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(2) The reason(s) for imposing them;

(3) The corrective actions which must be taken before they will be removed and the time allowed for completing the corrective actions and

(4) The method of requesting reconsideration of the conditions/restrictions imposed.

(53 FR 8045, 8087, Mar. 11, 1988, as amended at 59 FR 53265, Oct. 21, 1994)


Financial Administration 8 600.220 Standards for financial man

agement systems. (a) A State must expend and account for grant funds in accordance with State laws and procedures for expend ing and accounting for its own funds. 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 develop ment 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. (53 FR 8045, 8087, Mar. 11, 1988, as amended at 57 FR 5, Jan. 2, 1992)

$ 600.221 Payment.

such method is the unwillingness or in(a) Scope. This section prescribes the

ability of the grantee to provide timely basic standard and the methods under

advances to the subgrantee to meet the which a Federal agency will make pay

subgrantee's actual cash disbursements to grantees, and grantees will

ments. make payments to subgrantees and

(1) Effect of program income, refunds, contractors.

and audit recoveries on payment. (1) (b) Basic standard. Methods and pro- Grantees and subgrantees shall discedures for payment shall minimize burse repayments to and interest the time elapsing between the transfer earned on a revolving fund before reof funds and disbursement by the questing additional cash payments for grantee or subgrantee, in accordance the same activity. with Treasury regulations at 31 CFR (2) Except as provided in paragraph part 205.

(1)(1) of this section, grantees and (c) Advances. Grantees and subgrantees shall disburse program insubgrantees shall be paid in advance, come, rebates, refunds, contract settleprovided they maintain or demonstrate ments, audit recoveries and interest the willingness and ability to maintain earned on such funds before requesting procedures to minimize the time elaps

additional cash payments. ing between the transfer of the funds (g) Withholding payments. (1) Unless and their disbursement by the grantee

otherwise required by Federal statute, or subgrantee.

awarding agencies shall not withhold (d) Reimbursement. Reimbursement

payments for proper charges incurred shall be the preferred method when the

by grantees or subgrantees unless requirements in paragraph (c) of this

(i) The grantee or subgrantee has section are not met. Grantees and

failed to comply with grant award consubgrantees may also be paid by reimbursement for any construction grant.

ditions or Except as otherwise specified in regula

(ii) The grantee or subgrantee is intion, Federal agencies shall not use the

debted to the United States. percentage of completion method to

(2) Cash withheld for failure to compay construction grants. The grantee

ply with grant award condition, but or subgrantee may use that method to without suspension of the grant, shall pay its construction contractor, and if be released to the grantee upon subseit does, the awarding agency's pay

quent compliance. When a grant is susments to the grantee or subgrantee pended, payment adjustments will be will be based on the grantee's or made in accordance with $600.443(c). subgrantee's actual rate of disburse (3) A Federal agency shall not make ment.

payment to grantees for amounts that (e) Working capital advances. If a are withheld by grantees or grantee cannot meet the criteria for subgrantees from payment to contracadvance payments described in para tors to assure satisfactory completion graph (c) of this section, and the Fed of work. Payments shall be made by eral agency has determined that reim the Federal agency when the grantees bursement is not feasible because the or subgrantees actually disburse the grantee lacks sufficient working cap withheld funds to the contractors or to ital, the awarding agency may provide escrow accounts established to assure cash or a working capital advance satisfactory completion of work. basis. Under this procedure the award (h) Cash depositories. (1) Consistent ing agency shall advance cash to the with the national goal of expanding the grantee to cover its estimated dis opportunities for minority business enbursement needs for an initial period terprises, grantees and subgrantees are generally geared to the grantee's dis- encouraged to use minority banks bursing cycle. Thereafter, the awarding bank which is owned at least 50 percent agency shall reimburse the grantee for by minority group members). A list of its actual cash disbursements. The minority owned banks can be obtained working capital advance method of from the Minority Business Developpayment shall not be used by grantees ment Agency, Department of Comor subgrantees if the reason for using merce, Washington, DC 20230.

