documentation such as cancelled checks, paid bills, payrolls, contract and subgrant award documents, etc.

(h) Audit resolution. Each recipient shall follow a systematic method to assure timely and appropriate resolution of audit findings and recommendations. [45 FR 22576, Apr. 3, 1980, as amended at 45 FR 35329, May 27, 1980]

$74.62 Non-Federal audits.

(a) Governmental recipients (1) Fiscal periods of recipients beginning before January 1, 1985. Recipients that are governments shall comply with the requirements concerning non-Federal audits in Attachment P to OMB Circular A-102 (October 1979) (see appendix G to part 74).

(2) Fiscal periods of recipients beginning on or after January 1, 1985. Recipients that are governments shall comply with OMB Circular A-128. The Circular is codified verbatim in appendix J to this part.

(b) All other recipients—(1) Fiscal periods of recipients beginning before January 1, 1990. Recipients that are not governments shall comply with the requirements concerning non-Federal audits in OMB Circular No. A-110 (see appendix H to part 74).

(2) Fiscal periods of recipients beginning on or after January 1, 1990. Recipients that are not governments shall comply with OMB Circular A-133. The Circular is codified verbatim in appendix I to this part.

(3) Hospitals. OMB Circular A-133 exempts hospitals not affiliated with an institution of higher education. In determining whether or not this exemption applies, the term affiliated shall include all situations where:

(i) Either a hospital or an institution of higher education has an ownership interest in the other entity or some other party (other than a State or local unit of government) has an ownership interest in each of them;

or

(ii) An affiliation agreement exists;

(iii) Federal research or training awards to a hospital or institution of higher education are performed in whole or in part in the facilities of, or involve the staff of, the other entity.

(c) Submission of audit reports. All copies of audit reports that a recipient is

required under OMB Circular A-128 or A-133 to submit to HHS shall be addressed to the HHS Regional Inspector General for Audit Services responsible for the HHS region in which the recipient is located. The HHS Office of Inspector General will distribute copies as appropriate within the Department. Recipients, therefore, are not required to send their audit reports to any HHS officials other than the responsible Regional Inspector General for Audit Services.1

[56 FR 8714, Mar. 1, 1991]

Subpart 1-Financial Reporting
Requirements

$74.70 Scope and applicability of subpart.

(a) This subpart prescribes requirements and forms for grantees to report financial information to HHS, and to request grant payments when a letter of credit is not used.

(b) This subpart need not be applied by grantees in dealing with their subgrantees. However, grantees are encouraged not to impose on subgrantees more burdensome requirements than HHS imposes on grantees.

874.71 Definitions.

As used in this subpart or in the forms identified by this subpart:

Accrued expenditures are the charges by grantee during a given period requiring the provision of funds for: (a) Goods and other tangible property received; (b) services performed by employees, contractors, subgrantees, and other payees; and (c) amounts becoming owed for which no current services or performance is required, such as annuities, insurance claims, and other benefit payments.

1 The Office of Inspector General is in the process of transferring this responsibility for recipients located in all regions to its Kansas City Office. Recipients in the New York, Philadelphia and Denver Regions should submit their reports to the Regional Inspector General for Audit Services, Kansas City, MO. Recipients in other regions will be advised directly by the Office of Audit Services when responsibility for their region is to be transferred.

Accrued income is the sum of (a) earnings during a given period from services performed by the grantee and from goods and other tangible property delivered to purchasers, and (b) amounts becoming owed to the grantee for which no current services or performance is required by the grantee.

Federal funds authorized means the total amount of Federal funds obligated by the Federal Government and authorized for use by the grantee.

In-kind contributions means thirdparty in-kind contributions as defined in Subpart G of this part.

Obligations are the amounts of orders placed, contracts and subgrants awarded, services received, and similar transactions during a given period, which will require payment during the same or a future period.

Outlays are charges made to the grant project or program. Outlays may be reported on a cash or accrual basis. Program income has the same meaning it has in Subpart F of this part.

Unobligated balance is the portion of the Federal funds authorized which has not been obligated by the grantee and is determined by deducting the grantee's cumulative obligations from the cumulative Federal funds authorized.

Unliquidated obligations, for reports prepared on a cash basis, are the amount of obligations incurred by the grantee that has not been paid. For reports prepared on an accrued expenditure basis, they are the amount of obligations incurred by the grantee for which an outlay has not been recorded. $74.72 General.

(a) Except as provided in paragraphs (d) and (e) of this section, grantees shall use only the forms specified in §§ 74.73 through 74.76, and such supplementary or other forms as may from time to time be authorized by OPAL, for:

(1) Submitting grant financial reports to granting agencies, or

(2) Requesting advances or reimbursements when letters of credit are not used.

