60796 Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 205

RIN 1510–AA38

Rules and Procedures for Efficient

Federal-State Funds Transfers

AGENCY: Financial Management Service,

Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Financial Management

Service (FMS) proposes to revise the

regulations implementing the Cash

Management Improvement Act of 1990,

as amended (CMIA). These regulations

govern the transfer of funds between the

Federal Government and States for

certain Federal assistance programs. The

revisions will provide greater flexibility

in funding techniques; ensure that

Treasury-State Agreements are

unambiguous and auditable; address

concerns raised by States, Federal

agencies, and the General Accounting

Office (GAO); delete obsolete

provisions; incorporate FMS policy

statements as appropriate; reflect new

legislation and directives; and make the

regulation clearer and, where possible,

more concise.

DATES: Send your comments to reach us

on or before January 10, 2001; we may

not consider comments received after

the above date in making our decision.

ADDRESSES: For information about filing

comments electronically, see the

SUPPLEMENTARY INFORMATION section

under ‘‘Electronic access and filing

address.’’ You may also mail comments

to Cynthia L. Johnson, Director, Cash

Management Policy and Planning

Division, Financial Management

Service, 401 14th Street, S.W., Room

420, Washington, D.C. 20227. You may

hand deliver comments to us at that

same location.

FOR FURTHER INFORMATION CONTACT:

Sally Phillips, Senior Financial Program

Specialist, at (202) 874–7106, or

Stephen K. Kenneally, Financial

Program Specialist, at (202) 874–6966,

or Matthew Helfrich, Financial Program

Specialist, at (202) 874–6754, or Oscar

On ̃a, Financial Program Specialist, at

(202) 874–6799, or Adam Martin,

Financial Program Specialist, at (202)

874–6881, or Cynthia L. Johnson,

Director, Cash Management Policy and

Planning Division, at (202) 874–6657, or

Ellen Neubauer, Senior Attorney, at

(202) 874–6680. Individuals who use a

telecommunications device for the deaf

(TDD) may call the Federal Information

Relay Service at 1–800–877–8339

between 8:00 a.m. and 4:00 p.m. Eastern

time, Monday through Friday, excluding

Federal holidays.

SUPPLEMENTARY INFORMATION:

I. Public Comment Procedures

II. Background

III. Discussion of Proposed Rule

IV. Procedural Matters

I. Public Comment Procedures

Electronic Access and Filing Address

You may view an electronic version of

this proposed rule at http://

www.fms.treas.gov/policycmia and

submit comments to FMS via the web

site. You may also comment via e-mail

to: cmia@fms.treas.gov. Please also

include ‘‘Attention: RIN—1510-AA38’’

and your name, address, and phone

number in your Internet message. If you

do not receive a confirmation from the

system that we have received your

Internet message, contact us directly at

(202) 874–6590.

Written Comments

Written comments on the Notice of

Proposed Rulemaking (NPRM) should

be specific, should be confined to issues

pertinent to the proposed rule, and

should explain the reason for any

change you recommend. Where

possible, you should reference the

specific section or paragraph of the

proposal you are addressing. We may

not consider or include in the

Administrative Record for the final rule

comments which we receive after the

close of the comment period.

Comments, including names, street

addresses, and other information of

respondents, will be available for public

review at the Department of the

Treasury Public Reading Room during

regular business hours (8:00 a.m. to 4:00

p.m.), Monday through Friday, except

Federal holidays. We will also post all

comments on the CMIA policy website

at http://www.fms.treas.gov/policycmia

at the end of the comment period.

Individual respondents may request

confidentiality. If you wish to request

that we consider withholding your

name, street address, or other contact

information (such as Internet address,

FAX or phone number) from public

review or from disclosure under the

Freedom of Information Act, you must

state this prominently at the beginning

of your comment. We will honor

requests for confidentiality on a case-bycase basis to the extent allowed by law.

We will make available for public

inspection in their entirety all

submissions from organizations or

businesses, and from individuals

identifying themselves as

representatives or officials of

organizations or businesses.

Public Hearings

In addition, Treasury will hold two

public hearings on the proposed rule

that will provide individuals with the

opportunity to publicly present their

comments. The dates, times, and

locations of these public hearings will

be announced in a document that will

be published in the Federal Register

and made available on the CMIA Policy

website at http://www.fms.treas.gov/

policycmia.

II. Background

We are proposing to revise our

regulations at 31 CFR Part 205 (Part

205). Part 205 implements the Cash

Management Improvement Act of 1990

(CMIA), Public Law 101–453, and the

Cash Management Improvement Act

Amendments of 1992, Public Law 102–

589, codified at 31 U.S.C. 3335, 6501,

and 6503.

CMIA was enacted in order to create

greater efficiency and equity in the

exchange of funds between the Federal

Government and the States. Prior to the

enactment of CMIA, Federal agencies

expressed concerns that States were

drawing down Federal funds well in

advance of the time those funds were

needed by States. States, on the other

hand, expressed concerns about having

to pay out their own funds in advance

of receiving funds from the Federal

Government.

CMIA, which requires the heads of

executive agencies to provide for the

timely disbursement of Federal funds in

accordance with regulations prescribed

by the Secretary of the Treasury, has

three major provisions designed to

address these issues:

• States and Federal agencies must

minimize the time between the transfer of

funds from the U.S. Treasury and the

clearance of funds out of the accounts of a

State.

• The Secretary of the Treasury shall enter

into a Treasury-State Agreement with each

State which specifies the funds transfer

procedures for Federal assistance programs.

• In general, States and the Federal

Government are respectively entitled to

interest when the other fails to make funds

transfers in a timely fashion. States owe the

Federal Government interest for the time

Federal funds are in State accounts before

they are spent for Federal assistance program

purposes. A Federal agency owes a State

interest if the State disburses its own funds

with obligational authority to support the

Federal portion of a program before receiving

Federal funds.

We issued Part 205 in 1992. The Final

Rule was published on September 24,

1992 (57 FR 44272). The foundation of

Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules 60797

1See Financial Management: ‘‘Implementation of

the Cash Management Improvement Act’’ (Letter

Report, 01/08/96, GAO/AIMD–96–4).

the regulation was the use of

recognized, sound cash management

principles in order to increase certainty

in the timeliness of payments between

Federal agencies and States. Since 1992,

we have issued a number of CMIA

Policy Statements (Policy Statements)

that address various issues relevant to

Part 205.

One of the purposes of the proposed

rulemaking is to update the current

regulation by deleting obsolete

provisions and incorporating FMS

Policy Statements. Another purpose is

to address various concerns that States,

Federal agencies, and the General

Accounting Office 1 have raised since

the issuance of Part 205. Specifically,

the proposed regulation:

(1) Provides greater flexibility in funding

techniques;

(2) Ensures that Treasury-State Agreements

are unambiguous and auditable;

(3) Reflects new legislation and directives,

including the Single Audit Act Amendments

of 1996, 31 U.S.C. Chapter 75; and Executive

Order 12866 of September 30, 1993,

Regulatory Planning and Review; and,

(4) Makes the regulation clearer and, where

possible, more concise.

FMS provided an earlier draft of this

proposed rule to the National

Association of State Auditors,

Comptrollers and Treasurers, the

National Governors’ Association, the

National Conference of State

Legislatures, the Council of State

Governments, and the National League

of Cities and solicited comments from

their membership. We also provided the

draft proposed rule to the state of

Colorado. We received several

comments which have been considered

in the formulation of this rule.

III. Discussion of Proposed Rule

General. We are proposing to

reorganize subpart A of Part 205 by

presenting general information on

Treasury-State Agreements first,

followed by specific information related

to the various sections of a TreasuryState Agreement. The proposal

consolidates requirements related to

specific programs into one section. In

addition, the proposed reorganization

puts State oversight and compliance

requirements in one section, and

Federal agency requirements in another.

Proposed subpart B combines the

existing two subsections on the

consequences of Federal and State

noncompliance since the result of

noncompliance by either party is the

same for the noncomplying party.

Subpart C continues to be reserved.

Although the format is different due

to recently enacted plain language

requirements, the proposed rule is

consistent with the existing rule except

where specifically noted. Incorporating

existing Policy Statements into the

regulation has also altered the rule’s

appearance. The proposed changes have

been made based on input received from

key program stakeholders: States and

Federal program agencies.

Disallowances. Section 205.2 of the

proposed rule defines disallowances as

costs incurred by a State which the

Federal program agency determines to

be costs which should not be charged to

the Federal Government either because

the funds were used for other than

Federal assistance program purposes or

the amount of the funds used for

Federal assistance program purposes

was improper. Section 205.15 of the

proposed rule adds a provision

expressly recognizing that

disallowances are subject to the CMIA’s

interest provisions.

Generally, disallowances occur when

a Federal agency determines that a

request for funds submitted by a State

is invalid because the funds are not

used for legitimate Federal assistance

program purposes or the amount of

funds used or requested for Federal

assistance purposes was improper. A

Federal agency may disallow a funds

transfer prior to it being made to a State

or after it is made to a State. In some

cases, the statutes governing a specific

program address disallowances and

assess interest penalties. The CMIA

allows Treasury to consider such

statutory provisions when determining

whether the CMIA interest provisions

apply to particular disallowances.

This rule does not change the way an

expenditure is determined to be a

disallowance. Whether or not funds

expended by a State should be properly

charged to the Federal government is a

determination to be made by the Federal

program agency responsible for the

Federal assistance program under which

the expenditure arose. As in the past,

this determination will be made in

accordance with the statutes,

regulations, and policies applicable to

that program.

We are specifically seeking comment

from States, Federal agencies, and the

public on the implementation of the

disallowance provisions.

Section-by-Section Analysis

Section 205.1 What Federal Assistance

Programs Are Covered by This Part?

Proposed § 205.1 replaces current

§ 205.1, Purpose, and current § 205.2,

Scope. Proposed § 205.1 states that the

rule applies to all States and Federal

program agencies (except the Tennessee

Valley Authority) and covers programs

listed in the Catalogue of Domestic

Federal Assistance.

Section 205.2 What Definitions Apply

to This Part?

Proposed § 205.2 replaces current

§ 205.3, titled Definitions. Based on

input from Federal agencies and States

during several years of CMIA

implementation, we’re proposing

certain deletions, additions, and

modifications to the definitions. Three

definitions are deleted: equivalent rate,

issue checks, and program. Twentythree definitions are added:

administrative costs, business day,

Catalog of Federal Domestic Assistance,

compensating balance, default

procedures, direct cost, disallowances,

dollar-weighted average day of

clearance, drawdown as a verb,

estimate, Federal assistance program,

Financial Management Service, grant,

indirect cost, indirect cost rate,

maintenance-of-effort, rebate, refund

transaction, reverse flow program,

revolving loan fund, Treasury-State

Agreement, vendor payment, and we

and us. Additionally, the table

describing the applicable dollar

thresholds for major Federal assistance

programs found in Appendix A of

current subpart A is moved to proposed

§ 205.5, What are the thresholds for

major Federal assistance programs?

since the proposed rule addresses

program eligibility in that section.

Subpart A: Rules Applicable to Federal

Assistance Programs Included in a

Treasury-State Agreement

Section 205.3 What Federal Assistance

Programs Are Subject to Subpart A?

Proposed § 205.3 replaces portions of

current § 205.4, Scope of subpart. This

section provides criteria by which States

and Federal agencies determine which

programs are covered by this Part in

general, and by subpart A in particular.

Proposed § 205.3 clarifies that, at the

discretion of the State, the number of

programs included in a Treasury-State

Agreement can be increased by lowering

the funding thresholds. Lowering the

funding threshold as a means of

expanding permissible program

coverage avoids disputes over

individual programs. Federal agencies

were concerned that States would try to

add individual programs under which

the Federal Government would likely

incur interest liabilities to the States.

States, on the other hand, were

concerned that the Federal Government

would oppose adding specific programs

60798 Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules

with likely Federal interest liabilities

and instead move to cover programs

under which the States would likely

incur interest obligations.

Since they are no longer applicable,

the subsections in current Part 205 on

initial program coverage and the grace

period for colleges and universities are

deleted in the proposed rule.

These sections applied only to the

first year of CMIA implementation.

We are seeking comment from Federal

program agencies and States on

reducing the administrative burden

associated with the requirements of

subpart A. In particular, we seek input

on methods granting relief, consistent

with the CMIA, to States and Federal

program agencies that practice good

cash management.

Section 205.4 Are There Any

Circumstances Where a Federal

Assistance Program That Meets the

Criteria of 205.3 Would Not Be Subject

to Subpart A?

Proposed § 205.4 replaces portions of

existing § 205.4, Scope of Subpart.

Proposed § 205.4 outlines a few

exceptions to the regulation regarding

the applicability of subpart A to some

Federal assistance programs. Although

the section heading is new, these

exemptions are not new and exist in the

current rule or are included in Policy

Statements. Some examples of

exempted programs are those that have

been discontinued and whose remaining

funding is below the major program

threshold and those administered

through several State agencies provided

certain other requirements are met.

Proposed § 205.4 includes a provision

integrating Policy Statement 8

(‘‘Materiality Exemptions,’’ April 19,

1993). Proposed § 205.4 describes

exemptions for components of certain

Federal programs that are spread over

several agencies within a State. If a State

agency’s portion of the funding does not

exceed 5% of the State’s major Federal

assistance threshold or 10% of total

program expenditures, the regulation

allows us and a State to exclude that

portion of the funding from subpart A

of Part 205. For example, a State Human

Services agency and a State Agriculture

Agency may share responsibility for a

Federally funded nutrition program. If

the share of funding received by the

State Agriculture Agency falls within

the limits given above, funds received

are not subject to subpart A of Part 205.

