2.3 Standards for Financial Management Systems
Accounting System
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What Is An Adequate Accounting System?
Block/Formula and Discretionary Awards
All recipients and subrecipients are required to establish and maintain adequate accounting systems and financial records and to accurately account for funds awarded to them. As a recipient, you must have a financial management system in place that is able to record and report on the receipt, obligation, and expenditure of grant funds. You should keep detailed accounting records and documentation to track all of the following information:
- Federal funds awarded
- Federal funds drawn down
- Matching funds of State, local, and private organizations, when applicable
- Program income
- Subawards (amount, purpose, award conditions, and current status)
- Contracts expensed against the award
- Expenditures
Please consult Subpart D of 2 C.F.R. Part 200, including 2 C.F.R. ?? 200.302, for more information.
OJP Specific Tip
For the OVC Victim Compensation Program, there is no financial requirement to identify the source of individual payments to crime victims as either federal or state dollars, nor is there any requirement that restitution recoveries or other refunds be tracked to federal or state dollars paid out to victims. However, the state agency administering funds under this program must have in place an adequate accounting system to capture and track all financial transactions related to the victim compensation grant; and upon request, must provide authorized representatives with access to and the right to examine all records, books, paper or documents related to the victim compensation grant per the VOCA Victim Compensation Program Guidelines ??? 66 Fed. Reg. 27158 (May 16, 2001), Sections V.G and IX.A.
What Is An Adequate Accounting System?
- An adequate accounting system can be used to generate reports required by award and Federal regulations. Your system must support all of the following:
- Financial reporting that is accurate, current, complete, and compliant with all financial reporting requirements of your award or subaward.
- If you are a recipient, establishment of reasonable procedures to ensure the receipt of reports on subrecipients??? cash balances and cash disbursements in sufficient time to enable them to prepare complete and accurate cash transactions reports to the awarding agency.
- Accounting systems should be able to account for award funds separately (no commingling of funds).
- An adequate accounting system allows you to maintain documentation to support all receipts and expenditures and obligations of Federal funds.
- An adequate accounting system collects and reports financial data for planning, controlling, measuring, and evaluating direct and indirect costs.
- Your system should have all of the following capabilities:
- Internal control. Your system should allow you to exercise effective control and accountability for all grant and subgrant cash, real and personal property, and other assets. As a recipient or subrecipient, you must adequately safeguard all such property and assure that it is used solely for authorized purposes. Please consult 2 C.F.R. ?? 200.303 for additional information.
- Budget control. Your system should let you compare actual expenditures or outlays with budgeted amounts for each award and subaward. It also must relate financial information to performance or productivity data, including the development of unit cost information whenever appropriate or specifically required in the award or subaward agreement.
- Allowable cost. Your system should support you in making sure that you follow Federal cost principles, agency program regulations, and the terms of grant and subgrant agreements in determining the reasonableness, allowability, and allocability of costs.
- Source documentation. Your system should require you to support accounting records with source documentation (e.g., cancelled checks, paid bills, payrolls, time and attendance records, and contract and subgrant award documents).
- Cash management. An adequate system will require you to follow procedures for minimizing the time between the transfer of funds from the U.S. Department of the Treasury and disbursement by recipients and subrecipients whenever advance payment procedures are used. Also, when advances are made by electronic funds transfer, or EFT methods, your system should help you as the recipient to make draw downs as close as possible to the time of making disbursements.
- Subrecipient monitoring support.Your system should involve monitoring of cash draw downs by subrecipients to assure that they conform substantially to the same standards of timing and amount as apply to advances to you as the direct recipient.
- An adequate accounting system for a recipient must be able to accommodate a fund and account structure to separately track receipts, expenditures, assets, and liabilities for awards, programs, and subrecipients.
The adequacy of your financial management system may be reviewed as part of the application process or at any time subsequent to the award. For additional information see Subpart D of 2 C.F.R. Part 200.
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Block/Formula and Discretionary Awards
To properly account for block and formula awards, the State should establish and maintain program accounts which will enable separate identification and accounting for:
- Block and formula grant funds expended through subrecipients
- Formula funds utilized to develop a State plan and to pay that portion of expenditures necessary for administration
- Receipt and disposition of all funds (including program income)
- Funds applied to each budget category included within the approved award
- Expenditures governed by any special and general provisions
- Non-Federal matching contribution, if required
For additional information see Subpart D of 2 C.F.R. Part 200.
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