(2) A grantee or subgrantee shall (53 FR 8087, Mar. 11, 1988 as amended at 53 FR maintain a separate bank account only

account only 8047, Mar. 11, 1988) when required by Federal-State agree

$ 600.223 Period ment.

of availability of (i) Interest earned on advances. Unless

funds. there are statutory provisions to the (a) General. Where a funding period is contrary, grantees and subgrantees specified, a grantee may charge to the shall promptly, but at least quarterly, award only costs resulting from obligaremit to the Federal agency interest tions of the funding period unless carearned on advances. The grantee or ryover of unobligated balances is persubgrantee may keep interest amounts mitted, in which case the carryover up to $100 per year for administrative balances may be charged for costs reexpenses.

sulting from obligations of the subse(53 FR 8045, 8087, Mar. 11, 1988, as amended at

quent funding period. 57 FR 5, Jan. 2, 1992)

(b) Liquidation of obligations. A grant

ee must liquidate all obligations in8 600.222 Allowable costs.

curred under the award not later than (a) Limitation on use of funds. Grant

90 days after the end of the funding pefunds may be used only for:

riod (or as specified in a program regu(1) The allowable costs of the grant lation) to coincide with the submission ees, subgrantees and cost-type contrac of the annual Financial Status Report tors, including allowable costs in the (SF-269). The Federal agency may exform of payments to fixed-price con tend this deadline at the request of the tractors; and

grantee. (2) Reasonable fees or profit to costtype contractors but not any fee or

fee or 8600.224 Matching or cost sharing. profit (or other increment above allow- (a) Basic rule: Costs and contributions able costs) to the grantee or acceptable. With the qualifications and subgrantee.

exceptions listed in paragraph (b) of (b) Applicable cost principles. For each

this section, a matching or cost sharkind of organization, there is a set of

ing requirement may be satisfied by eiFederal principles for determining al

ther or both of the following: lowable costs. Allowable costs will be

(1) Allowable costs incurred by the determined in accordance with the cost

grantee, subgrantee or a cost-type conprinciples applicable to the organiza

tractor under the assistance agreetion incurring the costs. The following

ment. This includes allowable costs chart lists the kinds of organizations

borne by non-Federal grants or by othand the applicable cost principles.

ers cash donations from non-Federal For the costs of a Use the principles in

third parties.

(2) The value of third party in-kind State, local or Indian tribal OMB Circular A-87.

contributions applicable to the period government. Private nonprofit organization OMB Circular A-122.

to which the cost sharing or matching other than an (1) institution

requirements applies. of higher education, (2)

(b) Qualifications and exceptions-(1) hospital, or (3) organization named in OMB Circular A

Costs borne by other Federal grant agree122 as not subject to that

ments. Except as provided by Federal circular.

statute, a cost sharing or matching reEducational institutions. ......... OMB Circular A-21. For-profit organization other 48 CFR part 31. Contract

quirement may not be met by costs than a hospital and an or Cost Principles and Proce borne by another Federal grant. This ganization named in OBM dures, or uniform cost ac prohibition does not apply to income Circular A-122 as not sub counting standards that

earned by a grantee or subgrantee from ject to that circular.

comply with cost principles
acceptable to the Federal

a contract awarded under another Fedagency.

eral grant. For-profit organization other 48 CFR 931.2

(2) General revenue sharing. For the than a hospital and an organization named in OMB

purpose of this section, general revenue Circular A-122 as not sub

sharing funds distributed under 31 ject to that circular..

U.S.C. 6702 are not considered Federal ...... 45 CFR part 74, Appendix E

grant funds.

Hospitals ......................**********

(3) Cost of contributions counted to wards other Federal costs-sharing requirements. Neither costs nor the values of third party in-kind contributions may count towards satisfying a cost sharing or matching requirement of a grant agreement if they have been or will be counted towards satisfying a cost sharing or matching requirement of an other Federal grant agreement, a Federal procurement contract, or any other award of Federal funds.

(4) Costs financed by program income. Costs financed by program income, as defined in 8600.425, shall not count towards satisfying a cost sharing or matching requirement unless they are expressly permitted in the terms of the assistance agreement. (This use of general program income is described in $600.425(g).)

(5) Services or property financed by income earned by contractors. Contractors under a grant may earn income from the activities carried out under the contract in addition to the amounts earned from the party awarding the contract. No costs of services or property supported by this income may count toward satisfying a cost sharing or matching requirement unless other provisions of the grant agreement expressly permit this kind of income to be used to meet the requirement.

(6) Records. Costs and third party inkind contributions counting towards satisfying a cost sharing or matching requirement must be verifiable from the records of grantees and subgrantee or cost-type contractors. These records must show how the value placed on third party in-kind contributions was derived. To the extent feasible. volunteer services will be supported by the same methods that the organization uses to support the allocability of regular personnel costs.

(7) Special standards for third party inkind contributions. (i) Third party inkind contributions count towards satisfying a cost sharing or matching requirement only where, if the party receiving the contributions were to pay for them, the payments would be allowable costs.

(ii) Some third party in-kind contributions are goods and services that, if the grantee, subgrantee, or contractor receiving the contribution had to

pay for them, the payments would have been an indirect costs. Cost sharing or matching credit for such contributions shall be given only if the grantee, subgrantee, or contractor has established, along with its regular indirect cost rate, a special rate for allocating to individual projects or programs the value of the contributions.