However, if interest liability is found in

the State Human Services agency’s

portion of the program that is subject to

this Part, the interest liabilities should

be pro-rated to reflect interest on 100%

of the program’s funding.

Proposed § 205.4 also includes a

provision integrating Policy Statement

17 (‘‘Exclusion of Major Federal

Assistance Programs Based on Funding

Changes’’, June 21, 1995), which

describes exemptions for discontinued

programs. Specifically, we and a State

may agree to exempt a program from

being subject to Part 205 if the program

has been discontinued and the

remaining funding does not exceed the

existing major program threshold. We

may also agree with a State to exempt

from subpart A of Part 205 multi-year

programs that have remaining funds

totaling less than that of a State’s

threshold. For example, assume a fiveyear program has spent all but $100,000

of its authorized funds in its first four

years. If the major program threshold for

that State is $900,000, we and a State

can agree to exempt the program from

subpart A of Part 205 program for its

one remaining year.

Section 205.5 What Are the

Thresholds for Major Federal Assistance

Programs?

In the current rule, § 205.5 is reserved.

In the proposed rule, this section is used

to state the threshold determination

levels and incorporate Appendix A from

the current rule.

A small number of Federal programs

are responsible for the majority of

interest exchanged each year. In general,

these are the largest Federal assistance

programs, based on funding levels. The

proposed rule increases the existing

thresholds, thereby reducing the

number of programs covered.

As with the current rule, the proposed

rule requires States to determine the

major program thresholds based on a

percentage of the total expenditure of

Federal assistance by a State. Different

percentages are applied based on the

amount of Federal assistance received

by a State. The proposed rule doubles

the percentages used in the existing

rule. For example, States that receive

$100 million or less would apply a 6.00

percent standard under the proposed

rule instead of the 3.00 percent standard

currently in effect. States that receive

between $100 million and $10 billion

would apply a 0.60 percent standard

instead of 0.30 percent standard. States

receiving in excess of $10 billion in

Federal assistance must apply a 0.30

percent standard instead of the 0.15

percent standard. However, States in

this largest category are subject to a

default threshold level of $60 million or

greater. This is to ensure that the

threshold is at least as great as for those

States in the middle category. Under the

proposed rule, States do not have the

option of selecting a fixed dollar amount

instead of the percentage. This reduces

the number of applicable threshold

levels from ten to three.

The higher thresholds allow States,

Federal program agencies, and FMS to

focus their resources on large dollar

programs and eliminate the

administrative burden of tracking

interest liabilities for numerous, but

relatively small, Federal assistance

programs. A review of the potential

effect of approximately doubling the

major program threshold indicates that

the eliminated programs represent a

very small percentage of the program

funds that would remain subject to this

Part. This is because the eliminated

programs represent the smallest

programs, measured by dollar amount,

covered by CMIA.

To ensure that adequate program

coverage is maintained, the proposed

regulation requires a State to compare

its coverage under the new thresholds

with program coverage under the

existing thresholds determined by the

Single Audit Act. Consider, for example,

a State that has a threshold of $10

million under the existing regulation,

using the current 0.3 percent multiplier,

and would have its threshold doubled to

$20 million under the proposed

regulation using the 0.6 percent

multiplier. That State must sum the

total dollar value of the additional

programs that would be exempted under

the proposed rule. If that figure exceeds

10 percent of the total dollar value of

the programs covered using the lower

threshold amount, then the threshold

must be lowered until 90 percent

coverage of the total program dollars is

maintained.

Assume, for purposes of our example

that, under the existing regulations the

State’s $10 million dollar threshold

would cover 24 programs that represent

a total value of $600 million. Under the

proposed regulation, the threshold rises

to $20 million, covering 15 programs

that total $530 million. To determine if

90% coverage is maintained, the State

must divide the reduction in total

program coverage by the program

coverage value under the existing rule

or ($600 million¥$530 million)/$600

million=11.6 percent. In this case,

program coverage would be reduced by

more than 10% and the threshold level

would be adjusted downward until that

level of coverage is reached. The 10%

reduction in program coverage is not a

target, but an outer limit. A State that

doubles its threshold which eliminates

less than 10% of its total program dollar

coverage is NOT allowed to

automatically increase its threshold to

reach the 10% level.

Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules 60799

As noted in § 205.3, States that wish

to retain or expand current CMIA

program coverage would be allowed to

continue to negotiate Treasury-State

Agreements containing lower program

thresholds.

To determine if a program meets the

threshold for a ‘‘major’’ program, refer to

Table A in proposed § 205.5. For

example, assume a State receives $3

billion in Federal assistance for all

programs. To determine which

programs are major Federal assistance

programs, look at the corresponding

information in Column B. Column B

indicates that any program with

expenditures exceeding 0.60 percent of

the total Federal assistance expenditures

would be considered a major Federal

assistance program. Under the proposed

rule, the State calculates the threshold

by multiplying $3 billion by 0.60

percent, totaling $18 million.

On May 5, 1999, the current

regulation was revised with updated

major program threshold criteria

derived from the Single Audit Act

Amendments of 1996, 64 FR 24242. We

are now proposing to move the

amended table describing these

thresholds to proposed § 205.5 from the

definitions section of the current rule.

The Single Audit Act Amendments of

1996 identify programs subject to audit

based on a combination of objective

funding figures and a subjective ‘‘risk’’

analysis of each program. The ‘‘risk

based’’ criteria do not apply to this Part.

The only criterion for designation as a

major program subject to this Part is

funding level.

Section 205.6 What Is a Treasury-State

Agreement?

Proposed § 205.6 includes provisions

found in current § 205.9, Treasury-State

Agreements. Provisions from current

§ 205.6, Funding Techniques are moved

to proposed § 205.12. A Treasury-State

Agreement is a document negotiated by

FMS and the States that identifies the

covered programs, funding techniques,

and interest calculation methods used

for programs subject to subpart A.

We are proposing a major change in

the Treasury-State Agreement

negotiation process. Currently, the

majority of Treasury-State Agreements

have a one-year term and thus must be

renegotiated annually. We do not

believe that it is necessary or productive

to renegotiate each agreement every

year, particularly since agreements are

amended as necessary to reflect changes

in programs, funding techniques, and

clearance patterns. Therefore, we are

proposing to make Treasury-State

Agreements effective until terminated.

States and the Federal Government

retain the right to terminate a TreasuryState Agreement with 30 days written

notice.

Section 205.7 Can a Treasury-State

Agreement Be Amended?

Proposed § 205.7 is a new section that

contains details on the amendment

process currently set forth in Policy

Statement 10 (‘‘Amendment Policy and

Process,’’ May 11, 1994). In general,

proposed § 205.7 indicates how, when,

and for what reason States can amend

Treasury-State Agreements. A State may

amend a Treasury-State Agreement for

such reasons as: adding or deleting

programs, changing funding techniques,

and changing clearance patterns.

Section 205.8 What if There Is No

Treasury-State Agreement in Effect?

This section addresses the default

process that is currently part of existing

§ 205.9 Treasury-State Agreements. It

describes the situation when there is no

Treasury-State Agreement in effect. In

these circumstances, we will prescribe

default procedures to implement

subpart A. We will identify the major

programs to be subject to subpart A as

well as the funding techniques to be

used by the State.

Section 205.9 What Is Included in a

Treasury-State Agreement?

Proposed § 205.9 is similar to current

§ 205.9 in that it describes the

components that must be included in a

Treasury-State Agreement. Proposed

§ 205.9 also prescribes a uniform format

for Treasury-State Agreements.

Although we have made an effort in the

past to standardize the format of the

first-year agreements, most agreements

still have differences in format. These

differing formats add to the time needed

to review the agreements and make it

difficult to examine and compare them.

Proposed § 205.9 is designed to correct

this problem, but it is not intended to

change the substantive provisions of the

agreements. We’ll provide the new

format to the designated State and

Federal agency CMIA contacts. The

format will consist of terms and

conditions common to all States,

followed by addenda specific to any one

State.

Section 205.10 How Do You Document

Funding Techniques?

Proposed § 205.10 replaces current

§ 205.7, Requesting and transferring

funds. Proposed § 205.10 clarifies the

information on funding techniques that

must be included in a Treasury-State

Agreement. Concise descriptions of each

funding technique must include details

such as ‘‘what is a timely request for

funds?’’ and ‘‘what procedures are used

to reconcile estimates with actual cash

needs?’

It is important to include these details

in the negotiated Treasury-State

Agreement because we aren’t requiring

any particular funding techniques.

Therefore, it will benefit all parties to

have the terms of the agreed upon

funding techniques clearly described.

Section 205.11 What Requirements

Apply to Funding Techniques?

Proposed § 205.11 contains basic

requirements a State and a Federal

agency have to meet to achieve an

efficient level of funds transfers.

Proposed § 205.11 restates much of

current § 205.11. In addition, proposed

§ 205.11 mandates electronic funds

transfer for Federal funds transfers to

States, pursuant to the Debt Collection

Improvement Act of 1996 and its

implementing regulation, 31 CFR Part

208. 63 FR 51490. The definition of

electronic funds transfer found in

proposed § 205.2 has been expanded

beyond wire transfers and Automated

Clearing House payments to include any

payment made electronically.

In response to the questions received

from States on the treatment of

compensating balances under CMIA,

proposed § 205.11(c) provides that a

State must not draw down funds from

its account in the Unemployment Trust

Fund or from a Federal account in the

Unemployment Trust Fund in advance

of actual immediate cash needs for the

express purpose of maintaining a

compensating balance. Compensating

balances are deposits held in bank

accounts to offset the costs of bank

services.

CMIA requires States and Federal

agencies to minimize the time between

the drawdown and the subsequent

expenditure of Federal funds for Federal

assistance program purposes. Thus, a

State may only draw down Federal

funds in accordance with the timing and

amounts dictated by the agreed upon

funding technique. The amount drawn

down must equal the amount issued or

the amount expected to clear.

Drawdowns may not include an extra

amount, or occur earlier, to create a

balance for the purpose of compensating

a bank. A State’s interest liability on

funds withdrawn from a State account

in the Unemployment Trust Fund is

based on actual interest earned. The

proposed rule clarifies that actual

interest earned does not include noncash bank earnings.

60800 Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules

Section 205.12 What Funding

Techniques May Be Used?

Proposed § 205.12 contains much of

current § 205.6, Funding techniques.

However, proposed § 205.12 states in

clear language that the funding

techniques listed in the section are not

the only methods allowed. The General

Accounting Office report, ‘‘Financial

Management: Implementation of the

Cash Management Improvement Act,’’

January 1996, noted that States found

the restrictions on the use of

reimbursable funding burdensome. In

response, FMS is giving States more

flexibility in choosing funding

techniques. However, we believe that

there is value in providing definitions of

some funding techniques. States and

Federal agencies may benefit from

having a standard definition when

negotiating a Treasury-State Agreement.

The definitions in proposed § 205.12

may be adopted, modified, or excluded

from a Treasury-State Agreement at the

discretion of the parties negotiating the

agreement.

The proposal allows States and

Federal program agencies to negotiate

the use of a technique that meets their

needs, including reimbursable funding,

which is currently prohibited.

Reimbursable funding is a funds transfer

method where, after a State pays out its

own funds for the Federal portion of a

program, the State then requests and

receives reimbursement for the Federal

funds paid out by the State. The

proposal would eliminate the current

prohibition on reimbursable funding.

We’re proposing this change because

some States have used reimbursable

funding to fund certain administrative

and overhead costs through cost

allocation or other after-the-fact

distribution methods. We expect to limit

the use of reimbursable funding to those

limited circumstances where there

aren’t any other acceptable funding

techniques.

Section 205.13 How Do You Determine

When State or Federal Interest Liability

Accrues?

Proposed § 205.13 is a new separate

section that clarifies that State or

Federal interest liability may accrue

when funding techniques agreed to in

the Treasury-State Agreement are

applied. Proposed § 205.13 contains a

provision included in existing § 205.10

that allows a State and FMS to agree not

to assess interest liability for indirect

costs or indirect allocated costs. These

costs would be based on an indirect cost

rate and the arrangement must be

included in the Treasury-State

Agreement.

Section 205.14 When Does Federal

Interest Liability Accrue?

Proposed § 205.14 replaces current

§ 205.11 governing Federal interest

liabilities. In general, the Federal

government incurs an interest liability if

the State pays out its own funds for

Federal assistance program purposes

with valid obligational authority.

Obligational authority is defined as ‘‘the

existence of a definite commitment on

the part of the Federal government to

provide appropriated funds to a State to

carry out specified programs, whether

the commitment is executed before or

after a State pays out funds for Federal

assistance program purposes.’’ Thus,

obligational authority exists if the

Federal government is authorized to

make payments to a State and

appropriates funds to make those

payments. If a State pays out funds for

Federal assistance program purposes

before Congress has appropriated funds,

and Congress subsequently appropriates

funds to cover the period for which the

State paid out the funds, obligational

authority exists and the Federal

Government incurs an interest liability

to the State.

