FP 205-081-2 

RECOVERY POLICY 

Page 1 

I. TITLE: Stafford Act Section 705, Disaster Grant Closeout Procedures

II. DATE OF ISSUANCE: March 31, 2016 

III. POLICY STATEMENT: This policy clarifies FEMA’s requirements under Section 705 of the 

Robert T. Stafford Disaster Relief and Emergency Assistance Act, and establishes the guidelines 

to determine whether Section 705 applies, prohibiting FEMA from recovering payments made 

under the Public Assistance Program.1

IV. PURPOSE: The purpose of this policy is to explain how FEMA implements Section 705 in order

to ensure consistent application to Public Assistance program funding. 

V. SCOPE AND EXTERNAL AUDIENCE: This policy applies to all potential recoveries of 

payments made to state, Indian tribal government, or local government recipients and 

subrecipients2 for all Public Assistance funding 3 including funding approved under the 

Alternative Procedures Pilot Program.4 

Section 705 does not apply to private-non-profit subrecipients.5 

 

1 FEMA, consistent with applicable debt collection procedures, recovers payments by: reducing the amount of 

funds available for the award in the proper account (deobligaton) and seeking recipient reimbursement by 

payment to the award account; by payment to the Agency; or through administrative offset. 

2 See “FEMA: Public Assistance Interim Program Guidance on 2 C.F.R. part 200” for all major disasters and 

emergencies declared on or after December 26, 2014. “Recipient” is a “state or Indian tribal government that 

receives a Federal award directly from FEMA to carry out an activity under the PA Program.” “Subrecipient” 

is a “non-Federal entity that receives a subaward from a pass-through entity [e.g., a state or Indian tribal 

government that provides a subaward to a subrecipient to carry out an activity under the PA program] to 

carry out an activity under the PA program.”

3 Public Assistance subawards are governed by 44 C.F.R. part 206, subparts G, H. Public Assistance funding 

is awarded using Project Worksheets (PWs).

4 See http://www.fema.gov/alternative-procedures for applicable guidance regarding the Alternative 

Procedures Pilot Program.

5 The language of Section 705, if applicable, only prohibits FEMA from recovering certain payments from 

state, Indian tribal governments, or local governments, and does not extend such protections to private-nonprofits. See 42 U.S.C. § 5205. 
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With respect to application of Section 705(c), this policy does not apply to PWs where appeal,6

arbitration,7 or dispute resolution8 rights are exhausted and FEMA has made a final 

administrative decision (e.g., an adjudicated second appeal, final arbitration decision). Also, 

section 705(c) does not apply to PWs for which the recipient or subrecipient has requested a deobligation as a result of actual costs that are less than the amount approved in the PW, and the 

amount is not in dispute.

VI. AUTHORITY: Section 705 Disaster Grant Closeout Procedures, The Robert T. Stafford Disaster 

Relief and Emergency Assistance Act (Stafford Act), 42 U.S.C. § 5205.

VII. POLICY: 

A. Statutory Language and Application. 

1. Statutory Language, Section 705(a) Statute of Limitations: “(1) In General – Except as 

provided in paragraph (2), no administrative action to recover any payment made to a 

State, [Indian tribal government,]9 or local government for disaster or emergency 

assistance under this Act shall be initiated in any forum after the date that is 3 years after 

the date of transmission of the final expenditure report for the disaster or emergency. (2) 

Fraud Exception – The limitation under paragraph (1) shall apply unless there is 

evidence of civil or criminal fraud.”

a. Application. Section 705(a) effectively requires FEMA to provide notice to the 

recipient of its intent to recover payments made to recipients and subrecipients 

within 3 years after the date that the recipient submits to FEMA the final expenditure 

report for the recipient’s or subrecipient’s work for the disaster or emergency. The 

3-year period is determined as follows:

i. For a Recipient’s expenditures under the program: The 3-year period begins when 

the recipient submits to FEMA its final Federal Financial Report (Standard Form 

425) for the program for the disaster or emergency. This report is due within 90 

days of the final payment made or after the end of the entire program period of 

performance, whichever occurs first; or

ii. For a Subrecipient’s expenditures under the program: The 3-year period begins 

when the recipient submits to FEMA the quarterly Federal Financial Report that 

represents the last expenditures of a subrecipient under the program for the 

disaster or emergency, as verified by the recipient’s submission of certifications 

and information in accordance with 44 C.F.R. § 206.205, as follows:

 

6 44 C.F.R. § 206.206. 

