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CHAPTER 2-240

FINANCIAL MANAGEMENT SYSTEMS

2-240-00 What does this chapter do?

2-240-10 Where do these policies come from?

2-240-20 How must states account for funds? 

2-240-30 What financial management standards apply to recipients other than states?

2-240-40 Can we review your financial management system?

2-240-50 What is internal control?

2-240-00 What does this chapter do?

This chapter establishes standards for the systems you, the recipient, use to manage and account 

for funds from an assistance agreement awarded by us, the Office of Surface Mining 

Reclamation and Enforcement (OSMRE).

2-240-10 Where do these policies come from?

Requirements for financial management systems for Federal assistance agreements come from 

the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal 

Awards, at 2 CFR 200 Subpart D.

2-240-20 How must states account for funds? 

A. You, a state must expend and account for assistance funds according to the state laws, 

and procedures you use to expend and account for your own funds. 

B. Your accounting and fiscal control procedures must meet the following standards:

1. They must permit you to prepare the reports required by the assistance agreement.

2. They must permit you to trace funds to a level of expenditures adequate to 

establish that the funds were used in compliance with the assistance agreement 

and the Surface Mining Control and Reclamation Act (SMCRA). 

C. You must ensure that your sub grantees and cost-type contractors meet these financial 

management standards.

2-240-30 What financial management standards apply to recipients other than states?

You, a recipient other than a state, must meet the following standards. You must also ensure that 

your subrecipients meet these standards:
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A. You must make accurate, current, and complete disclosure of the financial results of 

program activities in the financial reports required by the assistance agreement.

B. You must maintain records which adequately identify the source, and use of funds for the 

activities supported by assistance funds. These records must contain information about 

awards, authorizations, obligations, unobligated balances, assets, liabilities, outlays, or 

expenditures, income, and subgrants.

C. You must maintain an effective system of controls and accountability for all cash, real 

and personal property, and other assets. You must adequately safeguard all assets and 

property. You must ensure that assets and property are only used for authorized 

purposes. 

D. You must compare actual expenditures with budgeted amounts. You must relate 

financial information to performance or productivity data. You should develop unit cost 

data as appropriate; however, we do not normally require unit cost data in your reports.

E. You must follow the applicable Office of Management and Budget (OMB) cost 

principles, our program regulations, and the terms of the assistance agreement when you 

determine whether costs are reasonable, allowable and allocable.

F. You must support accounting records with source documentation such as paid checks, 

bank statements, invoices, payrolls, time and attendance records, contract and subgrant 

award documents, etc.

G. If you receive advance payments, you must follow procedures to minimize the time 

between when you receive funds from the U.S. Treasury and when you pay them out.

H. You must have written procedures for your accounting system and operations.

2-240-40 Can we review your financial management system?

Yes, we may review the adequacy of your financial management system as part of a pre-award 

review or at any time after the award.

2-240-50 What is internal control?

A. Internal control is an integral component of an organization’s management. It provides 

reasonable assurance that the following objectives are being achieved:

1. Operations are effective and efficient. Programs meet their missions, goals and 

objectives.

2. Financial reporting is reliable. 
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3. The organization is in compliance with applicable laws and regulations.

B. The Government Accountability Office (GAO) has established the following standards 

for internal control (GAO/AIMD-00-21.3.1 11/99). Although these standards were 

developed for the Federal government, they may also be helpful for your organization.

1. Management and employees should establish and maintain an environment 

throughout the organization that sets a positive and supportive attitude toward 

internal control and conscientious management.

2. Internal control should provide for an assessment of the risks the organization 

faces from both external and internal sources.

3. Internal control activities help ensure that management’s directives are carried 

out. The control activities should be effective and efficient in accomplishing the 

agency’s control objectives. Common internal control activities include the 

following:

a. Top level reviews of actual performance.

b. Reviews by management at the functional or activity level.

c. Management of human capital.

d. Controls over information processing.

e. Physical control over vulnerable assets.

f. Establishment and review of performance measures and indicators.

g. Segregation of duties.

h. Proper execution of transactions and events.

i. Accurate and timely recording of transactions and events.

j. Access restrictions to and accountability for resources and records.

k. Appropriate documentation of transactions and internal control.

4. Information should be recorded and communicated to management and others 

within the organization that needs it. It should be in a form, and within a time 

frame that enables people to carry out their internal control, and other 

responsibilities.

5. Internal control monitoring should assess the quality of performance over time. It 

should also ensure that the findings of audits and other reviews are promptly 

resolved.