Some Federal agencies have

questioned whether obligational

authority exists if a State’s expenditure

of funds is subject to agency approval or

authorization, and the State pays out

funds prior to obtaining the agency’s

approval or authorization. We invite

agencies and States to comment on the

nature and operation of any agency

approval requirements that currently are

in place, including whether the agency’s

approval or authorization requirement is

imposed pursuant to a Federal statute,

a Federal regulation, or an agreement

between the Federal agency and the

State. We also request comment on

whether we should amend the

definition of ‘‘obligational authority’’ in

the regulation to address this issue more

specifically.

Proposed § 205.14(a)(3) clarifies that a

Federal agency does not accrue

retroactive interest liability if a State

expends funds for a discretionary grant

project prior to receiving approval from

the Federal agency. A discretionary

grant is a project for which a Federal

program agency is authorized by law to

exercise judgment in awarding a grant

and in selecting a grantee, generally

through a competitive process. CMIA

interest liability on discretionary grants

cannot begin to accrue until the Federal

program agency approves the project.

This position is consistent with the

existing regulation.

Proposed § 205.14(a)(5) includes a

provision that allows FMS to deny

Federal interest liability if a State fails

to follow the agreed upon procedures

outlined in the Treasury-State

Agreement. The intent of this

regulation, efficient cash management,

is best accomplished when all parties

comply with the Treasury-State

Agreement.

Section 205.15 When Does State

Interest Liability Accrue?

Proposed § 205.15 replaces current

§ 205.12 describing the circumstances

under which State interest liability

accrues.

Proposed § 205.15(b) provides that

States will incur an interest liability on

disallowances. The CMIA states the

following: ‘‘The Secretary shall issue

regulations that shall require a State,

when not inconsistent with Federal

assistance program purposes, to pay

interest to the United States on funds

from the time funds are deposited by the

United States to the State’s account

until the time that funds are paid out by

the State in order to redeem checks or

warrants or make payments by other

means for program purposes.’’

Disallowed funds are funds that have

been paid out for other than Federal

assistance program purposes and,

therefore, are not properly chargeable to

the Federal government. Under CMIA, a

State must pay interest to the United

States on such funds.

In general, if a Federal program

agency disallows a State expenditure, a

State will owe interest from the day on

which the Federal funds associated with

the disallowed expenditure were

credited to the State’s account to the day

the funds are credited back to the

Federal government. In many instances,

however, State expenditures are

disallowed by a Federal program agency

in CMIA reporting years subsequent to

the CMIA reporting year in which the

State originally made the expenditure.

In such instances, either the State or the

Federal government may previously

have paid CMIA interest on the funds

associated with the disallowed

expenditure. The State’s CMIA interest

calculation resulting from the

disallowance shall be adjusted to reflect

any prior CMIA interest payments.

For example, a State may have paid

interest to the Federal government in

the reporting year in which the State

made the expenditure because the State

drew down Federal funds early. In that

case, the State’s interest liability

resulting from the disallowance should

be reduced by the amount of interest it

had already paid in the earlier reporting

year (i.e., interest accruing from the day

the State drew down the funds until the

State paid out the funds). Alternatively,

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the Federal government may have paid

interest to a State in an earlier reporting

year because the State advanced the

funds associated with the disallowed

expenditure. Because the State did not

pay out the funds for Federal assistance

program purposes, the State was not

entitled to the interest that the Federal

government paid for that period.

Accordingly, the State must reimburse

the Federal government for that interest,

and the State’s liability resulting from

the disallowance must be increased

accordingly.

FMS is specifically seeking comment

on the implementation of this provision.

Proposed § 205.15(c)(2)changes the

current provision allowing States and

FMS to agree on a refund transaction

exemption threshold of $10,000. The

proposed rule lets FMS and a State

mutually agree on either a $50,000

threshold or no refund transaction

threshold. The purpose of the threshold

is to give States relief from tracking

large volumes of small dollar refunds.

The General Accounting Office report

noted that some States believe excessive

effort is required to monitor and

calculate interest on refunds. Some

States adopted labor-intensive

procedures to separate refund

transactions above the threshold from

those below it, and to calculate interest

on each refund transaction rather than

an aggregate refund activity.

Section 205.16 What Special Rules

Apply to Federal Assistance Programs

and Projects Funded by the Highway

Trust Fund?

Proposed § 205.16 contains provisions

currently included in § 205.11, Federal

interest liabilities. Some States have

asked FMS to clarify the Federal interest

provisions for programs and projects

funded from the Federal Highway Trust

Fund. If a State pays out its own funds

in the absence of a project agreement,

the Federal Government will not incur

an interest liability, even if obligational

authority is established subsequently to

permit payment for the State’s

expenditure. This is the current policy,

and it remains unchanged in the

proposed rule. Where a project

agreement exists, States must request

funds at least weekly for current project

costs. The Federal Government will

accrue an interest liability on current

project costs for which there is valid

obligational authority, for a maximum of

one week’s time. The Federal

Government will not accrue an interest

liability on project costs accrued prior to

the week the State request funds.

Section 205.17 Are Funds Transfers

Delayed by Automated Payment

Systems Restrictions Based on the Size

and Timing of the Drawdown Request

Subject to This Part?

Proposed § 205.17 clarifies the role

Part 205 plays when funds transfers are

delayed by a Federal program agency.

Part 205 applies to funds transfers that

are deferred by a Federal program

agency based solely on the size and

timing of the drawdown request. This is

in response to State concerns that

payment systems such as the Automated

Standard Application for Payment

(ASAP) and the Payment Management

System (PMS) may allow Federal

program agencies to automatically reject

drawdown requests that fall outside a

predetermined set of parameters.

Section 205.18 Are Federal Program

Agency Grants for Administrative Costs

Subject to This Part?

Proposed § 205.18 clarifies the

treatment of grants made to States to

compensate for indirect administrative

costs. This subject is addressed in

current § 205.10, Funding of indirect

costs and administrative costs. We are

proposing these changes in response to

concerns that tracking these costs is not

an efficient use of resources. These two

provisions make clear that Federal

agency grants that are 100% dedicated

to compensate for indirect and/or other

administrative costs are subject to

subpart A. However, as for grants that

contain funds dedicated to program

costs and administrative costs, the

portion of the grant dedicated to

indirect administrative costs is not

subject to Part 205.

Section 205.19 How Is Interest

Calculated?

Proposed § 205.19 incorporates the

provisions of current § 205.13, Interest

calculation. Proposed § 205.19 lists the

requirements that States must comply

with to calculate and support interest

liability claims. States must ensure that

the interest calculations are auditable

and retain a record of the calculations.

This section also describes the method

used to calculate the interest rate

applied to CMIA liabilities. We will

provide that interest rate to each State.

Section 205.20 What Is a Clearance

Pattern?

Proposed § 205.20 contains

information found in current § 205.8, as

well as more detailed information

regarding the requirements of

developing and maintaining proper

clearance patterns. These requirements

are intended to ensure that all clearance

patterns meet an adequate level of

accuracy and detail. In general, a

clearance pattern must accurately

represent the flow of Federal funds

under the Federal assistance programs.

These clearance patterns must be based

on at least three consecutive months of

disbursement data, and valid statistical

sampling must be applied.

Several States have requested a

clearer statement of the standards to be

used in developing clearance patterns.

Therefore, the proposed rule specifies:

(1) The information that must be

included in a Treasury-State Agreement,

consistent with proposed § 205.9;

(2) The amount of data to be used to

develop a clearance pattern;

(3) The standards of statistical

accuracy to be applied if checks are

sampled to develop a clearance pattern;

and

(4) the range of days which a

clearance pattern must cover.

Some States have questioned why we

require that a clearance pattern be

carried out until 99 percent of the

dollars in a disbursement clear or are

paid out for Federal assistance program

purposes. The States’ concern was noted

in the General Accounting Office report,

‘‘Financial Management:

Implementation of the Cash

Management Improvement Act,’’

January 1996. The 99 percent standard,

currently documented in FMS Policy

Statement 11 (‘‘Clearance Patterns,’’

May 20, 1994), is incorporated in the

proposed rule. The 99 percent standard

was adopted because the 95 percent

standard did not accurately represent

the flow of funds, leaving a substantial

amount of funding undocumented.

When CMIA was initially

implemented, we required that a

clearance pattern be carried out until

95% of the dollars cleared. At that time,

only a limited amount of clearance data

were available. When additional

clearance data became available, we

learned that some States do not have

expiration dates for checks; thus, checks

could remain outstanding for years. The

95 percent standard allowed States to

draw down 5 percent of Federal funds

before the dollars cleared. Further, the

95 percent clearance standard allowed

the dollar-weighted average day of

clearance to be one day earlier than with

the 99 percent standard.

A clearance pattern based on either

the old 95 percent standard or the

current 99 percent standard may extend

over a significant period of time. Some

States are concerned about making

numerous small drawdowns, as noted in

the GAO report. There are many ways

to avoid this, such as the use of average

clearance. A State also may use

estimated clearance for a period of time

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specified in its Treasury-State

Agreement. A State may use estimated

clearance for the first two weeks of the

clearance pattern, then make one

additional drawdown on the average

day of clearance of the remaining funds.

Section 205.21 When May Clearance

Patterns Be Used?

Proposed § 205.21 through § 205.23

address specific issues regarding

clearance patterns, found in current

§ 205.8, Clearance patterns. A State may

use clearance patterns to estimate when

funds are paid out, given a known dollar

amount and a known date of

disbursement. When the dollar amount

and/or the timing of disbursements are

not known, we may agree with a State

on other procedures to use to estimate

when funds are paid out. Clearance

patterns may be used to determine the

flow of funds for individual Federal

assistance programs, accounts at

financial institutions, groups of Federal

assistance programs, and other types of

payments. The methods used to create

and maintain clearance patterns must be

contained in the Treasury-State

Agreement.

Section 205.22 How Are Accurate

Clearance Patterns Maintained?

If a State has knowledge that a

clearance pattern is no longer accurate,

it must notify us. The State must

develop a new and accurate clearance

pattern, certify it, and submit it to us.

Clearance patterns must be re-certified

by the authorized State official every

five years.

Section 205.23 What Requirements

Apply to Estimates?

A major change that we are proposing

to the current rule is the introduction of

standards for developing, documenting,

and maintaining estimates, other than

clearance patterns, used to determine

the amount to request and the timing of

the transfer of funds. Many States have

negotiated unique funding techniques

that are not based on the actual amount

of funds in a disbursement, but rely on

some method of estimating the State’s

cash requirements. Often these funding

techniques are difficult to audit because

they are not documented in sufficient

detail. The proposed standards are

designed to ensure that, when such

estimates are used, a Treasury-State

Agreement clearly documents how to

calculate the amount to request, the

timing of the transfer of funds, and the

method for reconciling estimates and

actual payments for Federal assistance

program purposes.

Estimates are used for predicting

program volume for non-payment

variables. For example, under a Child

Care program, a State would need to

estimate the increase or decrease of

children needing care. This could be

based on population growth or a change

in the unemployment rate, or other

factors. These estimates will affect the

amount of funds a State draws down.

The new language requires that States

document and justify their estimates.

Section 205.24 How Are Accurate

Estimates Maintained?

The proposed rule requires that States

notify us immediately when they

possess actual or constructive

knowledge that the estimates in use are

not accurate. This is similar to the

requirement that States inform us of

changes in clearance patterns.

Section 205.25 How Does This Part

Apply to Certain Federal Assistance

Programs or Funds?

Proposed § 205.25 contains

information on how Part 205 affects

several different programs.

Unemployment Trust Fund (UTF)

Proposed § 205.25 describes the

treatment of the UTF under Part 205. A

state’s interest liability on funds

withdrawn from its UTF account do not

accrue at the designated CMIA rate.

Instead, the interest is calculated at the

actual interest earned on those funds

less the related banking costs. To

maintain an accurate interest

calculation, if funds that are withdrawn

from a State UTF account are

commingled with other monies, the

UTF funds must be allocated a

proportional share of the related interest

earnings and banking costs.

Interest earned on funds withdrawn

by a State from a Federal UTF account,

with the exception of the Federal

Unemployment Account, will accrue

under the rules of this Part, specifically,

§ 205.19.

Supplemental Security Income

Proposed § 205.25 sets forth the

treatment of Supplemental Security

Income transactions under CMIA. This

subsection describes the effect of this

Part on Supplemental Security Income

administrative fees and supplemental

State payments by integrating Policy

Statement 4 (‘‘Interest Calculations for

the Supplemental Security Income

Program,’’ February 22, 1993,) and

Policy Statement 14 (‘‘Supplemental

Security Income Program Fees,’’

December 21, 1994) into the regulation.

For the most part, Part 205 applies to

programs in which money flows from

the Federal Government to the State. SSI

is unique under CMIA in that it is a

program in which money flows from the

State to the Federal Government.

Congress especially addressed this

‘‘reverse flow’’ in 31 U.S.C. 6503(g),

which provides:

If the Federal Government makes a

payment to a recipient under a Federal

program, and a portion of that payment is an

amount which the Federal Government is

paying to such recipient on behalf of a State,

such amounts will be considered a transfer

of funds between the Federal Government

and the State for purposes of this section.

Interest must be calculated on the

difference between a State’s monthly

SSI payment, which is an estimate, and

the State’s actual liability. This is

consistent with other requirements to

calculate interest on quarterly shortfalls

or reporting period adjustments.

Interest liabilities shall not accrue to

the Federal Government or States on

refunds of State funds because States are

credited with the refunds in advance,

before the Social Security

Administration even collects the funds.