(b) Grantees shall follow all applicable standard instructions issued by OMB for use in connection with the forms specified in §§ 74.73 through 74.76. Granting agencies may issue sub

stantive supplementary instructions only with the approval of OPAL. Granting agencies may shade out or instruct the grantee to disregard any line item that the granting agency finds unnecessary for its decision making purposes.

(c) Grantees will not be required to submit more than the original and two copies of forms required under this subpart.

(d) Granting agencies may provide computer outputs to grantees to expedite or contribute to the accuracy of reporting. Granting agencies may accept the required information from grantees in machine usable format or computer printouts instead of prescribed formats.

(e) When a granting agency has determined that a grantee's accounting system does not meet the standards for financial management systems contained in Subpart H of this part, it may require financial reports with more frequency or more detail (or both), upon written notice to the grantee (without regard to §74.7), until such time as the standards are met.

(f) HHS may waive any report required by this subpart if not needed.

(g) Granting agencies may extend the due date for any financial report upon receiving a justified request from the grantee.

[45 FR 22576, Apr. 3, 1980, as amended at 47 FR 53013, Nov. 24, 1982]

§74.73 Financial Status Report.

(a) Form. Grantees shall use Standard Form 269, Financial Status Report, to report the Status of funds for all nonconstruction grants.

(b) Accounting basis. Each grantee shall report program outlays and program income on the same accounting basis, i.e., cash or accrued expenditure (accrual), which it uses in its accounting system.

(c) Frequency. The granting agency may prescribe the frequency of the report for each project or program. However, the report shall not be required more frequently than quarterly except as provided in §§ 74.7 and 74.72(e). If the granting agency does not specify the frequency of the report, it shall be submitted annually. A final report shall be

required upon expiration or termination of grant support.

(d) Due date. When reports are required on a quarterly or semiannual basis, they shall be due 30 days after the reporting period. When required on an annual basis, they shall be due 90 days after the grant year. Final reports shall be due 90 days after the expiration or termination of grant support.

$74.74 Federal Cash Transactions Report.

(a) Form. (1) For grants paid by letters of credit (or Treasury check advances) through any HHS payment office except the Departmental Federal Assistance Financing System (DFAFS), the grantee shall submit to the payment office Standard Form 272, Federal Cash Transactions Report, and when necessary, its continuation sheet, Standard Form 272a. For grants paid by DFAFS, the grantee shall submit DFAFS Report 27, Recipient Report of Expenditures, to DFAFS.

(2) These reports will be used by the HHS payment office to monitor cash advanced to grantees and to obtain disbursement or outlay information for each grant from grantees. The format of the report may be adapted as appropriate when reporting is to be accomplished with the assistance of automatic data processing equipment: Provided, That the information to be submitted is not changed in substance.

(b) Forecasts of Federal cash requirements. Forecasts of Federal cash requirements may be required in the "Remarks" section of the report.

(c) Cash in hands of secondary recipients. When considered necessary and feasible by the responsible HHS payment office, grantees may be required to report the amount of cash subadvances in excess of three days' needs in the hands of their subgrantees or contractors and to provide short narrative explanations of actions taken by the grantee to reduce the excess bal

ances.

(d) Frequency and due date. Grantees shall submit the report no later than 15 working days following the end of each quarter. However, where a letter of credit authorizes advances at an annualized rate of one million dollars or more, the HHS payment office may

require the report to be submitted within 15 working days following the end of each month.

$74.75 Request for Advance or Reimbursement.

(a)(1) Advance payments. Requests for Treasury check advance payments shall be submitted on Standard Form 270, Request for Advance or Reimbursement. (This form is not used for drawdowns under a letter of credit or when Treasury check advance payments are made to the grantee automatically on a predetermined basis.)

(2) Reimbursements. Requests for reimbursement under non-construction grants shall also be submitted on Standard Form 270. (For reimbursement requests under construction grants, see § 74.76(a).)

(b) The frequency for submitting payment requests is treated in § 74.96.

$74.76 Outlay report and request for reimbursement for construction programs.

(a) Construction grants paid by reimbursement method. (1) Requests for reimbursement under construction grants shall be submitted on Standard Form 271, Outlay Report and Request for Reimbursement for Construction Programs. Granting agencies may, however, prescribe the Request for Advance or Reimbursement form specified in §74.75 instead of this form.

(2) The frequency for submitting reimbursement requests is treated in § 74.96.

(b) Construction grants paid by letter of credit or Treasury check advance. (1) When a construction grant is paid by letter of credit or Treasury check advances, the grantee shall report its outlays to the granting agency using Standard Form 271, Outlay Report and Request for Reimbursement for Construction Programs. The granting agency will provide any necessary special instruction. However, frequency and due date shall be governed by §74.73(c) and (d).

(2) When a construction grant is paid by Treasury check advances based on periodic requests from the grantee, the advances shall be requested on the form specified in § 74.75.

(3) The granting agency may substitute the Financial Status Report specified in $74.73 for the Outlay Report and Request for Reimbursement.

