[POLICY MEMORANDUM]{.underline}[^1]

[SUBJECT]{.underline}: Extension of Liquidation Periods and Related
Accounting Adjustments for Grantees under Department of Education
State-Administered Programs

June 5, 2007

Federal grant funds have a limited life in which to be used by grant
recipients. This policy memorandum addresses standards and procedures
for using Federal funds on a timely basis. It describes the procedures
and circumstances under which the Department of Education (Department)
will consider requests for late liquidations of obligations under
State-administered programs and approval of related accounting
adjustments that may, in very limited circumstances as outlined below,
allow adjustments to enable States to charge an obligation to a
different year's account. (This policy memorandum does not affect the
procedures for the return of Federal funds to the Department or for
liquidations under discretionary grant programs.)

The Department takes its role as a steward of Federal education funds
very seriously. Requests for late liquidations and related accounting
adjustments will be approved only in appropriate circumstances,
consistent with the procedures and principles in this policy memorandum.
It is critical that Federal education funds be obligated and liquidated
in a businesslike fashion so that the beneficiaries of Federal programs
receive services in a timely and effective manner.

[Legal Background]{.underline}: Obligations are binding commitments for
goods or services. (34 CFR 76.707 defines the date on which an
obligation occurs in particular types of instances.) Under
State-administered programs, grantees (and subgrantees) must obligate
funds during the fiscal year for which the funds were appropriated or
during the succeeding fiscal year. 34 CFR 76.709. This extra year of
fund availability is called the "Tydings period." Many
State-administered programs are also "forward-funded;" i.e., Congress
makes the funds available for obligation by the States on July 1 before
the start of the fiscal year, instead of at the start of the fiscal year
on October 1. Thus, under most of the Department's State-administered
programs, after adding the extra three months at the beginning of the
grant and the twelve-month Tydings period at the end of the grant,
grantees and subgrantees have 27 months to obligate their grant funds.
For the remaining programs, States have 24 months to obligate their
grant funds, starting on October 1 of the fiscal year for which the
funds are made available for obligation. Funds not obligated within the
Tydings period lapse and must be returned to the Federal government. 34
CFR 76.709(b).

Under a long-standing administrative decision of the Department, an
obligation may be charged to a specific source of funds after those
funds are no longer available for obligation\--i.e., after the so-called
Tydings period\--"[so long as]{.underline} there is [clear]{.underline}
and [unambiguous]{.underline} documentation showing that the transaction
giving rise to the obligation occurred before the relevant Tydings
cutoff date." [Appeal of the State of California]{.underline}, Docket
No. 12(122)83 at 5 (Decision of the Secretary of Education, May 6, 1986)
(emphasis in original). The "legally relevant question \[is\] when the
obligation arose, not in what account such obligation may have been
legally recorded." [Id]{.underline}.

Under Department regulations, a grantee must liquidate (or make final
payment on) all obligations incurred under an award not later than 90
days after the end of the Tydings period. 34 CFR 80.23(b). The
Department may extend this deadline at the request of the grantee. If
the liquidation deadline is extended, the grantee is then allowed to
access the funds through the Department's Grant Administration and
Payment System (GAPS). Any remaining funds revert to the Federal
Treasury and are no longer available to the grantee five years after the
deadline for the obligation of the funds at the Federal (not the State)
level. 31 U.S.C. 1552(a).

# Procedural Requirements for Late Liquidation Requests

The Department has decided to change the policy governing approval of
late liquidation requests. In this document, we first describe the
policy that is effective through September 30, 2007. Secondly, we
describe the policy effective after that date. Please note that
regardless of which procedures apply to a situation, the principles for
approving late liquidation requests remain the same.

# Policy Effective through September 30, 2007

[Process for Approving Late Liquidation Requests]{.underline}: The
principal operating component (POC) within the Department of Education
has the responsibility to consider and approve or disapprove late
liquidation requests made up to 12 months after the end of the Tydings
period (i.e., 9 months after the end of the normal liquidation period)
consistent with the principles outlined below. For late liquidation
requests made after that point, only the Chief Financial Officer (CFO)
has the authority to approve or disapprove the request in conjunction
with the Office of the Deputy Secretary, the Office of the Under
Secretary, and the Office of the General Counsel. When a POC receives a
late liquidation request after the initial 12-month period, the POC
forwards the request to the CFO with a recommended course of action. The
CFO approves or disapproves the request and informs the POC of the
decision. The POC notifies the grantee of the Department's decision and,
if the request is approved, takes the necessary actions to implement the
late liquidation.

# Policy Effective Beginning on October 1, 2007

[Process for Approving Late Liquidation Requests]{.underline}: The
principal operating component (POC) within the Department of Education
has the responsibility to consider and approve or disapprove late
liquidation requests made up to 18 months after the end of the Tydings
period (i.e., 15 months after the end of the normal liquidation period)
consistent with the principles outlined below. After the eighteen-month
period expires, the Department will no longer grant late liquidation
requests, except under extraordinary circumstances or in cases involving
lengthy construction contracts. In those cases, only the Chief Financial
Officer (CFO) has the authority to approve or disapprove the request in
conjunction with the Office of the Deputy Secretary, the Office of the
Under Secretary, and the Office of the General Counsel. When a POC
receives a late liquidation request after the eighteen-month period, the
POC forwards the request to the CFO and, if the POC believes the request
meets the standards for approval, includes a recommended course of
action. The CFO approves or disapproves the request and informs the POC
of the decision. The POC notifies the grantee of the Department's
decision and, if the request is approved, takes the necessary actions to
implement the late liquidation.