Rather than being liable for interest, the

Federal Government bears the cost of

crediting States with refunds early.

This provision makes it clear that the

only SSI funds that are subject to CMIA

are payments to recipients. Since the

new administrative fees are not funds to

be delivered to recipients, they are not

considered a transfer of funds and,

therefore, are not governed by CMIA.

Interest on late fees is calculated in

accordance with the Social Security

Administration’s (SSA) debt collection

procedures.

Under the SSI program, States may

supplement the Federal SSI benefit.

States where the Federal SSI benefit

would be less than beneficiaries

received under State programs prior to

SSI must supplement the Federal SSI

benefit. All but a few States and

jurisdictions provide supplementation.

States may administer their

supplementary payments themselves or

may contract with the SSA for Federal

administration. The SSA administers

the State supplementation of SSI

benefits in 27 States and the District of

Columbia. Interest on late State

supplementation is calculated in

accordance with the provisions of Part

205.

Child Support Enforcement Program

transactions

Proposed § 205.25(d) incorporates

Policy Statement 6 (‘‘Funds Collected by

States Under the Child Support

Enforcement Program,’’ February 26,

1993), which describes the treatment for

CMIA purposes of certain funds

received under the Child Support

Enforcement Program.

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The interest provisions of CMIA do

not come into play with respect to child

support collections by States. Federal

law provides that the Federal

government will reimburse States for a

portion of a State’s expenditures in

administering a State child support

enforcement program, conditioned on

the State’s complying with Federal

assistance program requirements. When

a State collects child support, the

Federal funding scheme allows the State

to retain certain collections for a period

of time rather than immediately

distributing them to custodial parents.

CMIA interest does not accrue on such

undistributed funds because they are

considered still paid out for Federal

assistance program purposes. Rather,

interest earned on undistributed funds

is treated as program income under

program regulations found at 45 CFR

304.50(b) and, in accordance with those

regulations, must be deducted from a

State’s claim to the Federal government

for reimbursement. Additionally, late

payment fees collected by States from

absent parents, as permitted by the

Federal funding scheme, are not subject

to interest liabilities under CMIA. These

fees are State funds and are not

considered Federal funds for CMIA

purposes. In accordance with program

regulations found at 45 CFR

302.75(b)(6), such fees must be treated

as program income and must be

deducted from a State’s claim to the

Federal government for reimbursement.

Block Grant Programs

Proposed § 205.25(e) provides

clarification on Part 205’s effect on

certain block grant programs. This

section incorporates information

included in Policy Statement 7

(‘‘Interest Provisions for Block Grants

Where States Voluntarily Supplement

Federal Funding,’’ March 31, 1993)

related to Social Services Block Grants

(SSBG) and Policy Statement 19

(‘‘Inclusion of the New Temporary

Assistance to Needy Families and the

New Matching and Mandatory Child

Care Funds Programs Under CMIA,’’

June 1, 1999). Proposed § 205.25(e) is

meant to implement a policy that favors

neither States nor Federal agencies

participating in block grant programs.

States that supplement SSBG funding

with their own funds are not allowed to

draw down all Federal funds first, then

use State funds. A State must draw

down Federal funds in proportion to the

State’s participation in the block grant

program.

Policy Statement 7 addresses two

questions: (1) If a State voluntarily

supplements the SSBG program, can the

Federal program agency limit the

drawdowns to be made quarterly,

forcing States to supplement funds, or

will this limitation result in an interest

liability for the agency? (2) Can a State

draw and spend all Federal funds for

allowable expenses first, then spend

State funds?

Federal law requires all definite

appropriations to be apportioned to

prevent obligation at a rate that would

result in a deficiency or necessitate a

supplemental appropriation. For

example, if a program is expected to use

funds at a constant rate and receives a

quarterly Federal payment, the

drawdown should be 1⁄4 of the total

amount. Given the nature of the SSBG

program, it is expected that the Office of

Management and Budget will continue

to apportion funds quarterly. Policy

Statement 7 clarifies that States are

entitled to interest if they must advance

their own funds due to funding

breakdowns caused by apportionments.

With SSBG programs, the State is

under no obligation to match or

appropriate funding. However, if a State

elects to appropriate funding (as

opposed to temporarily fronting State

funds pending reimbursement at the

start of the next fiscal quarter), the State

may not arbitrarily assign its earliest

costs to the Federal Government and

claim interest.

If a State elects to appropriate funding

for the SSBG program, which does not

require matching or State

appropriations, funds should be

allocated in a manner that benefits

neither the Federal Government nor the

State with respect to cash flow.

Consequently, Federal funds and State

funds should be combined and allocated

proportionately with no interest

ramifications until the combined

quarterly allocation is exceeded. For

example, if the total Federal allotment

to a State for a given program is $16

million ($4M per quarter) and the State

voluntarily appropriates $8 million

($2M per quarter), interest liabilities

could occur once $6 million is paid out

in any given quarter. Under this

scenario, neither party ‘‘wins’’ regarding

cash flow. Therefore, a State cannot

draw and exhaust Federal funds first

because voluntary funds which the State

appropriates must be made

commensurately with each Federal

drawdown. In addition, States should

indicate in their Treasury-State

Agreement if State appropriations will

currently supplement, or have

historically supplemented, Federal

block grants or programs which do not

require a State match. If States claim

interest liabilities have been incurred,

Annual Reports should provide the

amount of the State appropriation and

State apportionment procedure.

Policy Statement 19 refers to

Temporary Assistance to Needy

Families (TANF) and Mandatory and

Matching Child Care Funds Programs

that require a State maintenance-ofeffort for funding. This Policy Statement

reaffirms Policy Statement 7 that

Federal funds must not be drawn down

in advance of, or out of proportion with,

State funds used in these programs.

Women, Infants, and Children Program

Proposed § 205.25(f) is added to the

regulation to clarify that interest earned

on rebates from the Women, Infants, and

Children Program (WIC) is not subject to

Part 205 if the funds are used for

Federal assistance program purposes. As

noted in Policy Statement 18 (‘‘Special

Supplemental Food Program for WIC

Rebates,’’ September 13, 1995), this

subsection recognizes the November 2,

1994 amendment to the Child Nutrition

Act of 1966. That amendment declared

that States will not incur any interest

liability to the Federal Government on

rebate funds for infant formula and

other foods provided all interest earned

by the State on funds is used for Federal

assistance program purposes.

Revolving Loan Funds

Proposed § 205.25(g) incorporates

Policy Statement 15 (‘‘Community

Development Block Grant Revolving

Loan Funds,’’ March 13, 1995), which

describes the effect of Part 205 on

revolving loan funds. Although Policy

Statement 15 addresses a question on

one specific program, proposed

§ 205.25(g) applies to all revolving loan

fund programs. If a Federal agency

program authorizes a revolving loan

fund and specifically designates that

income earned from that fund be used

for Federal assistance program

purposes, then the interest earned is not

subject to this Part if it is used for

Federal assistance program purposes.

However, transfers of funds to the

revolving loan fund remain subject to

Part 205.

Section 205.26 What Are the

Requirements for Creating Annual

Reports?

Proposed § 205.26 contains provisions

of current § 205.15, Annual reports.

Proposed § 205.26 provides that annual

reports are due to FMS on December 31

for the State’s most recently completed

fiscal year. Interest will continue to be

exchanged on March 1 since interest

liabilities are aggregated among all

States to offset direct costs, as noted in

proposed § 205.27. Prior period

adjustments are limited to the two State

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fiscal years prior to the State fiscal year

covered by an annual report.

Section 205.27 How Are Direct Costs

Calculated?

Proposed § 205.27 contains provisions

found in current § 205.14, Direct costs of

implementation. Provisions on cost

claims for the initial implementation of

CMIA are deleted. In addition, the

proposed rule deletes the requirement

that FMS review the policies on direct

costs of implementation to determine

their effectiveness. In reviewing direct

cost claims for reasonableness, we will

consider how necessary a task is to the

development and maintenance of

clearance patterns in support of interest

calculations or the actual calculation of

interest liabilities. All States seeking

reimbursement should maintain proper

documentation of accrued expenses.

States seeking more than $50,000 for

direct costs should have documentation

supporting that assertion.

The General Accounting Office report

noted that some States believe they

should be reimbursed for costs that are

outside the definition of direct costs for

the implementation of subpart A as set

forth in § 205.12. Congress authorized

FMS to reimburse only those costs

directly related to the interest

calculations required by this Part.

Congress intended that other costs

should be reimbursed in accordance

with Office of Management and Budget

guidelines for reimbursement for

indirect program costs (OMB Circular

A–87). In order to clarify the scope of

direct costs that are reimbursable under

CMIA, the definition of direct cost in

§ 205.2 has been revised to provide that

States will be compensated only for

costs associated with the calculation of

CMIA interest, including those costs a

State incurs in developing and

maintaining clearance patterns in

support of interest calculations. The

legislative history of the cost recovery

provisions of CMIA was discussed in

the proposed and final CMIA rules. 57

FR 10102 and 57 FR 44272.

Section 205.28 How Are Interest

Payments Exchanged?

Proposed § 205.28 addresses the

manner in which States and the Federal

agencies offset interest liability on or

before March 31 of each year. This

interest exchange date is changed from

March 1 in the existing regulation. The

date change will benefit all stakeholders

seeking an equitable exchange of

interest because more time will be

allowed to conduct comprehensive

reviews of disputed liabilities.

Section 205.29 What Are the State

Oversight and Compliance

Responsibilities?

Proposed § 205.29 restates, without

material change, the State oversight and

compliance responsibilities that are set

forth in current § 205.17, Compliance

and oversight. A State’s implementation

of subpart A is subject to audit in

accordance with the requirements for

single audits. CMIA specific audit

objectives and suggested audit

procedures now appear in the OMB

Circular A–133 Compliance

Supplement. States are required to

maintain all pertinent records for three

fiscal years following submission of an

Annual Report.

Section 205.30 What Are the Federal

Oversight and Compliance

Responsibilities?

The Federal oversight and compliance

responsibilities that are set forth in

current § 205.17, Compliance and

oversight, are relocated to proposed

§ 205.30. In addition, proposed § 205.30

requires Federal agencies to notify us

when they have actual or constructive

knowledge that corrective action needs

to be taken by us or by a State with

respect to the implementation of Part

205 or if a State’s clearance pattern

doesn’t correspond to a program’s

clearance activity. We believe that this

requirement will improve compliance

with Part 205.

Proposed § 205.30 also clarifies that

Federal program agencies are

responsible for determinations regarding

whether or not costs should be properly

chargeable to the Federal government.

Federal program agencies that incur

interest liabilities through improper

actions or compliance failures continue

to be subject to charges by FMS. In these

instances, we will issue a Notice of

Assessment that describes the nature of

the non-compliance and the amount of

the charge to the Federal program

agency. An appeals process is available

to Federal program agencies.

Section 205.31 How Does a State or

Federal Program Agency Appeal a

Determination Made by Us and Resolve

Disputes?

Proposed § 205.31 sets forth the

appeal and dispute provisions that

appear in current § 205.18. However,

unlike the current rule, the proposed

rule provides that an aggrieved party

has 90 days from the date of the notice

of assessment to submit a written

petition if a dispute arises from the

implementation or administration of

subpart A. Currently there is no

limitation on the amount of time an

aggrieved party can take to submit a

written appeal. We are proposing this

change to respond to requests from

Federal agencies for a time limit on

filing appeals.

Proposed § 205.31 also clarifies that

the appeal and dispute resolution

procedures of this section apply to

matters concerning the implementation

of subpart A and do not apply to

disputes between States and Federal

program agencies concerning the

determination of whether a cost is

properly chargeable to the Federal

government.

Subpart B: Rules Applicable to Federal

Assistance Programs Not Included in a

Treasury-State Agreement

Section 205.32 What Federal

Assistance Programs Are Subject to

Subpart B?

This section clarifies that all Federal

assistance programs listed in the

Catalogue of Federal Domestic

Assistance, but not included in a State’s

Treasury-State Agreement or subject to

default procedures, are subject to

subpart B.

Section 205.33 How Are Funds

Transfers Processed?

Proposed § 205.33 reaffirms the

overall goal of Part 205, efficient cash

management. Federal program agencies

and States must limit funds transfers to

the minimum amounts necessary to

meet program goals. These funds

transfers must be conducted to

minimize the time between the funding

and the paying out of the funds for

Federal assistance program purposes.

This section states that no interest

liability will be incurred by States or

Federal program agencies for funds

transfers subject to subpart B.

Section 205.34 What Are the Federal

Oversight and Compliance

Responsibilities?

Federal program agencies must

monitor a State’s practices and notify us

if a State exhibits an unwillingness or

inability to practice efficient cash

management. Federal program agencies

must develop procedures to comply

with subpart B to promote efficient cash

management.

Section 205.35 What Is the Result of

Federal Program Agency or State NonCompliance?

In the event of State or Federal

program agency non-compliance, we

may transfer Federal assistance

programs to subpart A. These programs

would then be subject to interest

liabilities.

Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules 60805

Subpart C [Reserved]

Subpart C remains reserved pending

further consideration. In the Notice of

Proposed Rulemaking issued in March

1992, 57 FR 10102, this section applied

to programs administered by non-State

recipients and non-State subrecipients.

Subpart C did not apply the interest

provisions of CMIA to these non-state

recipients and sub-recipients and is not

included in the Final Rule.