(c) Accounting basis. The accounting basis for the Outlay Report and Request for Reimbursement for Construction Programs shall be governed by §74.73(b).

Subpart J-Monitoring and Reporting of Program Perform

ance

$74.80 Scope of subpart.

This subpart sets forth the procedures for monitoring and reporting program performance of recipients. These procedures are designed to place reliance on recipients to manage the dayto-day operations of their grant- and subgrant-supported activities.

$74.81 Monitoring by recipients.

Recipients shall monitor the performance of grant- and subgrant-supported activities. They shall review each program, function, or activity to assure that adequate progress is being made towards achieving the goals of the grant or subgrant.

$74.82 Performance

reports under

nonconstruction grants.

(a) Where the granting agency determines that performance information sufficient to meet its programmatic needs will be available from subsequent applications, the granting agency will require the grantee to submit a performance report only upon expiration or termination of grant support. This report will be due on the same date as the final financial Status Report unless waived by the granting agency. Note that the "Application for Federal Assistance (Nonconstruction Programs)” prescribed by subpart N of this part, when used to request continued support, provides information substantially equivalent to a performance report.

(b) Except as provided in paragraph (a) of this section, grantees shall submit annual performance reports unless the granting agency requires quarterly or semiannual reports. Annual reports shall be due 90 days after the grant year; quarterly or semiannual reports

shall be due 30 days after the reporting period. A final performance report shall be due 90 days after the expiration or termination of grant support. Granting agencies may extend the due date for any performance report upon receiving a justified request from the grantee. In addition, granting agencies may waive the requirement for any performance report which is not need

ed.

(c) The content of performance reports shall conform to any instructions issued by the granting agency, including, to the extent appropriate to the particular grant, a brief presentation of the following for each program, function, or activity involved:

(1) A comparison of actual accomplishments to the goals established for the period. Where the output of the project or program can be readily expressed in numbers, a computation of the cost per unit of output may be required if that information will be useful.

(2) The reasons for slippage if established goals were not met.

(3) Other pertinent information including, when appropriate, analysis and explanation of unexpectedly high overall or unit costs.

(d) Grantees will not be required to submit more than the original and two copies of performance reports.

(e) Grantees shall adhere to the standards in paragraphs (a) through (d) of this section in prescribing performance reporting requirements for

which have significant impact upon the grant- or subgrant-supported activity. In such cases, the recipient shall inform the awarding party as soon as the following types of conditions become known:

(a) Problems, delays, or adverse conditions which will materially impair the ability to attain the objective of the award. This disclosure shall be accompanied by a statement of the action taken, or contemplated, and any assistance needed to resolve the situation.

(b) Favorable developments which enable meeting time schedules and goals sooner or at less cost than anticipated or producing more beneficial results than originally projected.

As used in this subpart: Advance by Treasury check is a payment made by a Treasury check to a grantee, upon its periodic request or through the use of predetermined payment schedules, before payments are made by the grantee.

Letter of credit is an instrument certified by an authorized official which authorizes a recipient to draw funds needed for immediate disbursement in accordance with Treasury Circular No. 1075.

Percentage of completion method refers to a system under which payments are made for construction work according to the percentage of completion of the work, rather than to the grantee's rate of disbursements.

$74.92 Basic standard.

(a) Methods and procedures for making payments to recipients shall minimize the time elapsing between the transfer of funds and the recipient's disbursements.

(b) Except as provided in §74.47(b), public and private nonprofit institutions of higher education, public and private nonprofit hospitals, and other private nonprofit grantees shall maintain advances of Federal funds in interest bearing accounts. Interest earned on Federal advances deposited in such accounts shall be remitted promptly, but at least quarterly, to the Federal agencies that provided the funds. Interest amounts up to $100 per recipient fiscal year may be retained by the recipient for administrative expense. (The $100 pertains to the total interest earned on all Federal advances.)

[45 FR 22576, Apr. 3, 1980, as amended at 52 FR 33240, Sept. 2, 1987]

$74.93 Payment methods under nonconstruction grants.

(a) Letters of credit will be used to pay HHS grantees when all of the following conditions exist:

(1) There is or will be a continuing relationship between the grantee and the HHS payment office for at least a year and the total amount of advances to be received from the HHS payment office is $120,000 or more per year,

(2) The grantee has maintained, or demonstrated to HHS the willingness and ability to maintain, procedures that minimize the time elapsing between the transfer of funds from the Treasury and their disbursement by the grantee, and

(3) The grantee's financial management system meets the standards for fund control and accountability in subpart H of this part.

(b) Advances by Treasury check will be used, in accordance with Treasury Circular No. 1075, when the grantee does not meet the requirements in paragraph (a)(1) of this section but does meet the requirements in paragraphs (a) (2) and (3) of this section.

(c) Reimbursement by Treasury check will be preferred method when the requirements of either paragraph (a)(2) or paragraph (a)(3) of this section