Common Single Audit Findings and Remediation Series: Period of Performance

March 25, 2019
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An often-overlooked compliance requirement, period of performance, is generally viewed as simple and straightforward and is closely connected with the allowable costs requirement. However, the following are potential pitfalls that can cause grantees some trouble and lead to questioned costs. Like allowable costs, findings in period of performance generally lead to disallowed costs that could be required to be paid back. Therefore, it is important to avoid these findings. There are three timeframes to consider related to period of performance: pre-award, during the award and post-award.

Pre-Award Costs and Obligations
The first pitfall facing grantees is pre-award costs and their respective obligation dates. When used in connection with a non-federal entity’s utilization of funds under a federal award, “obligations” mean orders placed for property and services, contracts and subawards made and similar transactions during a given period that require payment by the non-federal entity during the same or future period. (2 CFR section 200.71). Every grant award should have a date range that specifies the period of performance. This date range should not be interpreted as the dates when costs can be paid, but the dates in which obligations can occur and still be allowable. Therefore, when grantees are reconciling and requesting reimbursement from a federal award, the underlying obligation date and not the date the expenditure is paid is of key importance. This will typically be a problem at the beginning of the grant period for most grants. However, there can be issues in the middle of the grant period depending on the type of obligation, if, for example, the contract was finalized prior to the award date.

There are essentially two separate solutions to this issue. For the first solution, all pre-award costs (obligations occurring prior to the grant period) can be deemed allowable if the grantee has obtained prior written approval from the grantor. This is the best-case scenario, as it can maximize the amount of allowable grant funding received. Unfortunately, this is not very common. Therefore, the typical solution involves implementing internal controls to review the obligation dates, not just the dates the grant expenditures were paid. In addition to reviewing the obligation dates, an understanding of when an obligation is incurred is paramount. The following table is published in the Department of Education Cross-Cutting Section of the Compliance Supplement and is very useful for grantees trying to understand and determine the obligation date.

(a) Acquisition of real or personal property. On the date on which the state or subgrantee makes a binding written commitment to acquire the property.
(b) Personal services by an employee of the state or subgrantee. When the services are performed.
(c) Personal services by a contractor who is not an employee of the state or subgrantee. On the date on which the state or subgrantee makes a binding written commitment to obtain the services.
(d) Performance of work other than personal services. On the date on which the state or subgrantee makes a binding written commitment to obtain the work.
(e) Public utility services. When the state or subgrantee receives the services.
(f) Travel. When the travel is taken.
(g) Rental of real or personal property. When the state or subgrantee uses the property.
(h) A pre-award cost that was properly approved by the state under the cost principles. On the first day of the subgrant period.

Post-Award Costs or Liquidation
The second pitfall facing grantees is the liquidation period. The liquidation period refers to the time period after the grant period ends which is used to liquidate (pay) the obligations that were incurred during the grant period. In most cases, the liquidation period is 90 days following the end of the grant period. Grantees may have unused funds remaining on the grant, and rather than carrying them over to the next grant period (if allowed) or leaving the grant dollars unused, they incur obligations during the liquidation period to use the remaining funds. However, this practice would result in a finding, since the liquidation period is only for liquidating obligations incurred during the period of performance.

The internal control solution is precisely the same as for pre-award costs. Someone should be reviewing the obligation dates to ensure they are within the period of performance. However, a more overarching recommendation for grantees commonly facing this problem at the end of a grant period would be to work with the grantor more closely in determining a budget that meets the organizational needs. Sometimes amendments are needed to shift more dollars to personnel or more to other administrative costs. Working with the grantor to ensure the budget categories are appropriate decreases the risk of unexpended funds. When there are less unspent funds, the risk of grantees incurring obligations during the liquidation period is significantly reduced or eliminated.

The key to compliance with period of performance is understanding when pre-award costs are allowed and understanding what the obligation date is for each transaction to ensure it is within the permitted time frame A secondary review by an individual that understands the period of performance concepts will circumvent questioned costs.

Should you have any questions regarding these matters, please reach out to your local Eide Bailly professional.

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