IV. Procedural Matters

Executive Order 12866, Regulatory

Planning and Review

These proposed regulations are not a

significant regulatory action and are not

subject to review by the Office of

Management and Budget under

Executive Order 12866. These proposed

regulations will not have effect of $100

million or more on the economy. They

will not adversely affect in a material

way the economy, productivity,

competition, jobs, the environment,

public health or safety, or State, local,

or tribal governments or communities.

These proposed regulations will not

create a serious inconsistency or

otherwise interfere with an action taken

or planned by another agency. These

proposed regulations do not alter the

budgetary effects of entitlement, grants,

user fees, or loan programs, or the right

or obligations of their recipients; nor do

they raise novel legal or policy issues.

Clarity of the Regulations

Executive Order 12866 requires each

agency to write regulations that are

simple and easy to understand.

President Clinton’s Presidential

memorandum of June 2, 1998, requires

us to write new regulations in plain

language. We invite your comments on

how to make these proposed regulations

easier to understand.

Regulatory Flexibility Act

Pursuant to section 605(b) of the

Regulatory Flexibility Act, it is hereby

certified that this proposal will not have

a significant economic impact on a

substantial number of small business

entities. The proposed rule does not

require any actions on the part of small

entities. Accordingly, a Regulatory

Flexibility Act analysis is not required.

Paperwork Reduction Act

The Office of Management and Budget

has approved the information collection

requirements in the proposed rule under

the Paperwork Reduction Act of 1995,

44 U.S.C. 3501 et seq., and has assigned

clearance number 1510–0061. Sections

of this proposed rule with information

collection requirements are 205.9,

205.26, 205.27, 205.29, and we estimate

the public reporting burden of these

sections to average, respectively, 500

hours per response. This estimate

includes the time for reviewing

instructions, searching existing data

sources, gathering and maintaining the

data needed, and completing and

reviewing the collection of information.

We estimate the number of respondents

to be 56.

Send comments regarding this burden

estimate or any other aspect of this

collection of information, including

suggestions for reducing the burden, to

Information Collection Clearance

Officer, Office of Information and

Regulatory Affairs, Office of

Management and Budget, New

Executive Office Building, Washington,

DC 20503; Attention: 1510–AA38; with

copies to Juanita Holder, Public Reports

Clearance Officer, Financial

Management Service, 3361 75th

Avenue, Landover, Maryland 20785.

List of Subjects in 31 CFR Part 205

Electronic funds transfer, Grant

programs, Intergovernmental relations.

Authority and Issuance

For the reasons set out in the

preamble, we propose to revise part 205

of title 31 of the Code of Regulations to

read as follows:

PART 205—RULES AND

PROCEDURES FOR EFFICIENT

FEDERAL-STATE FUNDS TRANSFERS

Sec.

205.1 What Federal assistance programs are

covered by this part?

205.2 What definitions apply to this part?

Subpart A—Rules Applicable to Federal

Assistance Programs Included in a

Treasury-State Agreement

205.3 What Federal assistance programs are

subject to this subpart A?

205.4 Are there any circumstances where a

Federal assistance program that meets

the criteria of § 205.3 would not be

subject to this subpart A?

205.5 What are the thresholds for major

Federal assistance programs?

205.6 What is a Treasury-State Agreement?

205.7 Can a Treasury-State Agreement be

amended?

205.8 What if there is no Treasury-State

Agreement in effect?

205.9 What is included in a Treasury-State

Agreement?

205.10 How do you document funding

techniques?

205.11 What requirements apply to funding

techniques?

205.12 What funding techniques may be

used?

205.13 How do you determine when State

or Federal interest liability accrues?

205.14 When does Federal interest liability

accrue?

205.15 When does State interest liability

accrue?

205.16 What special rules apply to Federal

assistance programs and projects funded

by the Federal Highway Trust Fund?

205.17 Are funds transfers delayed by

automated payment systems restrictions

based on the size and timing of the

drawdown request subject to this part?

205.18 Are Federal assistance program

agency grants for administrative costs

subject to this part?

205.19 How is interest calculated?

205.20 What is a clearance pattern?

205.21 When may clearance patterns be

used?

205.22 How are accurate clearance patterns

maintained?

205.23 What requirements apply to

estimates?

205.24 How are accurate estimates

maintained?

205.25 How does this part apply to certain

Federal assistance programs or funds?

205.26 What are the requirements for

creating Annual Reports?

205.27 How are direct costs calculated?

205.28 How are interest payments

exchanged?

205.29 What are the State oversight and

compliance responsibilities?

205.30 What are the Federal oversight and

compliance responsibilities?

205.31 How does a State or Federal program

agency appeal a determination made by

us and resolve disputes?

Subpart B—Rules Applicable to Federal

Assistance Programs Not Included in a

Treasury-State Agreement

205.32 What Federal assistance programs

are subject to this subpart B?

205.33 How are funds transfers processed?

205.34 What are the Federal oversight and

compliance responsibilities?

205.35 What is the result of Federal

program agency or State noncompliance?

Subpart C—[Reserved]

Authority: 5 U.S.C. 301; 31 U.S.C. 321,

3335, 6501, 6503.

§ 205.1 What Federal assistance programs

are covered by this part?

(a) This part prescribes rules for

transferring funds between the Federal

Government and States for Federal

assistance programs. This part applies

to:

(1) All States as defined in § 205.2;

and

(2) All Federal program agencies,

except the Tennessee Valley

Administration (TVA) and its Federal

assistance programs.

(b) Only programs listed in the

Catalog of Federal Domestic Assistance,

as established by Chapter 61 of Title 31,

United States Code (U.S.C.) are covered

by this part.

(c) This part does not apply to:

(1) Payments made to States acting as

vendors on Federal contracts, which are

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subject to the Prompt Payment Act of

1982, as amended, 31 U.S.C. 3901 et

seq., 5 CFR part 1315, and 48 CFR part

32; or

(2) Direct loans from the Federal

Government to States.

§ 205.2 What definitions apply to this part?

For purposes of this part:

Administrative cost grant means a

grant wholly dedicated to compensate

States for administrative expenses.

Administrative costs means expenses

incurred by a State associated with

managing a Federal assistance program.

Auditable means records must be

retained to allow for calculations

outlined in the Treasury-State

Agreements to be reviewed and

replicated for compliance purposes.

States must maintain these records to be

readily available, fully documented, and

verifiable.

Authorized State Official means a

person with the authority under the

laws of a State to make commitments on

behalf of the State for the purposes of

this part, or that person’s official

designee as certified in writing.

Business day means a day when

Federal Reserve Banks are open.

Catalog of Federal Domestic

Assistance (CFDA) means the

government-wide list of Federal

assistance programs, projects, services,

and activities which provide assistance

or benefits to the American public. The

listing includes financial and

nonfinancial Federal assistance

programs administered by agencies of

the Federal Government. (The Catalog is

available at http://www.cfda.gov)

Clearance pattern means a forecast

showing the daily amount subtracted

from a State’s bank account each day

after the State makes a disbursement.

For example, a State mailing out benefit

checks may forecast that the percentage

of checks cashed each day will be 0%

for the first day, 10% for the second

day, 80% on the third day, and 10% on

the fourth day following issuance.

Clearance patterns are used to schedule

the transfer of funds with various

funding techniques and to support

interest calculations.

Compensating balance means funds

maintained in State bank accounts and/

or State Treasurer bank accounts to

offset the costs of bank services.

Current project cost means a cost for

which the State has recorded a liability

on or after the day that the State last

requested funds for the project.

Day means a calendar day unless

otherwise specified.

Default procedures means efficient

cash management practices that we

prescribe for Federal funds transfers to

a State if a Treasury-State Agreement is

not in place.

Direct cost means those costs a State

incurs in performing the actual

calculation of interest liabilities,

including those costs a State incurs in

developing and maintaining clearance

patterns in support of interest

calculations.

Disallowances mean costs incurred by

a State which the Federal program

agency has determined to be costs

which should not be charged to the

Federal Government either because the

funds were used for other than Federal

assistance program purposes or the

amount of the funds used for Federal

assistance program purposes was

improper.

Disburse means to issue a check or

initiate an electronic funds transfer

payment.

Discretionary grant project means a

project for which a Federal program

agency is authorized by law to exercise

judgment in awarding a grant and in

selecting a grantee, generally through a

competitive process.

Dollar-weighted average day of

clearance means the day when, on a

cumulative basis, 50 percent of funds

have been paid out. To calculate the

dollar-weighted average day of

clearance for a clearance pattern:

(1) For each day, multiply the

percentage of dollars paid out that day

by the number of days that have elapsed

since the payments were issued. For

example, on the first day payments were

issued, multiply the percentage of

dollars paid out on that day by zero,

since zero days have elapsed. On the

day after payments were issued,

multiply the percentage of dollars paid

out on that day by one, since one day

has elapsed; and so forth.

(2) Total the results from paragraph

(1) of this definition. Round to the

nearest whole number. This is the

dollar-weighted average day of

clearance.

Draw down (verb) means a process in

which a State requests and receives

Federal funds. Drawdown (noun) means

Federal funds requested and received by

a State.

Electronic Funds Transfer (EFT)

means any transfer of funds, other than

a transaction originated by cash, check,

or similar paper instrument, that is

initiated through an electronic terminal,

telephone, computer, or magnetic tape,

for the purpose of ordering, instructing,

or authorizing a financial institution to

debit or credit an account.

Estimate means a projection of the

future needs of a Federal assistance

program that can’t be accurately

described by a clearance pattern.

Federal assistance program means a

program included in the Catalog of

Federal Domestic Assistance where

funds are transferred from the Federal

Government to a State. Federal

assistance programs do not include

vendor payments or direct loans.

Federal program agency means an

executive agency as defined by section

102 of title 31, United States Code,

except the Tennessee Valley Authority

(TVA), that issues and administers

grants to States or cooperative

agreements with States.

Federal-State agreement means an

agreement between a State and a Federal

program agency specifying terms and

conditions for carrying out a Federal

assistance program or group of

programs. This is different than a

Treasury-State Agreement.

Financial Management Service (we or

us) means the Bureau of the U.S.

Department of the Treasury responsible

for implementation of this part.

Fiscal Year means the twelve-month

period that a State designates as its

budget year.

Grant means, for the purposes of this

Part, a funds transfer by the Federal

Government associated with a Federal

assistance program listed in the Catalog

of Federal Domestic Assistance.

Indirect cost means costs a State

incurs that are necessary to the

operation and performance of its

Federal assistance programs, but that

aren’t readily identifiable with a

particular project or Federal assistance

program.

Indirect cost rate means a formula that

identifies the amount of indirect costs

based on the amount of accrued direct

costs.

Maintenance-of-effort means a

requirement that a State spend at least

a specified amount of State funds for

Federal assistance program purposes.

Major Federal assistance program

means a Federal assistance program

which receives Federal funding in

excess of the dollar thresholds found in

Table A to § 205.5.

Obligational authority means the

existence of a definite commitment on

the part of the Federal Government to

provide appropriated funds to a State to

carry out specified programs, whether

the commitment is executed before or

after a State pays out funds for Federal

assistance program purposes.

Pay out means to debit the State’s

bank account.

Pay out funds for Federal assistance

program purposes means, in the context

of State payments, to debit a State

account for the purpose of making a

payment properly chargeable to the

Federal Government to:

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(1) A person or entity that is not

considered part of the State pursuant to

the definition of ‘‘State’’ in this section;

or

(2) A State entity that provides goods

or services for the direct benefit or use

of the payor State entity or the Federal

Government to further Federal

assistance program goals.

Rebate means funds returned to a

State by third parties after a State has

paid out those funds for Federal

assistance program purposes.

Refund means funds that a State

recovers that it previously paid out for

Federal assistance program purposes.

Refunds include rebates received from

third parties.

Refund transaction means an entry to

the record of a State bank account

representing a single deposit of refunds.

A refund transaction may consist of a

single check or item, or a bundle of

accumulated checks.

Related banking costs means

separately identified costs which are

necessary and customary for

maintaining an account in a financial

institution, whether a commercial

account or a State Treasurer account.

Investment service fees and fees for

credit-related services aren’t related

banking costs.

Request for funds means a State’s

request for funds that the State

completes and submits in accordance

with Federal program agency

guidelines.

Reverse flow program means a Federal

assistance program, such as

Supplemental Security Income (SSI), for

which the Federal Government makes

payments to recipients on behalf of a

State.

Revolving loan fund means a pool of

program funds managed by a State.

States may loan funds from the pool to

other entities in support of Federal

assistance program goals. Investment

income is earned on the funds that

remain in the pool and on loans made

from pool funds. A Federal program

agency may require that all income

derived from a revolving loan fund be

used for Federal assistance program

purposes.

Secretary means the Secretary of the

United States Department of the

Treasury. We are the Secretary’s

representative in all matters concerning

this Part, unless otherwise specified.

State means a State of the United

States, the District of Columbia, the

Commonwealth of Puerto Rico, the

Commonwealth of the Northern Mariana

Islands, American Samoa, Guam, and

the Virgin Islands. It includes any

agency, instrumentality, or fiscal agent

of a State that is legally and fiscally

dependent on the State executive, State

Treasurer, or State Comptroller.

(1) A State agency or instrumentality

is any organization of the primary

government of the State financial

reporting entity, as defined by generally

accepted accounting principles.