7 44 C.F.R. § 206.209.

8 44 C.F.R. § 206.210.

9 Stafford Act sec. 103 deems that any reference in the Act to “State, or local” government also refers to Indian 

tribal governments and officials. 42 U.S.C. § 5123.
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After a recipient has submitted all closeout information as described in FEMA 

9570.14 Public Assistance Program Management and Grant Closeout Standard 

Operating Procedure dated December 2013 for all of a subrecipient’s projects 

under the disaster or emergency, it will notate the remarks section of its next 

quarterly Federal Financial Report to indicate it is the final expenditure report for 

the specified subrecipient for the disaster or emergency. The recipient will also 

indicate the date(s) it submitted to FEMA its request for subrecipient closure. 

Upon verifying this information, FEMA will notify the recipient that the request 

for subrecipient closure as documented in the quarterly Federal Financial Report 

constitutes the Final Expenditure Report for that subrecipient for the disaster or 

emergency and establishes the start of the 3-year period for FEMA to provide 

notice to the recipient of its intent to recover funds. The recipient will document 

this in Box 12 (Remarks) of the SF 425.

b. When Section 705(a) applies because FEMA did not provide notice to the recipient of 

its intent to recover payments made to recipients and subrecipients within this 3 

years period, 705(a) prohibits FEMA from directly recovering subject payments. 

FEMA will still pursue administrative offset (i.e. a reduction in future federal 

payments otherwise due to the entity), as appropriate pursuant to the Debt 

Collection Improvement Act of 1996, as amended10, unless Section 705(c) prohibits 

the recovery of funds.

2. Statutory Language, Section 705(b) Rebuttal of Presumption of Record Maintenance: 

“(1) In General – In any dispute arising under this section after the date that is 3 years 

after the date of the transmission of the final expenditure report for the disaster or 

emergency, there shall be a presumption that accounting records were maintained that 

adequately identify the source and application of funds provided for financially assisted 

activities. (2) Affirmative Evidence – The presumption described in paragraph (1) may 

be rebutted only on production of affirmative evidence described in that paragraph.”

a. Application. For disputes that arise 3 years after the date the recipient submits to 

FEMA the final expenditure report for that recipient or subrecipient’s completed 

work for the disaster or emergency in accordance with Section A. 1.a, the recipient or 

subrecipient is presumed to have maintained appropriate records, unless FEMA 

rebuts this presumption with affirmative evidence, such as documentation 

demonstrating that the recipient or subrecipient did not maintain the records in 

question.

3. Statutory Language, Section 705(c) Binding Nature of Grant Requirements: “A State, 

[Indian tribal government],11 or local government shall not be liable for reimbursement 

or any other penalty for any payment made under this Act if – (1) the payment was 

 

10 See 31 U.S.C. § 3701 et seq. 

11 See 42 U.S.C. § 5123.
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authorized by an approved agreement specifying the costs; (2) the costs were reasonable; 

and (3) the purpose of the grant was accomplished.” 

a. Application. Section 705(c) prohibits FEMA from recovering payments for a PW if 

all three criteria of Section 705(c) are met. This prohibition applies even if FEMA 

later determines that it made an error in determining eligibility, regardless of 

whether the eligibility determination violated FEMA policy, regulations, or law. 

With respect to application of Section 705(c), this policy does not apply to PWs 

where appeal, arbitration, or dispute resolution rights are exhausted and FEMA has 

made a final administrative decision (e.g., an adjudicated second appeal, final 

arbitration decision). Also, Section 705(c) does not apply to matters in which the 

recipient or subrecipient has requested a de-obligation as a result of actual costs 

which are less than the amount approved in the PW, and the amount is not in 

dispute.

Section 705(c) does not apply if the recipient’s or subrecipient’s PW does not satisfy 

all three statutory criteria. In circumstances where Section 705(c) does not apply, 

FEMA may take all appropriate actions to recover payments made and/or deobligate remaining obligated funds, to include instances where FEMA identifies 

errors in a previous eligibility determination. 

