24 CFR Subtitle A (4-1-98 Edition)

§ 85.21

24 CFR Subtitle A (4–1–98 Edition)

Fiscal control and accounting procedures of the State, as well as its subgrantees and cost-type contractors,
must be sufficient to—
(1) Permit preparation of reports required by this part and the statutes authorizing the grant, and
(2) Permit the tracing of funds to a
level of expenditures adequate to establish that such funds have not been
used in violation of the restrictions
and prohibitions of applicable statutes.
(b) The financial management systems of other grantees and subgrantees
must meet the following standards:
(1) Financial reporting. Accurate, current, and complete disclosure of the financial results of financially assisted
activities must be made in accordance
with the financial reporting requirements of the grant or subgrant.
(2) Accounting records. Grantees and
subgrantees must maintain records
which adequately identify the source
and application of funds provided for financially-assisted activities. These
records must contain information pertaining to grant or subgrant awards
and authorizations, obligations, unobligated balances, assets, liabilities, outlays or expenditures, and income.
(3) Internal control. Effective control
and accountability must be maintained
for all grant and subgrant cash, real
and personal property, and other assets. Grantees and subgrantees must
adequately safeguard all such property
and must assure that it is used solely
for authorized purposes.
(4) Budget control. Actual expenditures or outlays must be compared
with budgeted amounts for each grant
or subgrant. Financial information
must be related to performance or productivity data, including the development of unit cost information whenever appropriate or specifically required in the grant or subgrant agreement. If unit cost data are required, estimates based on available documentation will be accepted whenever possible.
(5) Allowable cost. Applicable OMB
cost principles, agency program regulations, and the terms of grant and
subgrant agreements will be followed
in determining the reasonableness, allowability, and allocability of costs.

(6) Source documentation. Accounting
records must be supported by such
source documentation as cancelled
checks, paid bills, payrolls, time and
attendance
records,
contract
and
subgrant award documents, etc.
(7) Cash management. Procedures for
minimizing the time elapsing between
the transfer of funds from the U.S.
Treasury and disbursement by grantees
and subgrantees must be followed
whenever advance payment procedures
are used. Grantees must establish reasonable procedures to ensure the receipt of reports on subgrantees’ cash
balances and cash disbursements in
sufficient time to enable them to prepare complete and accurate cash transactions reports to the awarding agency. When advances are made by letterof-credit or electronic transfer of funds
methods, the grantee must make
drawdowns as close as possible to the
time of making disbursements. Grantees must monitor cash drawdowns by
their subgrantees to assure that they
conform substantially to the same
standards of timing and amount as
apply to advances to the grantees.
(c) An awarding agency may review
the adequacy of the financial management system of any applicant for financial assistance as part of a
preaward review or at any time subsequent to award.
§ 85.21

Payment.

(a) Scope. This section prescribes the
basic standard and the methods under
which a Federal agency will make payments to grantees, and grantees will
make payments to subgrantees and
contractors.
(b) Basic standard. Methods and procedures for payment shall minimize
the time elapsing between the transfer
of funds and disbursement by the
grantee or subgrantee, in accordance
with Treasury regulations at 31 CFR
part 205.
(c) Advances. Grantees and subgrantees shall be paid in advance, provided they maintain or demonstrate
the willingness and ability to maintain
procedures to minimize the time elapsing between the transfer of the funds
and their disbursement by the grantee
or subgrantee.

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§ 85.22

(d) Reimbursement. Reimbursement
shall be the preferred method when the
requirements in paragraph (c) of this
section are not met. Grantees and subgrantees may also be paid by reimbursement for any construction grant.
Except as otherwise specified in regulation, Federal agencies shall not use the
percentage of completion method to
pay construction grants. The grantee
or subgrantee may use that method to
pay its construction contractor, and if
it does, the awarding agency’s payments to the grantee or subgrantee
will be based on the grantee’s or subgrantee’s actual rate of disbursement.
(e) Working capital advances. If a
grantee cannot meet the criteria for
advance payments described in paragraph (c) of this section, and the Federal agency has determined that reimbursement is not feasible because the
grantee lacks sufficient working capital, the awarding agency may provide
cash or a working capital advance
basis. Under this procedure the awarding agency shall advance cash to the
grantee to cover its estimated disbursement needs for an initial period
generally geared to the grantee’s disbursing cycle. Thereafter, the awarding
agency shall reimburse the grantee for
its actual cash disbursements. The
working capital advance method of
payment shall not be used by grantees
or subgrantees if the reason for using
such method is the unwillingness or inability of the grantee to provide timely
advances to the subgrantee to meet the
subgrantee’s actual cash disbursements.
(f) Effect of program income, refunds,
and audit recoveries on payment. (1)
Grantees and subgrantees shall disburse repayments to and interest
earned on a revolving fund before requesting additional cash payments for
the same activity.
(2) Except as provided in paragraph
(f)(1) of this section, grantees and subgrantees shall disburse program income, rebates, refunds, contract settlements, audit recoveries and interest
earned on such funds before requesting
additional cash payments.
(g) Withholding payments. (1) Unless
otherwise required by Federal statute,
awarding agencies shall not withhold

payments for proper charges incurred
by grantees or subgrantees unless—
(i) The grantee or subgrantee has
failed to comply with grant award conditions or
(ii) The grantee or subgrantee is indebted to the United States.
(2) Cash withheld for failure to comply with grant award condition, but
without suspension of the grant, shall
be released to the grantee upon subsequent compliance. When a grant is suspended, payment adjustments will be
made in accordance with § 85.43(c).
(3) A Federal agency shall not make
payment to grantees for amounts that
are withheld by grantees or subgrantees from payment to contractors
to assure satisfactory completion of
work. Payments shall be made by the
Federal agency when the grantees or
subgrantees actually disburse the withheld funds to the contractors or to escrow accounts established to assure
satisfactory completion of work.
(h) Cash depositories. (1) Consistent
with the national goal of expanding the
opportunities for minority business enterprises, grantees and subgrantees are
encouraged to use minority banks (a
bank which is owned at least 50 percent
by minority group members). A list of
minority owned banks can be obtained
from the Minority Business Development Agency, Department of Commerce, Washington, DC 20230.
(2) A grantee or subgrantee shall
maintain a separate bank account only
when required by Federal-State agreement.
(i) Interest earned on advances. Except
for interest earned on advances of
funds exempt under the Intergovernmental Cooperation Act (31 U.S.C. 6501
et seq.) and the Indian Self-Determination Act (23 U.S.C. 450), grantees and
subgrantees shall promptly, but at
least quarterly, remit interest earned
on advances to the Federal agency. The
grantee or subgrantee may keep interest amounts up to $100 per year for administrative expenses.
§ 85.22 Allowable costs.
(a) Limitation on use of funds. Grant
funds may be used only for:
(1) The allowable costs of the grantees, subgrantees and cost-type contractors, including allowable costs in the

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