(2) A fiscal agent of a State is an entity

that pays, collects, or holds Federal

funds on behalf of the State in

furtherance of a Federal assistance

program, excluding private nonprofit

community organizations.

(3) Local governments, Indian Tribal

governments, institutions of higher

education, hospitals, and nonprofit

organizations are excluded from the

definition of State.

Treasury-State Agreement means a

document describing the accepted

funding techniques and methods for

calculating interest and identifying the

Federal assistance programs governed

by this subpart A.

Trust fund for which the Secretary is

the trustee means a trust fund

administered by the Secretary.

Vendor payment means a funds

transfer by a Federal program agency to

a State to compensate the State for

acting as a vendor on a Federal contract.

We and us means Financial

Management Service.

Subpart A—Rules Applicable to

Federal Assistance Programs Included

in a Treasury-State Agreement

§ 205.3 What Federal assistance programs

are subject to this subpart A?

(a) Generally, this subpart prescribes

the rules that apply to Federal

assistance programs which:

(1) Are listed in the Catalog of Federal

Domestic Assistance;

(2) Meet the funding threshold for a

major Federal assistance program; and

(3) Are included in a Treasury-State

Agreement or default procedures.

(b) Upon a State’s request, we will

make additional Federal assistance

programs subject to this subpart A by

lowering the funding threshold in the

Treasury-State Agreement. All of a

State’s programs that meet this lower

threshold would be subject to this

subpart A.

(c) We may make additional Federal

assistance programs subject to this

subpart A if a State or Federal program

agency fails to comply with subpart B of

this part.

§ 205.4 Are there any circumstances

where a Federal assistance program that

meets the criteria of § 205.3 would not be

subject to this subpart A?

(a) A Federal assistance program that

meets or exceeds the threshold for major

Federal assistance programs in a State is

not subject to this subpart A until it is

included in an amended Treasury-State

Agreement or in default procedures.

(b) We and a State may agree to

exclude components of a major Federal

assistance program from interest

calculations if the State administers the

program through several State agencies

and meets the following requirements:

(1) The dollar amount of the

exempted cash flow doesn’t exceed 5%

of the State’s major Federal assistance

program threshold and can’t exceed

10% of that Federal assistance

program’s total expenditures;

(2) If less than the total amount of

Federal assistance program funding is

subject to interest calculation

procedures, the interest liabilities

should be pro-rated to 100% of the

Federal assistance program funding;

(3) A State may not use this exclusion

if a Federal assistance program is

administered by only one State agency;

and

(4) We may request Federal assistance

program specific data on funding levels

to determine exemptions.

(c) We and a State may exclude a

Federal assistance program from this

subpart A if the Federal assistance

program has been discontinued since

the most recent Single Audit and the

remaining funding is below the

threshold, or if the Federal assistance

program is funded by an award not

limited to one fiscal year and the

remaining Federal assistance program

funding is below the State’s threshold.

§ 205.5 What are the thresholds for major

Federal assistance programs?

(a) Table A of this section defines

major Federal assistance programs based

on the dollar amount of an individual

Federal assistance program and the

dollar amount of all Federal assistance

being received by a State for all Federal

assistance programs. A State must locate

the appropriate row in Column A based

upon the total expenditures of Federal

assistance received. In that same row, a

State must apply the percentage from

Column B to determine the State’s

threshold for major Federal assistance

programs. A State with expenditures

greater than $10 billion will have a

minimum default threshold of $60

million.

(b) To ensure adequate coverage of all

State programs, a State must compare its

program coverage using the threshold

figure obtained under paragraph (a) of

this section to the program coverage

projected by a threshold of one half that

of paragraph (a) of this section.

(1) Sum the total dollar expenditures

of programs that exceed the threshold

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determined in Column B. Designate this

amount as X.

(2) Sum the total dollar expenditures

of programs that exceed one half of the

threshold amount determined in

Column B. Designate this amount as Y.

(3) Subtract X from Y. Designate this

amount as Z.

(4) If Z is less than or equal to 10%

of Y use the figure found in Column B

of Table A.

(5) If Z is greater than 10% of Y, then

a State must lower its threshold, or add

programs, until the difference between

Y and the new total dollar value of

program coverage is less than or equal

to 10%.

(c) Unless specified otherwise, major

Federal assistance programs must be

determined from the most recent Single

Audit data available.

TABLE A TO § 205.5

Column A—Total expenditure of Federal Assistance

for all programs per State

Column B—Major Federal Assistance Program means any Federal

assistance program with expenditures that exceed these levels

Between zero and $100 million inclusive ................................................. 6.00 percent of such total expenditures.

Over $100 million but less than or equal to $10 billion ........................... 0.60 percent of such total expenditures.

Over $10 billion ........................................................................................ The greater of 0.30 percent of such total expenditures or $60 million.

§ 205.6 What is a Treasury-State

Agreement?

(a) A Treasury-State Agreement

documents the accepted funding

techniques and methods for calculating

interest agreed upon by us and a State

and identifies the Federal assistance

programs governed by this subpart A. If

anything in a Treasury-State Agreement

is inconsistent with this subpart A, that

part of the Treasury-State Agreement

won’t have any effect and this subpart

A will govern.

(b) A Treasury-State Agreement will

be effective until terminated. We or a

State may terminate a Treasury-State

Agreement on 30 days written notice.

§ 205.7 Can a Treasury-State Agreement

be amended?

(a) We or a State may amend a

Treasury-State Agreement at any time if

both we and the State agree in writing.

(b) The effective date of an

amendment shall be the date both

parties agree to the amendment in

writing. Amendments may not be

retroactive, except for an amendment to

clarify the terms of a Treasury-State

Agreement.

(c) We and a State must amend a

Treasury-State Agreement as needed to

change or clarify its language when the

terms of the existing agreement are

either no longer correct or no longer

applicable. A State must notify us in

writing describing the Federal

assistance program change and include

a proposed amendment for our review

and a current list of all programs

included in the Treasury-State

Agreement. Amendments may address,

but are not limited to:

(1) Additions or deletions of Federal

assistance programs subject to this

subpart A;

(2) Changes in funding techniques;

and

(3) Changes in clearance patterns.

(d) Additions or deletions to the list

of Federal assistance programs subject

to this subpart A take effect when a

Treasury-State Agreement is amended.

(e) Federal assistance programs that

are to be added to a Treasury-State

Agreement are not subject to this

subpart A until the Treasury-State

Agreement is amended, except when a

Federal assistance program subject to

this subpart A is being replaced by a

Federal assistance program governed by

subpart B of this part, in which case the

replacement program is immediately

subject to this subpart A.

§ 205.8 What if there is no Treasury-State

Agreement in effect?

When a State doesn’t have a TreasuryState Agreement in effect, we will

prescribe default procedures to

implement this subpart A. The default

procedures will prescribe efficient funds

transfer procedures consistent with

State and Federal law and identify the

covered Federal assistance programs

and designated funding techniques.

§ 205.9 What is included in a TreasuryState Agreement?

We will prescribe a uniform format

for all Treasury-State Agreements. A

Treasury-State Agreement must include,

but is not limited to, the following:

(a) State agencies, instrumentalities,

and fiscal agents that administer the

Federal assistance programs subject to

this subpart A.

(b) Federal assistance programs

subject to this subpart A, consistent

with §§ 205.3 and 205.4. A State must

use its most recent single audit report as

a basis for determining the funding

thresholds for major Federal assistance

programs, unless otherwise specified in

the Treasury-State Agreement. A State

may use budget or appropriations data

for a more recent period instead of

single audit data, if specified in the

Treasury-State Agreement.

(c) Funding techniques applied to

Federal assistance programs subject to

subpart A based on the Federal

assistance program’s purpose and

administration.

(d) Methods the State will use to

develop and maintain clearance patterns

and estimates, consistent with § 205.11.

The method must include, at a

minimum, a clear indication of:

(1) the data used;

(2) the sources of the data;

(3) the development process;

(4) for estimates, when and how the

State will update the estimate to reflect

the most recent data available;

(5) for estimates, when and how the

State will make adjustments, if any, to

reconcile the difference between the

estimate and the State’s actual cash

needs; and

(6) any assumptions, standards, or

conventions used in converting the data

into the clearance pattern or estimate.

(e) Federal program agency provisions

requiring reconciliation of estimates to

actual outlays may be included in a

Treasury-State Agreement. The

supporting documentation must be

retained by the State for three years.

(f) States must include the results of

the clearance pattern process in the

Treasury-State Agreement. The

supporting documentation must be

retained by the State for three years.

(g) Methods used by the State and

Federal agencies to calculate interest

liabilities pursuant to this subpart A.

The method must include, but is not

limited to, a clear indication of:

(1) the data used;

(2) the sources of the data;

(3) the calculation process; and

(4) any assumptions, standards, or

conventions used in converting the data

into the interest liability amounts.

(h) Treasury-State agreements must

include language describing how a State

and Federal program agency will

address a State request for supplemental

funding. This language must include,

but is not limited to, the following

provisions:

Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules 60809

(1) What constitutes a timely request

for supplemental funds for Federal

assistance program purposes by a State;

and

(2) What constitutes a timely transfer

of supplemental funds for Federal

assistance program purposes from a

Federal program agency to a State.

§ 205.10 How do you document funding

techniques?

The Treasury-State Agreement must

include a concise description for each

funding technique that a State will use.

The description must include the

following:

(a) What constitutes a timely request

for funds;

(b) How the State determines the

amount of funds to request;

(c) What procedures are used to

estimate or reconcile estimates with

actual and immediate cash needs;

(d) What constitutes the timely receipt

of funds; and

(e) Whether a State or Federal interest

liability accrues when the funding

technique, including any associated

procedure for estimation or

reconciliation, is properly applied.

§ 205.11 What requirements apply to

funding techniques?

(a) A State and a Federal program

agency must minimize the time elapsing

between the transfer of funds from the

United States Treasury and the State’s

pay out of funds for Federal assistance

program purposes, whether the transfer

occurs before or after the pay out of

funds.

(b) A State and a Federal program

agency must limit the amount of funds

transferred to the minimum required to

meet a State’s actual and immediate

cash needs.

(c) A State must not draw down funds

from its account in the Unemployment

Trust Fund or from a Federal account in

the Unemployment Trust Fund in

advance of actual immediate cash needs

for any purpose including maintaining a

compensating balance.

(d) A Federal program agency must

allow a State to submit requests for

funds daily. This requirement shouldn’t

be construed as a change to Federal

program agency guidelines defining a

properly completed request for funds.

(e) In accordance with the electronic

funds transfer provisions of the Debt

Collection Improvement Act of 1996 (31

U.S.C. 3332), a Federal program agency

must use electronic funds transfer

methods to transfer funds to States

unless a waiver is available.

§ 205.12 What funding techniques may be

used?

(a) We and a State may negotiate the

use of mutually agreed upon funding

techniques. We may deny interest

liability if a State does not use a

mutually agreed upon funding

technique. Funding techniques should

be efficient and minimize the exchange

of interest between States and Federal

agencies.

(b) We and a State may base our

agreement on the sample funding

techniques listed in paragraphs (b)(1)

through (5) of this section, or any other

technique upon which both parties

agree.

(1) Zero balance accounting means

that a Federal program agency transfers

the actual amount of Federal funds to a

State that are paid out by the State each

day.

(2) Estimated clearance means that a

Federal program agency transfers to a

State the estimated amount of funds that

the State pays out each day. The

estimated amount paid out each day is

determined by applying a clearance

pattern to the total amount the State will

disburse.

(3) Average clearance means that a

Federal program agency, on the dollarweighted average day of clearance of a

disbursement, transfers to a State a

lump sum equal to the actual amount of

funds that the State is paying out. The

dollar-weighted average day of

clearance is the day when, on a

cumulative basis, 50 percent of the

funds have been paid out. The dollarweighted average day of clearance is

calculated from a clearance pattern,

consistent with § 205.20.

(4) Cash advance (preissuance)

funding means that a Federal program

agency transfers the actual amount of

Federal funds to a State that will be paid

out by the State, in a lump sum, not

more than 2 business days prior to the

day the State issues checks or initiates

EFT payments.

(5) Reimbursable funding means that

a Federal program agency transfers

Federal funds to a State after that State

has already paid out the funds for

Federal assistance program purposes.

§ 205.13 How do you determine when

State or Federal interest liability accrues?

(a) State or Federal interest liability

may or may not apply when mutually

agreed to funding techniques are

applied, depending on the terms of the

Treasury-State Agreement.

(b) We and a State may agree in a

Treasury-State Agreement that no State

or Federal interest liability will accrue

for indirect costs or indirect allocated

costs based on an indirect cost rate. This

indirect cost rate must be approved by

the appropriate Federal program agency

under Office of Management and Budget

(OMB) Circular A–87 (available from the

addresses in 5 CFR 1310.3) and be in

accordance with this subpart A.

§ 205.14 When does Federal interest

liability accrue?

(a) Federal interest liabilities may

accrue if funding techniques aren’t

properly applied, in accordance with

the following provisions:

(1) The Federal program agency

incurs interest liability if a State pays

out its own funds for Federal assistance

program purposes with valid

obligational authority under Federal

law, Federal regulation, or Federal-State

agreement. A Federal interest liability

will accrue from the day a State pays

out its own funds for Federal assistance

program purposes to the day Federal

funds are credited to a State account.