Project Cost Adjustments: Prior to determining whether Section 705(c) applies, 

FEMA will adjust and correct project funding based on properly supported actual 

costs for the approved and completed scope of work, duplications of benefits (e.g., 

insurance reductions), improperly duplicated costs documented on one or more 

PWs, math errors, scrivener’s errors, and accounting errors, as appropriate.

B. Evaluating Section 705(c) Statutory Criteria in Project Determinations. 

FEMA uses the following criteria to determine whether Section 705(c) prohibits FEMA from 

recovering payments for a PW: 

1. The payment was made under the Act, as authorized by an approved agreement 

specifying the costs. Section 705(c) applies to payments made, as authorized under the 

PA program and the approved agreement specifying the costs. 

a. Payment has occurred when the recipient draws down funds obligated for the

completion of the approved scope of work12 through SmartLink, regardless of 

whether the recipient has disbursed funds to the subrecipient. 

b. If Section 705(c) applies, FEMA is prohibited from recovering payments made, e.g. 

the amount of funds drawn down by the recipient in association with completion of 

the approved scope of work. Section 705(c) does not prohibit FEMA from 

deobligating funds that recipient has not drawn down. FEMA will take all 

 

12 Payment methods are governed by 31 C.F.R. part 205, specifically §§ 205.11, 205.12, 205.33.
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appropriate actions to recover obligated funds that have not been drawn down, 

including the de-obligation of such funds, for any appropriate reason (including a 

project eligibility error), as appropriate. 

c. The “approved agreement specifying the costs” for a particular project consists of the 

obligated PW13 together with the governing FEMA-State Agreement.14 Project 

eligibility decisions detailed in a PW obligated in accordance with standard 

procedures are authorized by an “approved agreement,” even if FEMA erred in 

applying FEMA policy, regulation, or statute to the eligibility decision and where 

Section 705(c) applies.

2. The purpose of the grant was accomplished. FEMA has identified the following factors 

for evaluating whether the purpose of the grant was accomplished.

a. Determination Factors: The purpose of the grant is accomplished if the recipient or 

subrecipient, as appropriate: 

i. Completes the scope of work as described in the obligated PW and supporting 

documentation (e.g., the “approved agreement” referenced in Section 705(c)(1))15; 

and

ii. Demonstrates compliance with post-award terms and conditions of the Federal 

award,16 as described in the obligated PW and the FEMA-State Agreement, 

including but not limited to applicable requirements: for federal procurement, to 

obtain and maintain insurance, and for Environmental Planning and Historic 

Preservation compliance. 

If the recipient or subrecipient fails to comply with a post-award term or 

condition of the award Section 705(c) does not apply. Accordingly, FEMA may

take all appropriate actions to recover payments for any appropriate purpose, 

including due to a project eligibility error. 

b. Closeout Procedures: Typically, whether the purpose of the grant was accomplished

will be determined during the PW closeout process.17 At closeout, FEMA will utilize 

the procedures described at 44 C.F.R. § 206.205 and in FEMA 9570.14 Public 

Assistance Program Management and Grant Closeout Standard Operating Procedure dated 

 

13 44 C.F.R. § 206.202(d), (e). 

14 44 C.F.R. § 206.44. 

15 44 C.F.R. § 206.202(e). Note that “approved agreement” also includes the governing FEMA-State 

Agreement (44 C.F.R. § 206.44).

16 See generally 2 C.F.R. part 200, subpart D, “Post Federal Award Requirements.”

17 See the definition of “closeout” in the Uniform Administrative Requirements, Cost principles, and Audit 

Requirements for Federal award: “Closeout means the process by which the Federal awarding agency or passthrough entity determines that all applicable administrative actions and all required work of the Federal 

award have been completed.” 2 C.F.R. § 200.16.
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December 2013 to verify that the purpose of the grant was accomplished. The 

recipient must submit documentation to FEMA demonstrating completion of the 

approved scope of work and compliance with post-award terms and conditions 

within 180 calendar days of completion of the approved scope of work. 

i. Small Projects: FEMA will accept the P-4 Project Completion and Certification

Report or a letter certifying work completion from the recipient for all small 

projects. When a recipient or subrecipient does not complete work on all small 

projects within the regulatory project completion time frames, FEMA will accept 

the recipient’s certification on those small projects that have been completed. 

