Sneak Preview: Cash Management Change Alters Drawdown Testing
(The following was excerpted from a Thompson Grants Compliance Expert article.) An important update within the 2023 Compliance Supplement is provided in the Part 3, Compliance Requirements, cash management section (Part 3.C) and designed to clarify for auditors how they should review auditee cash drawdown records.
The Office of Management and Budget (OMB) uniform guidance states that a nonfederal entity other than a state must be paid in advance provided that it maintains, or demonstrates the willingness to maintain, both written procedures that minimize the time elapsing between the transfer of funds from the U.S. Treasury and disbursement by the nonfederal entity, as well as a financial management system that meets the specified standards for fund control and accountability (§200.305(b)(1)) (see ¶537 in the Single Audit Information Service Module). Under the advance payment method, the federal awarding agency or pass-through entity payment is made to the nonfederal entity before the nonfederal entity disburses the funds for program purposes (§200.1).
In Part 3.C of the 2023 supplement, like in the 2022 supplement, OMB provided a paragraph highlighting this advance payment requirement. This year’s supplement then provided a paragraph similar to the 2022 version stating that the reimbursement payment method is the preferred payment method if: (a) the nonfederal entity cannot meet the requirements in §200.305(b)(1) for advance payment; (b) the federal awarding agency sets a specific condition for use of the reimbursement method; or (c) requested to be used by the nonfederal entity (§§200.305(b)(3), 200.208)).
While the 2023 supplement, again similar to the 2022 supplement, followed this with a sentence stating that the reimbursement payment method also may be used on a federal award for construction or for “other construction activity” as specified in §200.305(b)(3), OMB deleted a sentence that was included in last year’s supplement that stated that program costs must be paid by nonfederal entity funds before a payment request can be submitted (§200.305(b)(3)) (i.e., the nonfederal entity must disburse its own funds for program purposes before requesting payment from the federal awarding agency or pass-through entity).
(The full version of this story has now been made available to all for a limited time here.)
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