(2) If a State pays out its own funds

for Federal assistance program purposes

without obligational authority, the

Federal program agency incurs an

interest liability if obligational authority

subsequently is established.

(3) If a State pays out its own funds

prior to the day a Federal program

agency officially notifies the State in

writing that a discretionary grant project

is approved, the Federal program agency

doesn’t incur an interest liability,

notwithstanding any other provision of

this section.

(4) If a State pays out its own funds

prior to the availability of Federal funds

authorized or appropriated for a future

Federal fiscal year, the Federal program

agency doesn’t incur an interest

liability, notwithstanding any other

provision of this section.

(5) If a State fails to request funds

timely as set forth in § 205.29 or

otherwise fails to apply a funding

technique properly, we may deny any

resulting Federal interest liability.

(b) Federal agency programs that have

specific payment dates set by the

Federal program agency that create

interest liabilities are subject to this

part.

(c) States must adhere to Federal

program agency disbursement schedules

when requesting funds. We may deny a

State’s claim for Federal interest

liability for the period prior to a late

drawdown request. States must time

their funds drawdown so that it does

not create Federal interest liability. The

drawdown request must allow the

Federal program agency sufficient time

to meet its disbursement schedule. If the

Federal program agency does not make

a timely payout in accordance with the

terms of the Treasury-State Agreement,

60810 Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules

a State may submit a claim for interest

liability.

§ 205.15 When does State interest liability

accrue?

(a) General rule. State interest liability

may accrue if Federal funds are received

by a State prior to the day the State pays

out the funds for Federal assistance

program purposes. State interest

liability accrues from the day Federal

funds are credited to a State account to

the day the State pays out the Federal

funds for Federal assistance program

purposes.

(b) Disallowances. A State incurs an

interest liability on disallowances.

(1) If a Federal program agency

disallows a State expenditure, a State

will owe interest from the day that

Federal funds associated with the

disallowance are credited to a State

account to the day the funds are

credited to the Federal government.

(2) In instances where an expenditure

is disallowed in a CMIA reporting year

subsequent to the CMIA reporting year

in which the State made the

expenditure, the amount of interest

calculated in accordance with paragraph

(b)(1) of this section shall be adjusted

for any CMIA interest previously paid

on such amounts, either by a State or by

the Federal government.

(c) Refunds. (1) A State incurs interest

liability on refunds of Federal funds

from the day the refund is credited to a

State account to the day the refund is

either paid out for Federal assistance

program purposes or credited to the

Federal government.

(2) We and a State may agree, in a

Treasury-State Agreement, that a State

doesn’t incur an interest liability on

refunds in refund transactions under

$50,000.

(d) Exception to the general rule. A

State does not incur an interest liability

to the Federal Government if a Federal

statute requires the State to retain or use

for Federal assistance program purposes

the interest earned on Federal funds,

notwithstanding any other provision in

this section.

§ 205.16 What special rules apply to

Federal assistance programs and projects

funded by the Federal Highway Trust Fund?

The following applies to Federal

assistance programs and projects funded

out of the Federal Highway Trust Fund,

notwithstanding any other provision of

this part:

(a) A State must request funds at least

weekly for current project costs, or

Federal interest liability won’t accrue

prior to the day a State submits a

request for funds.

(b) If a State pays out its own funds

in the absence of a project agreement or

in excess of the Federal obligation in a

project agreement, the Federal program

agency won’t incur an interest liability.

§ 205.17 Are funds transfers delayed by

automated payment systems restrictions

based on the size and timing of the

drawdown request subject to this part?

Funds transfers delayed due to

payment processes that automatically

reject drawdown requests that fall

outside a pre-determined set of

parameters are subject to this part.

§ 205.18 Are Federal assistance program

agency grants for administrative costs

subject to this part?

(a) Federal assistance program agency

grants wholly dedicated to compensate

States for administrative costs are

subject to this part.

(b) Federal assistance program agency

grants dedicating only a portion of their

funding for administrative costs are

partially exempt from this part. The

portion dedicated to compensate States

for indirect and other administrative

costs is not subject to this part.

§ 205.19 How is interest calculated?

(a) A State must calculate Federal

interest liabilities and State interest

liabilities for each Federal assistance

program subject to this subpart A.

(b) The interest rate for all interest

liabilities for each Federal assistance

program subject to subpart A is the

annualized rate equal to the average

equivalent yields of 13-week Treasury

Bills auctioned during a State’s fiscal

year. We provide this rate to each State.

(c) A State must calculate and report

interest liabilities on the basis of its

fiscal year. A State must ensure that its

interest calculations are auditable and

retain a record of the calculations.

(d) As set forth in § 205.9, a TreasuryState Agreement must include the

method a State uses to calculate and

document interest liabilities.

(e) A State may use actual data, a

clearance pattern, or statistical sampling

to calculate interest. A clearance pattern

used to calculate interest must meet the

standards of § 205.20. If a State uses

statistical sampling to calculate interest,

the State must sample transactions

separately for each Federal assistance

program subject to this subpart A. Each

sample must be representative of the

pool of transactions and be of sufficient

size to accurately represent the flow of

Federal funds under the Federal

assistance program, including seasonal

or other periodic variations.

(f) For the first year in which a

Federal assistance program is covered in

a Treasury-State Agreement, funds

transfers that occur prior to the first day

of the State’s fiscal year must not be

included in interest calculations and are

not subject to the interest liability

provisions of this part.

§ 205.20 What is a clearance pattern?

States use clearance patterns to

estimate when funds are paid out, given

a known dollar amount and a known

date of disbursement. We and a State

may agree to other procedures to

estimate when funds are paid out when

the dollar amount and/or the timing of

disbursements are not known. A State

must ensure that clearance patterns

meet the following standards:

(a) A clearance pattern must be

auditable.

(b) A clearance pattern must

accurately represent the flow of Federal

funds under the Federal assistance

programs to which it is applied.

(c) A clearance pattern must include

seasonal or other periodic variations in

clearance activity.

(d) A clearance pattern must be based

on at least three consecutive months of

disbursement data, unless additional

data is required to accurately represent

the flow of Federal funds.

(e) If a State uses statistical sampling

to develop a clearance pattern, the

sample size must be sufficient to ensure

a 96% confidence interval no more than

plus or minus 0.25 weighted days above

or below the estimated mean.

(f) A clearance pattern must extend, at

a minimum, until 99 percent of the

dollars in a disbursement have been

paid out for Federal assistance program

purposes.

§ 205.21 When may clearance patterns be

used?

(a) A State may develop a clearance

pattern for:

(1) An individual Federal assistance

program;

(2) A logical group of Federal

assistance programs that have the same

disbursement method and type of payee;

(3) A bank account;

(4) A specific type of payments, such

as payroll or vendor payments; or

(5) Anything that is agreed upon by us

and a State. If a clearance pattern is

used for multiple Federal assistance

programs, a State must apply the

clearance pattern separately to each

Federal assistance program when

scheduling funds transfers or

calculating interest.

(b) As set forth in § 205.9, a TreasuryState Agreement must include the

method a State uses to develop and

maintain clearance patterns.

§ 205.22 How are accurate clearance

patterns maintained?

(a) If a State has knowledge, at any

time, that a clearance pattern no longer

Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules 60811

reflects a Federal assistance program’s

actual clearance activity, or if a Federal

assistance program undergoes

operational changes that may affect

clearance activity, the State must notify

us, develop a new clearance pattern,

and certify that the new pattern

corresponds to the Federal assistance

program’s clearance activity.

(b) An authorized State official must

certify that a clearance pattern

corresponds to the clearance activity of

the Federal assistance programs to

which it is applied. An authorized State

official must re-certify the accuracy of a

clearance pattern at least every 5 years.

If a State develops a clearance pattern

for a bank account or a specific type of

payment, or on another basis, as set

forth in § 205.21, we may prescribe

other requirements for re-certifying the

accuracy of the clearance pattern. A

State can begin to use a new clearance

pattern on the date the new clearance

pattern is certified.

§ 205.23 What requirements apply to

estimates?

The requirements in this section

apply when we and a State negotiate a

mutually agreed upon funds transfer

procedure based on an estimate of the

State’s immediate cash needs. These

requirements don’t apply to an estimate

based on a clearance pattern or an

indirect cost rate.

(a) The State must ensure that the

estimate reasonably represents the flow

of Federal funds under the Federal

assistance program or program

component to which the estimate

applies. The estimate must take into

account seasonal or other periodic

variations in activity throughout the

period for which the Federal funds are

available. If a State supplements the

Federal funds for a Federal assistance

program, other than through required

matching, the State must not arbitrarily

assign its earliest costs to the Federal

Government. The State may allocate its

costs proportionately over the period for

which the Federal funds are available,

or specify in the Treasury-State

Agreement which Federal assistance

program components will use Federal

funds exclusively.

(b) As set forth in § 205.9, a TreasuryState Agreement must include the

method a State uses to develop and

maintain the estimate.

§ 205.24 How are accurate estimates

maintained?

(a) If a State has knowledge that an

estimate doesn’t reasonably correspond

to the State’s cash needs for a Federal

assistance program or program

component, or if a Federal assistance

program undergoes operational changes

that may affect cash needs, the State

must immediately notify us in writing.

We and the State will amend the

funding technique provisions in the

Treasury-State Agreement or take other

mutually agreed upon corrective action.

(b) When estimates are properly

updated and applied, a State or Federal

interest liability may or may not accrue,

depending on the terms of the TreasuryState Agreement.

(c) We may require a State to justify

in writing that it is not feasible to use

a more efficient funding technique for

the Federal assistance program or

program component to which an

estimate is applied. We may prescribe

requirements for certifying the

reasonableness of an estimate.

§ 205.25 How does this part apply to

certain Federal assistance programs or

funds?

(a) Special rules apply to certain

Federal assistance programs or funds

described in this section. To the extent

the provisions of this section are

inconsistent with other provisions of

this part, this section applies.

(b) A State’s interest liability on funds

withdrawn from its account in the

Unemployment Trust Fund equals the

actual interest earned on such funds less

the related banking costs. Actual

interest earned doesn’t include non-cash

bank earnings. If funds withdrawn from

the State account in the UTF are

commingled with other funds, the funds

withdrawn from the State account must

be allocated a proportionate share of

interest earnings and banking costs.

(Interest liabilities on funds withdrawn

from a Federal account in the UTF,

except the Federal Unemployment

Account, are calculated in accordance

with § 205.19.)

(c) Supplemental Security Income. (1)

The Federal Government incurs an

interest liability from the day State

funds are credited to the Federal

Government’s account to the day a

Federal program agency pays out the

State funds for Federal assistance

program purposes. A State incurs an

interest liability from the day a Federal

program agency pays out Federal funds

for Federal assistance program purposes

to the day State funds are credited to the

Federal Government’s account.

(2) Interest liability must be

calculated on the difference between a

State’s monthly Supplemental Security

Income payment and the State’s actual

liability for the month.

(3) The Federal Government won’t

incur interest liabilities on refunds of

State funds under the Supplemental

Security Income Program.

(4) Administrative fees charged by the

Social Security Administration to States

under the Supplemental Security

Income program are not subject to this

part.

(5) Supplemental State payments

made in conjunction with Supplemental

Security Income are not subject to this

part.

(d) Funds collected under the Child

Support Enforcement Program. (1)

Funds collected by States from absent

parents pursuant to Title IV–D of the

Social Security Act are not subject to

this part.

(2) Interest earned by States on

undistributed collections must be

treated as Federal assistance program

income under 45 CFR 304.50(b) and is

not subject to this part.

(3) Late payment fees collected by

States from absent parents are not

subject to CMIA interest liabilities and

are not subject to this Part. However,

such fees must be treated as Federal

assistance program income in

accordance with 45 CFR 302.75(b)(6).

(e) States supplementing Social

Services block grants, Temporary

Assistance for Needy Families block

grants, and the Mandatory and Matching

Child Care Funds program. (1) At the

discretion of the Office of Management

and Budget, Federal funds will be

apportioned to avoid depletion and a

supplemental appropriation.

(2) A State must not draw down all

Federal funds prior to spending State

funds.

(3) A State is entitled to interest if the

apportioned funds are not transferred

timely.

(4) A State that provides matching

State funding and/or maintenance-ofeffort funding, as defined in 45 CFR

98.60(f), in conjunction with a Federal

block grant program:

(i) Must not arbitrarily assign its

earliest costs to the Federal

Government;

(ii) Must coordinate a proportional

drawdown of State and Federal funds to

avoid interest liabilities; and

(iii) Must include these arrangements

in the Treasury-State Agreement.

(f) A State that earns interest on

Special Supplemental Food Program for

Women, Infants, and Children rebates is

not subject to interest liability if the

funds earned are used for Federal

assistance program purposes.

(g) Revolving Loan Funds. (1) This

part applies to any transfer of funds

from the Federal program agency to the

State for the Revolving Loan Fund.

(2) This part doesn’t apply to interest

a State earns on Revolving Loan Funds

when Federal program agency

regulations require that all interest

60812 Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules

earned on invested funds be used for

Federal assistance program purposes.

§ 205.26 What are the requirements for

creating Annual Reports?

(a) A State must submit to us an

Annual Report accounting for the

interest liabilities of the State’s most

recently completed fiscal year.