ii. Large Projects: Generally, FEMA will review documentation submitted by the 

recipient as part of the final reconciliation report for project closeout, but FEMA 

may review certification and documentation consistent with 44 C.F.R. § 

206.205(b)(1) submitted for a project prior to closeout to determine the 

applicability of Section 705(c), as appropriate. 

iii. Non-compliance Remedies: If, after the recipient has submitted the appropriate 

documentation, FEMA determines that the recipient or subrecipient failed to 

comply with a post-award term or condition of the award (such as federal 

requirements for procurement, environmental planning and historic preservation 

compliance, or obtaining and maintaining insurance), the purpose of the grant 

was not accomplished and FEMA is not prohibited by Section 705(c) from 

recovering payments as a remedy.18 

iv. Applicability to Duplication of Benefits determinations: Section 312 of the 

Stafford Act both: 

1) Prohibits FEMA from providing assistance when financial assistance has 

been provided for the same purpose from insurance, any other program, or 

any other source (e.g., realized insurance proceeds that duplicate FEMA 

assistance, other federal funding, donated resources); and 

2) Requires that FEMA reduce or recover funding by the amount of duplicative 

assistance available for the same purpose from another source (e.g., 

anticipated benefits that duplicate FEMA assistance).19 FEMA may adjust the 

amount of insurance benefits or other duplication of benefits recorded in the 

PW at any time post-award to ensure compliance with the terms of the 

award, based on information it identifies or the applicant provides, unless 

 

18 2 C.F.R. § 200.338. 

19 For example, to expedite the delivery of Public Assistance when a recipient/subrecipient has insurance 

coverage, FEMA may assess the recipient/subrecipient’s insurance coverage to record in the PW at the time of 

award a preliminary estimate of the amount of available anticipated benefits that would duplicate FEMA 

assistance (i.e., insurance reductions for anticipated insurance proceeds). The recipient/subrecipient remains, 

however, responsible to identify and seek all applicable insurance proceeds under its policy or policies as a 

post-award condition.
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FEMA indicated that its determination regarding the amount of available 

anticipated benefits was final.

v. Failure to provide information to FEMA: If the recipient or subrecipient fails to 

provide all necessary information to FEMA that materially impacts FEMA’s 

determination regarding: 1) the eligibility of the project; 2) the cost of the 

approved scope of work described in the PW; or 3) compliance with terms and 

conditions of the award; then Section 705(c) does not apply and FEMA will take 

all appropriate actions to recover payments to remedy the state, Indian tribal 

government, or local government recipient’s or subrecipient’s failure to provide 

the subject information, as appropriate. 

3. The costs were reasonable. As defined at 2 C.F.R. § 200.404 and OMB Circular A-87, “A 

cost is reasonable if in its nature and amount, it does not exceed that which would be incurred by 

a prudent person under the circumstances prevailing at the time the decision was made to incur 

the cost.” This definition and applicable FEMA policies and guidelines for determining 

reasonableness will be utilized to determine if this criteria of Section 705(c) is satisfied. 

a. If FEMA determines that the recipient or subrecipient did not incur reasonable costs 

in performing the approved scope of work, Section 705(c) does not apply, and FEMA 

will take all appropriate actions to recover payments made for disallowed costs or 

overpayment, including if there was also a project eligibility error. 

C. Appeals, Arbitration, and Audits 

a. This policy applies to state, Indian tribal government, or local government recipient 

and subrecipient PWs that are under appeal, arbitration, or where the Department of 

Homeland Security’s Office of the Inspector General has made an audit 

recommendation to recover payments. 

i. If the recipient or subrecipient disagrees with FEMA’s decision to recover

payments because they assert Section 705(c) applies, the recipient or subrecipient 

should submit appeals in accordance with 44 C.F.R. § 206.206, and FEMA will 

consider whether Section 705(c) prohibits FEMA from recovering payments. 

ii. When responding to appeals, arbitration requests, and audits, FEMA will cite the 

Section 705(c) determination if FEMA is prohibited from recovering payments. 

FEMA will also note any Section 705(c) related determinations, including the 

rationale, in the PW comments and a determination memo, as appropriate. 
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VIII. RESPONSIBLE OFFICE: Recovery Directorate, Public Assistance Division.

IX. REVIEW DATE: It is FEMA policy to review policies and reissue, revise, or rescind the policy 

within three years of the date of issuance. This policy will be reviewed 3 years from the date of 

issuance in accordance with Directive 112-12.