## PROGRAM MEMORANDUM FY 2005-01 

DATE: January 17, 2005

TO: Chief State School Officers

FROM: Susan Sclafani

SUBJECT: Guidance on Federal Funds That May Lapse from Availability or

> Revert to the Federal Treasury

On June 24, 2004, Jack Martin, Chief Financial Officer, U.S. Department
of Education sent you a memo concerning "Monitoring Grant Financial Data
in the Grant Administration and Payment System (GAPS)." As a follow up
to that memo on August 13, 2004, I sent to your State Directors of
Career and Technical Education and Adult Education guidance concerning
federal funds that may lapse from availability or revert to the U.S.
Treasury. In that program memorandum, I shared procedures that staff of
the Office of Vocational and Adult Education (OVAE) will implement as a
follow up to this guidance to prevent funds from lapsing or reverting in
the future.

This memo will address issues and actions that must be taken before
October 1, 2005. Federal funds awarded to your state from the U.S.
Department of Education appropriation for Fiscal Year (FY) 2003 will
become unavailable for your state to make any further obligations after
September 30, 2005, *the end of the time period established by the*
*Tydings* *Amendment.* Moreover, federal funds awarded to your state
from the U.S. Department of Education appropriation for Fiscal Year (FY)
1999 will become unavailable for your state to draw down and pay for
otherwise allowable and timely obligations after September 30, 2005.
Each of these issues is discussed separately below. This office cannot
grant an extension past September 30, 2005, for your state to obligate
FY 2003 funds or to draw down FY 1999 funds, so it is vital that your
state take timely action if either of these issues apply.

**Federal FY 2003 Funds That May Lapse from Availability**

We are very concerned that several states currently hold substantial
balances in GAPS of FY 2003 funds awarded under Perkins III or AEFLA.
These funds first became available for your state to obligate on July 1,
2003, or, in a supplemental grant, on October 1, 2003 (for Perkins III
vocational education state grants only). Regardless of whether these
funds became available to your state in July or October 2003, they are
available for your state and its subrecipients to obligate only through
September 30, 2005, the end of the Tydings period. On October 1, 2005,
the FY 2003 funds will no longer be available for your state or its
local recipients to obligate.

You can access your state's balances of FY 2003 funds in GAPS for the
vocational education state grants, the tech-prep education state grants,
and the adult education grants. If your GAPS records show a substantial
balance of FY 2003 funds (see attached), in the near future we will
contact your state directors to bring this balance to their attention
and to determine whether or not your state has obligated these funds or
made allowable obligations but has not liquidated these obligations by
drawing down the funds in GAPS. If your agency or its subrecipients has
not obligated these FY 2003 funds, you can still make obligations of FY
2003 funds for allowable purposes through September 30, 2005.

However, this office cannot grant an extension of the period for
obligating grant funds to allow your state to obligate FY 2003 funds
after September 30, 2005. Please note that, as set forth in the
Education Department General Administrative Regulations (EDGAR) at 34
CFR § 76.707, obligations are made at different times for different
kinds of property and services. Because the FY 2003 funds are only
available for obligation until September 30, 2005, you should note that,
for certain services and property, an obligation occurs on the date that
the state or its subgrantee enters into a binding written commitment
(such as a purchase order) to obtain services or acquire property, for
example, a contract for personal services by a contractor who is not an
employee of the state or subgrantee. In contrast, for other services or
property, the obligation occurs substantially later. For example, an
obligation for personal services by an employee of the state or
subgrantee is not made until the services are performed.

If you have any questions concerning when an obligation of funds would
occur for specific types of services or property or need other
assistance to ensure that your state is able to obligate its FY 2003
funds fully by September 30, 2005, please contact Andrew Johnson,
Program Specialist, at (202) 245-7786 (for grants made under Perkins
III) or Gloria Shade, Program Specialist, Accountability Team, at (202)
245-7829 (for grants made under the AEFLA).

