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Each year Congress passes an appropriations bill which authorizes the federal government to expend public funds in specified ways. This is a constitutional requirement, often referred to as the ‘power of the purse’, which means the federal government cannot spend federal funding funds without express congressional approval.
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An appropriation account expires “[a]t midnight on the last day of an appropriation’s period of availability” and is “no longer available for incurring new obligations.” [4]
Within the context of federal financial assistance awards, an appropriation is properly spent—and, thus, will not expire—at the time of the award's obligation:
Funds must be obligated by the grantor agency within their period of availability. The period of availability of appropriated funds is the period of time provided by law in which the administering agency has to obligate the funds. The statutory requirement for recording obligations extends to all actions necessary to constitute a valid obligation, and includes, of course, grant obligations (31 U.S.C. § 150l(a)(5)). [5]
Appropriated funds which Those funds which remain unobligated following their period of availability are considered expired. Deobligated funds after their period of availability are also considered expired. In each case, those expired funds are no longer available for use by the program office. The only expired funds that are "protected" are those which have been obligated to FA awards within their period of availability. These funds remain available to the recipient for drawdown ("liquidation") for eligible expenses for the period of performance of the award, or the appropriation's cancellation deadline (see below), whichever is earlier.
In practical terms, this means that FY2017 appropriated Resource Management funds are available for obligation on financial assistance awards until September 30, 2018. Any funds not obligated by this date expire. Also, or any portion of those obligated funds that are deobligated after midnight on September 30, 2018 expire. In both cases, expired unobligated Resource Management funds are lost to the program [5].
Cancellation
Following their expiration, obligated appropriations remain available for five federal fiscal years for liquidation. Any remaining obligations left unliquidated after the fifth year are cancelled and returned to the U.S. Treasury.
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Looking back to our example above, the FY2017 Resource Management funds obligated to FA awards have a five-year period following the appropriation's expiration before being cancelled. This means that these funds are available to the recipient to liquidate project costs until September 30, 2023. After this date, however, those funds are canceled, even though obligated, and the program office must then take steps to backfill the cancelled funds on the FA award; typically with newer appropriations. This, as you can see, is not good. It means the program office is essentially paying a portion of the project twice.
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Federal Awarding
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Agency compliance with appropriation time limits
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Federal awarding agencies are directed by congressional law to expend appropriated funds properly and within the legally set time-frame.
Federal agencies spend appropriated funds properly via application of what is know as "the bona fide need rule", which establishes that an appropriation is available for obligation only to fulfill a genuine, or bona fide, need of the period of availability for which it was made. [7]
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this
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works with grants and cooperative agreements
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With FA awards, the bona fide need rule is met at the time of the award's obligation.
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HT: https://www.adr.gov/adrguide/afmc.html
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Frequently Asked Questions
How does this apply to Inter-/Intra-Agency Agreements (IAAs) and the Economy Act?
The Economy Act (31 U.S.C. § 1535-1536) gives broad authority to Federal government-wide engagement in inter- and intra-agency reimbursable agreements, which result in a more economical or convenient transaction for the customer agency over the use of commercial services. Under these agreements, the bona fide need rule, as explained above, still exists. In other words, the appropriation year time limits on the funds is still in place within these agreements, and the bona fide need is met at the time the requesting agency obligates those funds in a financial assistance award
For example, if NOAA issues appropriated funds to a FWS program via an IAA, and the FWS program issues an FA award with those funds, the FWS program must obligate the funds prior to the expiration date of the appropriation for NOAA funds obligated from the IAA.
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References
[1] Principles of Federal Appropriations Law, Vol. II, p.10-39 (Feb. 2006).
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[4] Congressional Research Service. (2010). Interagency Contracting: An Overview of Federal Procurement and Appropriations Law, 5-6. (Publication No. R40810). Retrieved from https://ntrl.ntis.gov/NTRL/dashboard/searchResults/titleDetail/ADA529123.xhtml.
[5] Principles, Vol. II p.10-39. In special situations, the Service may request from DOI's Division of Financial Management (DFM) a special exception to use expired funds.
[6]Ibid., Vol I, p.1-37.
[7] "The BFN Rule "which establishes that an appropriation is available for obligation only to fulfill a genuine or bona fide need of the period of availability for which it was made. Office of the Assistant General Counsel for Finance and Litigation (2004). Financial Assistance and The Bona fide Need Rule: Severability No Longer An Issue, 1 (Federal Assistance Law Division: It's the Law, Vol. 16). Retrieved from http://2010-2014.commerce.gov/sites/default/files/documents/2012/march/financial_assistance_and_the_bona_fide_need_rule_severability_no_longer_an_issue.pdf.
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