Adjustments to the Annual Report must

be limited to the two State fiscal years

prior to the State fiscal year covered by

the report. The authorized State official

must certify the accuracy of a State’s

Annual Report. A signed original of the

Annual Report must be received by the

next December 31 after the end of the

State’s fiscal year. We will provide

copies of Annual Reports to Federal

agencies. We will prescribe the format

of the Annual Report, and may prescribe

that the Annual Report be submitted by

electronic means.

(b) A State must submit a description

and supporting documentation for

liability claims greater than $5,000. This

information must include the following:

(1) The amount of funds requested;

(2) The date the funds were requested;

(3) The date the funds were paid out

for Federal assistance program

purposes;

(4) The date the funds were received

by the State; and

(5) The date of late grant awards.

(c) A State may submit with its

Annual Report a claim for

reimbursement of the direct costs of

implementing this subpart A, calculated

in accordance with § 205.27. An

authorized State official must certify the

accuracy of a State’s direct cost claim.

§ 205.27 How are direct costs calculated?

(a) We will compensate a State

annually for the direct costs of

implementing this subpart A, subject to

the conditions and limitations of this

section.

(b) We may deny a direct cost claim

if a State doesn’t:

(1) Have a Treasury-State Agreement

with us, as set forth in §§ 205.6 through

205.9;

(2) Submit timely a Treasury-State

Agreement, as set forth in §§ 205.6

through 205.9;

(3) Submit timely an updated list of

Federal assistance programs subject to

this subpart A, as set forth in §§ 205.6

through 205.9;

(4) Submit timely a claim for direct

costs with its Annual Report, as set forth

in § 205.26; or

(5) Submit timely its Annual Report,

as set forth in § 205.26.

(c) A State must maintain

documentation to substantiate its claim

for direct costs. We may require a State

to provide documentation to support its

direct cost claims. We will review all

direct cost claims for reasonableness. If

we determine that a cost claim is

unreasonable, we will not reimburse a

State for that cost, notwithstanding any

other provision of this section.

(d) Eligibility and treatment of direct

costs. (1) Direct costs don’t include

expenses for normal disbursing services,

such as processing checks or

maintaining records for accounting and

reconciliation of cash accounts, or

expenses for upgrading or modernizing

accounting systems.

(2) Direct costs in excess of $50,000 in

any year are not eligible for

reimbursement, unless a State can

justify to us that the State is unable to

develop and maintain clearance patterns

in support of interest calculations, or

perform the actual calculation of

interest, without incurring such costs.

Supporting documentation must

accompany State requests for

reimbursement in excess of $50,000.

(3) Direct costs that a State incurs in

fiscal years prior to its most recently

completed Annual Report are not

eligible for reimbursement.

(4) A State must not include the direct

costs of implementing this subpart A in

its State-wide cost allocation plan, as

defined and provided for in OMB

Circular A–87. All costs incurred by a

State to implement this subpart A, other

than direct costs, are subject to the

procedures and principles of OMB

Circular A–87.

(e) The payments from the Federal

Government to individual States to

offset direct costs incurred are funded

from the aggregate interest payments

States make to the Federal Government.

The following limitations apply:

(1) We will not reduce or adjust

interest liabilities for Federal assistance

programs funded out of trust funds for

which the Secretary is trustee; and

(2) The aggregate payments from the

Federal Government to States to offset

direct costs will not be greater than the

aggregate interest payments States make

to the Federal Government.

§ 205.28 How are interest payments

exchanged?

(a) We adjust a State’s total interest

liability to the Federal government and

the Federal government’s total interest

liability to a State to determine direct

cost reimbursement, as set forth in

§ 205.27.

(b) The adjusted total State interest

liability and the adjusted total Federal

interest liability for each State are offset

to determine the net interest payable to

or from each specific State. The

payment of net interest to or from a

State for its most recently completed

fiscal year must occur no later than

March 31. We will notify a State of the

final net interest liability. A State must

submit a claim to receive payment.

(c) A State may appeal a decision by

us on interest liabilities and direct cost

claims in accordance with § 205.31.

(d) If a State appeals the amount of

interest payable in accordance with the

provisions of § 205.31, payment must

occur by March 31 for any portions not

subject to the appeal.

§ 205.29 What are the State oversight and

compliance responsibilities?

(a) A State must designate an official

representative with the statutory or

administrative authority to coordinate

all interaction with the Federal

Government concerning subpart A, and

must notify us in writing of the

representative’s name and title.

(b) A State must maintain records

supporting interest calculations,

clearance patterns, direct costs, and

other functions directly pertinent to the

implementation and administration of

this subpart A for audit purposes. A

State must retain the records for each

fiscal year for three years from the date

the State submits its Annual Report, or

until any dispute or action involving the

records and documents is completed,

whichever is later. We, the Comptroller

General, and the Inspector General or

other representative of a Federal

program agency must have the right of

access to, and may require submission

of, all records for the purpose of

verifying interest calculations, clearance

patterns, direct cost claims, and the

State’s accounting for Federal funds.

(c) A State’s implementation of

subpart A is subject to audit in

accordance with chapter 75 of title 31,

United States Code, ‘‘Requirements for

Single Audits.’’

(d) If a State repeatedly or deliberately

fails to request funds in accordance with

the procedures established for its

funding techniques, as set forth in

§ 205.11, § 205.12, or a Treasury-State

Agreement, we may deny the State

payment or credit for the resulting

Federal interest liability,

notwithstanding any other provision of

this part.

(e) If a State materially fails to comply

with this subpart A, we may, in addition

to the action described in paragraph (d)

of this section, take one or more of the

following actions, as appropriate under

the circumstances:

(1) Request a Federal program agency

or the General Accounting Office to

conduct an audit of the State to

determine interest owed to the Federal

Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules 60813

Government, and to implement

procedures to recover such interest;

(2) Deny the reimbursement of all or

a part of the State’s direct cost claim;

(3) Initiate a debt collection process to

recover claims owed to the United

States; or

(4) Take other remedies legally

available.

§ 205.30 What are the Federal oversight

and compliance responsibilities?

(a) A Federal program agency must

designate an official representative to

coordinate all interaction with us and

the States concerning this subpart A,

and must notify us in writing of the

representative’s name and title.

(b) Determinations regarding whether

or not costs are properly chargeable to

the Federal government shall be the

responsibility of the Federal program

agency responsible for the Federal

assistance program under which the

disallowance arose. Disallowances will

be determined in accordance with the

statutes, regulations, and policies

otherwise applicable to the Federal

assistance program under which the

disallowance arose.

(c) A Federal program agency’s

implementation of this subpart A is

subject to review pursuant to procedural

instructions that we issue.

(d) We will consult with Federal

agencies as necessary and appropriate

before entering into or amending a

Treasury-State Agreement.

(e) We will distribute Annual Reports

to Federal agencies, as set forth in

§ 205.26. Upon our request, a Federal

program agency must review a State’s

Annual Report for reasonableness and

must report its findings to us within 10

days.

(f) A Federal program agency must

notify us in writing if the program

agency has knowledge, at any time, that:

(1) A State’s clearance pattern doesn’t

correspond to a Federal assistance

program’s clearance activity; or

(2) Corrective action needs to be taken

by a State, us, or another Federal

program agency, with respect to the

implementation of this subpart. We will

notify the State or Federal program

agency as appropriate in writing with a

description of the Federal program

agency’s claim.

(g) If a Federal program agency incurs

an interest liability by failing to comply

with this subpart A, we may collect a

charge from the Federal program

agency. A Federal interest liability

resulting from circumstances beyond

the control of a Federal program agency

doesn’t constitute noncompliance. We

will determine the charge using the

following procedures:

(1) We will issue a Notice of

Assessment to the Federal program

agency, indicating the nature of the

noncompliance, the amount of the

charge, the manner in which it was

calculated, and the right to file an

appeal.

(2) To the maximum extent

practicable, a Federal program agency

must pay a charge for noncompliance

out of appropriations available for the

Federal program agency’s operations

and not from the Federal program

agency’s program funds.

(3) If a Federal program agency

doesn’t pay a charge for noncompliance

within 45 days after receiving a Notice

of Assessment, we will debit the

appropriate Federal program agency

account.

(4) In the event a Federal program

agency appeals a charge imposed under

the Notice of Assessment, we will defer

the charge until we decide the appeal.

If we deny the appeal, the effective date

of the charge may be retroactive to the

date indicated in the Notice of

Assessment.

§ 205.31 How does a State or Federal

program agency appeal a determination

made by us and resolve disputes?

(a) This section documents the

procedures for:

(1) A State to appeal the net interest

charge that we have assessed;

(2) A State to appeal a determination

we have made regarding the State’s

claim for direct costs in accordance with

§ 205.27;

(3) A Federal program agency to

appeal a charge for noncompliance that

we have assessed in accordance with

§ 205.30; or

(4) A State or a Federal program

agency to resolve other disputes with us

or between or among each other

concerning the implementation of this

subpart A.

(b) A State or Federal program agency

must submit a written petition to the

Assistant Commissioner, Federal

Finance, Financial Management Service

(Assistant Commissioner), within 90

days of the date of the notice of

assessment or the event that initiated

the appeal or dispute. The Petition must

include a concise factual statement, not

to exceed 15 pages, with supporting

documentation in the appendices, of the

conditions forming the basis of the

Petition and the action requested of the

Assistant Commissioner. In the case of

a dispute, the party submitting the

petition to us must concurrently provide

a copy of the petition to the other

concerned parties. The other concerned

parties may submit to the Assistant

Commissioner a rebuttal within 90 days

of the date of the petition. The rebuttal

must include a concise factual

statement, not to exceed 15 pages, with

supporting documentation in the

appendices.

(c) The Assistant Commissioner will

review the Petition, any rebuttal, and all

supporting documentation. As part of

the review process, the Assistant

Commissioner may request to meet with

any or all parties and may request

additional information.

(d) The Assistant Commissioner will

issue a written decision within the later

of 120 days of the date of the Petition,

or the rebuttal in case of a dispute, or

120 days from receipt of any additional

information. The Assistant

Commissioner’s decision will be the

final program agency action on our part

for purposes of judicial review

procedures under the Administrative

Procedures Act (APA), 5 U.S.C. 701–

706, unless either the State or Federal

program agency invokes the provisions

of the Administrative Dispute

Resolution Act of 1990 (ADRA), 5 U.S.C.

581–593.

(e) Either a State or Federal program

agency may seek to invoke the

provisions of the ADRA within 45 days

after the date of the Assistant

Commissioner’s written decision.

(1) The party invoking the ADRA

must notify the Assistant Commissioner

and any other concerned parties in

writing. If all parties, including the

Assistant Commissioner, agree in

writing, a neutral party appointed under

the provisions of the ADRA may assist

in resolving the dispute through the use

of alternate means of dispute resolution

as defined in the ADRA.

(2) If the party invoking the ADRA is

unable to reach a satisfactory resolution,

the Assistant Commissioner’s decision

will be the final agency action on our

part for purposes of the judicial review

procedures under the APA.

(f) Any amount due as a result of an

appeal or dispute must be paid within

14 days of the date of the decision of the

Assistant Commissioner or the date of

the resolution under the ADRA. If a

State fails to pay, the State will be

subject to collection techniques under

31 U.S.C. 3701 et seq., including accrual

of interest on outstanding balances and

administrative offset.

(g) The appeal and dispute resolution

procedures described in this section do

not apply to disputes between States

and Federal program agencies

concerning whether or not costs are

properly chargeable to the Federal

government.

60814 Federal Register / Vol. 65, No. 198 / Thursday, October 12, 2000 / Proposed Rules

Subpart B—Rules Applicable to

Federal Assistance Programs Not

Included in a Treasury-State

Agreement

§ 205.32 What Federal assistance

programs are subject to this subpart B?

This subpart B applies to all Federal

assistance programs listed in the Catalog

of Federal Domestic Assistance that are

not subject to subpart A of this part.

§ 205.33 How are funds transfers

processed?

(a) A Federal program agency must

limit a funds transfer to a State to the

minimum amounts needed by the State

and must time the disbursement to be in

accord with the actual, immediate cash

requirements of the State in carrying out

a Federal assistance program or project.

The timing and amount of funds

transfers must be as close as is

administratively feasible to a State’s

actual cash outlay for direct program

costs and the proportionate share of any

allowable indirect costs.

(b) Neither a State nor the Federal

government will incur an interest

liability under this part on the transfer

of funds for a Federal assistance

program subject to this subpart B.

§ 205.34 What are the Federal oversight

and compliance responsibilities?

(a) A Federal program agency must

review the practices of States as

necessary to ensure compliance with

this subpart B.

(b) A Federal program agency must

notify us if a State demonstrates an

unwillingness or inability to comply

with this subpart B.

(c) A Federal program agency must

formulate procedural instructions

specifying the methods for carrying out

the responsibilities of this section.

§ 205.35 What is the result of Federal

program agency or State non-compliance?

We have unilateral authority to

require a State and a Federal program

agency to make the affected Federal

assistance programs subject to subpart A

of this part, consistent with Federal

assistance program purposes and

regulations, notwithstanding any other

provision of this part, if:

(a) A State demonstrates an

unwillingness or inability to comply

with this subpart B; or

(b) A Federal program agency

demonstrates an unwillingness or

inability to make Federal funds

available to a State as needed to carry

out a Federal assistance program.

Subpart C—[Reserved]

Dated: October 3, 2000.

Kenneth R. Papaj,

Acting Commissioner.

[FR Doc. 00–25964 Filed 10–11–00; 8:45 am]

BILLING CODE 4810–35–P