**Federal FY 1999 Funds That May Revert to the Treasury**

We also are very concerned that several states currently hold
substantial balances in GAPS of FY 1999 funds awarded under the Carl D.
Perkins Vocational and Applied Technology Education Act (Perkins II) or
the Adult Education Act as amended by the National Literacy Act of 1991
(AEA). These funds first became available for your state to obligate on
July 1, 1999, and this department was required to obligate those funds
to your state in a grant award no later than September 30, 2000. Under
the account-closing provisions in federal law, these funds cease to be
available for draw-down and liquidation after September 30, 2005, and
revert to the U.S. Treasury at that time.

However, if your state made valid obligations for these funds within the
period allowed under the Tydings Amendment, which ended September 30,
2001, your state may still draw down funds from GAPS to liquidate these
otherwise timely and allowable obligations. If your GAPS records show
your state has a substantial balance of FY 1999 funds in GAPS, in the
near future we will contact your state directors to bring this balance
to their attention and to determine whether or not your state obligated
these funds in a timely and allowable manner but has not drawn down the
funds in GAPS to liquidate these obligations. If your agency or its
subrecipients has made timely and allowable obligations of these FY 1999
funds, you can still draw down funds in GAPS to liquidate these
allowable obligations of FY 1999 funds through September 30, 2005.
However, this office cannot grant an extension to allow your state to
draw down FY 1999 funds in GAPS after September 30, 2005.

Your state was required to file a final financial status report (FSR)
for each grant awarded from FY 1999 funds by December 31, 2001, which
was 90 days following expiration or termination of the grant support,
and to file all other required reports by the same date under EDGAR at
34 CFR § 80.41(b)(4) and § 80.50(b). An FSR is final when there are no
additional outlays or obligations against the grant award and all
existing obligations have been liquidated. The process of liquidating an
obligation of FY 1999 funds included your state's drawing down the
amount of the obligation from its applicable GAPS account, which also
should have occurred no later than 90 days after the termination of the
grant, unless your state has received an extension to file its final
FSR. In order for your state to be able to draw FY 1999 funds down in
GAPS at this time, you must request an extension from this office.

If you have specific questions concerning your state's balance of FY
1999 funds in GAPS, wish to request an extension to draw down FY 1999
funds in GAPS, or need other assistance to ensure that your state is
able to draw down fully by September 30, 2005, all of its FY 1999 funds
that were obligated for allowable costs on a timely basis, please
contact Lois Davis, Program Specialist, at (202) 245-7784 (for grants
made under Perkins II) or Gloria Shade, Program Specialist,
Accountability Team, at (202) 245-7829 (for grants made under the AEA).

# Future Technical Assistance to Monitor GAPS Balances

This Department regards both the lapsing of funds and the reverting of
funds to the Treasury as serious matters. In today's fiscal climate of
shrinking resources, we in OVAE are concerned that states and their
subrecipients are not using all resources in a timely manner to address
the many immediate needs of our students.

In order to assist you in managing your state's federal funds in the
future, OVAE's program officers will monitor all current fiscal year
grant awards that are available for obligation in GAPS on a regular
basis. We will work with you by offering technical assistance to
obligate your federal grant funds in a more timely manner and take steps
to ensure that your agency not revert to the Treasury any funds that
were obligated for allowable costs.

Additionally, if you have not already done so, we would suggest that you
or a member of your staff develop a working understanding of GAPS. We
also would suggest that you build a strong working relationship with
your state's fiscal office to ensure that your program needs are being
meet in a timely manner. This type of relationship may help avoid future
audit exceptions, assist your subgrantees in meeting their fiscal needs,
and eliminate the possibility that any of your state's federal funds
will lapse from availability or revert to Treasury on any given October
1.

We appreciate your efforts to improve the quality of educational
opportunities offered to young people and adults. We will hold a
Financial Management Institute on April 13-15, 2005, at the Hilton
Washington Hotel in Washington, DC for the purpose of providing
additional technical assistance on a variety of financial matters. For
additional information, please contact Nancy Brooks at 202-245-7774 or
<nancy.brooks@ed.gov> and Carroll Towey at 202-245-7830 or
<carroll.towey@ed.gov>.

We look forward to continuing to work with you to prepare America's
future.

Attachment

Cc: State Directors of Vocational and Technical Education

State Directors of Adult Education