[Principles for Approving Late Liquidation Requests]{.underline}:
Generally, grantees and subgrantees are expected to liquidate
obligations within 90 days after the end of the Tydings period. However,
the Department recognizes that liquidations for certain types of
obligations (such as construction contracts) may need to occur more than
90 days after the close of the Tydings period. In considering whether to
approve late liquidation requests, Department officials will apply the
following principles.

1.  In all circumstances, including late liquidations, Federal funds may
    be used only for obligations that were incurred during the grant
    period (including the Tydings period) and only for allowable costs
    under the relevant program. With respect to any late liquidation
    request, the grantee has the burden of demonstrating the timeliness
    of the obligations and the allowability of the costs. The Department
    will scrutinize liquidation requests more closely the later that
    they are made. For late liquidation requests made on or before
    September 30, 2007, the Department will scrutinize more closely
    those requests made more than 12 months after the close of the
    Tydings period. Starting on October 1, 2007, the Department will not
    approve late liquidation requests made more than 18 months after the
    end of the Tydings period, except under extraordinary circumstances
    or in cases involving lengthy construction contracts.

2.  The Department generally will not approve late liquidation requests
    or related accounting adjustments that move Federal funds between
    programs or subgrantees.

3.  The Department generally will not approve late liquidation requests
    or related accounting adjustments that move obligations or
    expenditures from State or local accounts to Federal programs, but
    the Department may approve late liquidation requests that reimburse
    the grantee for payments made initially from non-Federal funds for
    obligations charged to Federal programs.

EXAMPLE: A grantee incurs obligations properly and on a timely basis,
charging it to the proper Federal program account. However, the grantee
initially pays for the obligations with local funds and, after a period
of time, requests that it be able to reopen the Federal program account
in GAPS so that it can reimburse itself for the payments made originally
from local funds. Because the funds were obligated on a timely basis
during the Tydings period, and charged to the correct Federal program
account, the Department may approve these late liquidations to allow
these reimbursements. The Department generally would not approve the
request, however, if the grantee charged the original obligations to the
wrong program account, and the grantee had to make further accounting
adjustments that would move Federal funds between programs before the
reimbursements could be made.

4.  Liquidation requests generally must be consistent with the
    underlying accounting system of the grantee for the period in
    question. The Department will not approve late liquidation requests
    or related accounting adjustments that retroactively change the
    basic nature of the grantee's underlying accounting system, but the
    Department will consider reasonable requests that result from
    temporary or minor deviations from a grantee's accounting system.

EXAMPLE: A grantee has consistently employed a first in, first out
(FIFO) accounting system, but for a limited period of time mistakenly
charged obligations to current year funds, rather than to available
earlier year funds. Because the grantee has employed a FIFO system
generally, the Department might approve accounting adjustments and late
liquidations that would allow remaining funds to be used for obligations
incurred during the relevant Tydings periods for allowable purposes. The
Department would be less inclined to approve the request, however, if
the changes were necessary because of recurring mistakes or systemic
problems with the grantee's accounting system. The Department would not
approve the request if the grantee were attempting to switch to a FIFO
accounting system retroactively.

5.  In deciding whether to approve late liquidation requests and related
    accounting adjustments, the Department will consider the past
    performance of the grantee, including whether the grantee is on
    high-risk status and whether the grantee has fulfilled its
    responsibilities under the Single Audit Act on a timely basis.

6.  The Department will consider requests for late liquidation and
    related accounting adjustments not specifically addressed by these
    principles on a case-by-case basis.

[Required Attestation/Audit]{.underline}: Before the Department approves
a late liquidation or related accounting adjustments, the grantee must
submit an attestation signed by a high-ranking, authorized official as
to the accuracy of the information and representations that form the
basis for the request, including, at a minimum, an attestation that
under the proposed late liquidation and/or accounting adjustments,
Federal funds would only be used for obligations incurred within the
periods of availability of those funds and for allowable purposes. For
requests made on or before September 30, 2007, if the request is made
more than 12 months after the end of the Tydings period, that
attestation must be signed by the Chief State School Officer or the
state's Chief Financial Officer (or comparable officials, in the case of
grantees that are not State educational agencies). For requests made on
or after October 1, 2007, if the request is made more than 18 months
after the end of the Tydings period, the Secretary will only approve it
in extraordinary circumstances or in cases involving lengthy
construction contracts. The authorized official submitting the request
must be the Chief State School Officer or the State's Chief Financial
Officer (or comparable officials, in the case of grantees that are not
State educational agencies.) In appropriate circumstances, the
Department may require an audit by an independent auditor or other
review of the late liquidations and/or accounting adjustments as a
condition of approval of the grantee's request.

[^1]: This policy memorandum supersedes the January 28, 2005, policy
    memorandum of the same title.