(iii) A third party in-kind contribution to a fixed-price contract may count towards satisfying a cost sharing or matching requirement only if it results in:

(A) An increase in the services or property provided under the contract (without additional cost to the grantee or subgrantee) or

(B) A cost savings to the grantee or subgrantee.

(iv) The values placed on third party in-kind contributions for cost sharing or matching purposes will conform to the rules in the succeeding sections of this subpart. If a third party in-kind contribution is a type not treated in those sections, the value placed upon it shall be fair and reasonable.

(c) Valuation of donated services (1) Volunteer services. Unpaid services provided to a grantee or subgrantee by individuals will be valued at rates consistent with those ordinarily paid for similar work in the grantee's or subgrantee's organization. If the grantee or subgrantee does not have employees performing similar work, the rates will be consistent with those ordinarily paid by other employers for similar work in the same labor market. In either case, a reasonable amount for fringe benefits may be included in the valuation.

(2) Employees of other organizations. When an employer other than a grantee, subgrantee, or cost-type contractor furnishes free of charge the services of an employee in the employee's normal line of work, the services will be valued at the employee's regular rate of pay exclusive of the employee's fringe benefits and overhead costs. If the services are in a different line of work, paragraph (c)(1) of this section applies.

(d) Valuation of third party donated supplies and loaned equipment of space. (1) If a third party donates supplies, the contribution will be valued at the

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market value of the supplies at the time of donation.

(2) If a third party donates the use of equipment or space in a building but retains title, the contribution will be valued at the fair rental rate of the equipment or space.

(e) Valuation of third party donated equipment, buildings, and land. If a third party donates equipment, buildings, or land, and title passes to a grantee or subgrantee, the treatment of the donated property will depend upon the purpose of the grant or subgrant, as follows:

(1) Awards for capital expenditures. If the purpose of the grant or subgrant is to assist the grantee or subgrantee in the acquisition of property, the market value of that property at the time of donation may be counted as cost sharing or matching,

(2) Other awards. If assisting in the acquisition of property is not the purpose of the grant or subgrant, paragraphs (e)(2) (i) and (ii) of this section apply:

(1) If approval is obtained from the awarding agency, the market value at the time of donation of the donated equipment or buildings and the fair rental rate of the donated land may be counted as cost sharing or matching. In the case of a subgrant, the terms of the grant agreement may require that the approval be obtained from the Federal agency as well as the grantee. In all cases, the approval may be given only if a purchase of the equipment or rental of the land would be approved as an allowable direct cost. If any part of the donated property was acquired with Federal funds, only the non-federal share of the property may be counted as cost-sharing or matching.

(ii) If approval is not obtained under paragraph (e)(2)(i) of this section, no amount may be counted for donated land, and only depreciation or use allowances may be counted for donated equipment and buildings. The depreciation or use allowances for this property are not treated as third party in-kind contributions. Instead, they are treated as costs incurred by the grantee or subgrantee. They are computed and allocated (usually as indirect costs) in accordance with the cost principles specified in 8600.422, in the same way as

depreciation or use allowances for purchased equipment and buildings. The amount of depreciation or use allowances for donated equipment and buildings is based on the property's market value at the time it was donated.

(f) Valuation of grantee or subgrantee donated real property for construction/acquisition. If a grantee or subgrantee donates real property for a construction or facilities acquisition project, the current market value of that property may be counted as cost sharing or matching. If any part of the donated property was acquired with Federal funds, only the non-federal share of the property may be counted as cost sharing or matching.

(g) Appraisal of real property. In some cases under paragraphs (d), (e) and (0) of this section, it will be necessary to establish the market value of land or a building or the fair rental rate of land or of space in a building. In these cases, the Federal agency may require the market value or fair rental value be set by an independent appraiser, and that the value or rate be certified by the grantee. This requirement will also be imposed by the grantee on subgrantees. (53 FR 8045, 8087, Mar. 11, 1988, as amended at 57 FR 5, Jan. 2, 1992)

8600.225 Program income.

(a) General. Grantees are encouraged to earn income to defray program costs. Program income includes income from fees for services performed, from the use or rental of real or personal property acquired with grant funds, from the sale of commodities or items fabricated under a grant agreement, and from payments of principal and interest on loans made with grant funds. Except as otherwise provided in regulations of the Federal agency, program income does not include interest on grant funds, rebates, credits, discounts, refunds, etc. and interest earned on any of them.

(b) Definition of program income. Program income means gross income received by the grantee or subgrantee directly generated by a grant supported activity, or earned only as a result of the grant agreement during the grant period. "During the grant period" is the time between the effective date of the award and the ending date of the

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