws.

      7. Track the amount of the balance on hand and the amount of Federal funds requested for each drawdown request.

      8. Relate the amount of Federal funds requested to the grantee's expenditure rate.

      9. Evaluate the findings to determine:
         1. the actual and optimum number of days required to disburse funds under the grantee's system;

         2. if any procedures under the control of the grantee should be corrected or streamlined;

         3. if any procedures not under the control of the grantee can be streamlined.

   3. Final Actions:
      1. Prepare written documentation and justification for the RCC/FO determination(s) regarding the grantee's systems for requesting and disbursing Federal funds.

      2. Present the results of the review to the grantee and, if necessary, work with grantee to resolve any issues/problems.

2. Level II Review
   1. Objectives. To perform subsequent reviews of grantees using:
      1. Reimbursement of Funds Method; or

      2. Advance of Funds Method, when the predetermined timeliness standard for disbursement of funds continues to be met.

   2. Procedure:

      Review the minimum number of drawdowns required to determine whether there have been any changes in the method of drawing funds or timeframes established in the Level I review.

   3. Final Actions:
      1. If the findings confirm that the grantee continues to operate on a reimbursement basis, the review is complete.

      2. If the grantee is operating on an advance basis and the findings verify that the grantee continues to meet predetermined timeliness standards for disbursement of Federal funds, the review is complete.

      3. If the findings indicate possible/potential problems, resolve issues as outlined in C. below.

3. Resolving Problems
   1. Objectives:

      To resolve/address issues/problems uncovered in previous drawdown reviews.

   2. Procedures:
      1. Define the magnitude of the problem, e.g., how much cash is maintained for what length of time.

      2. Determine whether there have been any changes in the grantee's systems, procedures or internal controls, or in key personnel. If so, review a reasonable sample of data to determine the effect, if any, of the changes. If the changes warrant, perform a Level I review instead of the remainder of these procedures.

      3. Document the critical time path and identify the most problematic points in the process.

      4. Develop suggestions for resolution of issues/problems.

      5. Present suggestions to the grantee and work with grantee to consider mechanisms or improvements within the grantee's system to address the issues/problems.

   3. Final Actions:

      Document agreed-to resolution and review for three times after resolution to ensure that changes/improvements have become institutionalized.

FEDERAL ASSISTANCE MANUAL
January 2, 1998