Background: There are three types of payment methods available to recipients: advance, reimbursement, and working capital advance. ACL will determine and include the appropriate payment method, either advanced, reimbursement, or working capital advance*, in the terms and conditions of the award.
ACL uses the HHS Program Support Center’s (PSC) Payment Management System (PMS), operated by Payment Management Services (PMS) to make grant payments. PMS provides recipients the tools to manage grant payment requests, drawdowns, and disbursement reporting activities; PMS manages grant payment-related activities from the time of award through award closeout. The Payment Management System (PMS) (https://pms.psc.gov/) is a centralized automated grants payment and cash management system. With respect to grant payment, in addition to operating and maintaining Payment Management System (PMS), the Division of Payment Management Services (PMS) is responsible for the following:
- Reporting disbursement data to ACL.
- Managing cash flow to recipients by performing analysis of advance payment requests consistent with PMS maintained metrics, such as reasonableness and cash on hand.
- Ensuring that any requests by ACL to limit or withhold payment or to close out the grant are honored.
- Making cash request advance payments or reimbursement payments following ACL approval.
- Processing payment transaction files to the Federal Reserve Bank System and U.S. Treasury.
- Resolving disbursement issues with recipients.
Grant payments are made by PMS in accordance with Treasury and OMB requirements, as implemented by 45 CFR 75.305, 31 CFR part 205 (for states), and the terms and conditions of the award. ACL does not require a recipient, excluding states, to maintain a separate bank account for grant funds. However, recipients must be able to account for the receipt, obligation and expenditure of grant funds.
Advance Payment
Generally the payments made through the Payment Management System (PMS) are considered advances until the required Federal Financial Report is submitted in PMS. The filing of the FFR officially identifies expenses incurred by the grant recipient allowing the advance to be recognized as a disbursement. When the advance payment method is used, the funds must be maintained in an insured, interest bearing account unless the following apply:
- the recipient receives less than $120,000 in federal awards per year;
- the best reasonably available interest-bearing account would not be expected to earn interest in excess of $500 per year on federal cash balances;
- the depository would require an average or minimum balance so high as to make it infeasible for use; or,
- a foreign government or banking system prohibits or precludes interest bearing accounts.
Reimbursement
The reimbursement method is used for recipients that do not comply with the requirement to minimize the time elapsing between the transfer of funds from the federal government and disbursement of funds for grant purposes; when the OPDIV sets a specific condition per 45 CFR 75.207; or, when the non-federal entity requests payment by reimbursement. ACL requires the non-federal entity to submit the reimbursement request to ACL for review and referral to PMS at least two (2) weeks before the cash is needed. Note: grant payments are not subject to the Prompt Payment Act and HHS is not liable for payment of interest to a recipient for late payment when using the reimbursement method.
Working Capital Advance
The working capital advance is the procedure whereby ACL, or a pass-through entity, must advance cash payments to the non-federal entity to cover its estimated disbursement needs for an initial period generally geared to the non-federal entity's disbursing cycle. Thereafter, the HHS awarding agency or pass-through entity must reimburse the non-federal entity for its actual cash disbursements (Source: 45 CFR 75.305(b)(4)).
To further assist ACL Grantees with the federal requirements around Cash Drawdowns found in 2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements, please see the guidance below.
Per 2 CFR Part 200.305 grantees are expected to expend funds within a reasonable amount of time from the draw and should not be drawing in one lump sum unless allowable expenses exist to justify the draw.
For any cash that a grantee draws from its ACL grant account, the grantee must:
- draw down only as much cash as is necessary to meet the immediate needs of the grant project;
- keep to a minimum the time between drawing down the funds and paying them out for grant activities; and
- return to the Department of Health and Human Services via the Payment Management System (PMS) the interest earned on grant funds deposited in interest-bearing bank accounts except for a small amount of interest earned each year that the grantee is allowed to keep reimbursing itself for administrative expenses. (Under the Uniform Guidance (200.305(b)(9)), non-State recipients of federal financial assistance awards who earn interest on federal funds in excess of $500 per year must be returned to the federal government annually. Amounts up to $500 may be retained by the recipient for administrative expenses).
In order to meet these requirements, grantees are urged to:
- take into account the need to coordinate the timing of drawdowns with prior internal clearances (e.g., by boards, directors, or other officials) when projecting immediate cash needs so that funds drawn down from HHS PMS do not stay in a bank account for extended periods of time while waiting for approval. Historically, ACL has interpreted “immediate cash requirements” as 30 days or less of advance funding;
- monitor the fiscal activity (drawdowns and payments) under each grant on a continuous basis;
- financial reconciliation ensuring that reported federal cash status and expenditure information are equal, including making any necessary adjustments, e.g., for an overpayment;
- plan carefully for cash flow in each grant project during the budget period and review project cash requirements before each drawdown; and
- pay out grant funds for project activities as soon as it is practical to do so after receiving cash from HHS PMS.
Keep in mind that ACL monitors cash drawdown activity for all grants on a weekly basis. ACL staff will contact grantees who appear to have drawn down excessive amounts of cash under one or more grants during the fiscal quarter to discuss the particular situation. Grantees determined to have drawn down excessive cash will be required to return the excess funds to HHS PMS, along with any associated earned interest, until such time as the money is legitimately needed to pay for grant activities. If you need assistance with returning funds and interest, please check PMS site: https://pms.psc.gov/grant-recipients/returning-funds-interest.html, contact HHS PMS Hotline by calling 1-877-614-5533, or via email at pmssupport@psc.hhs.gov.
Grantees that do not follow federal cash management requirements and/or consistently appear on the ACL’s reports of excessive drawdowns could be:
- subject to specific award conditions or designated as a "high-risk" grantee [2 CFR Part 200.207 and 2 CFR 3474.10], which could mean being placed on a "cash-reimbursement" payment method (i.e., a grantee would experience the inconvenience of having to pay for grant activities with its own money and waiting to be reimbursed by the Department afterwards);
- subject to further corrective action; and/or
- debarred or suspended from receiving future federal awards from any executive agency of the federal government.
ACL encourages grantees to read and be familiar with 2 CFR Part 200.305 to learn more about federal requirements to read 2 CFR Part 200.305 to learn more about federal requirements related to grant payments and to determine how to apply these requirements to any subgrantees. Consider making copies of this memorandum and share it with all associated individuals within your organization. If you have any questions or need additional information, please contact your Awarding Agency Contact found in Box 9 of the Notice of Award.