Federal Cash Management and Drawdown Controls in QuickBooks Online

Federal cash management means you request the right amount of cash, from the right payment system, at the right time, for allowable award costs. It also means you can show where the cash went. Cash management is a separate task from revenue recognition and budget monitoring.

QuickBooks Online remains your accounting system. The award, the payment system, the bank, and a draw worksheet provide evidence that QuickBooks Online can't supply alone. GrantLink doesn't request draws or move funds. In GrantLink, Money received is the label for income linked to a grant in QuickBooks, and it doesn't by itself show that federal cash arrived.

Start with the type of recipient and the payment method

2 CFR 200.305 treats states differently from other recipients:

• States. Under 200.305(a), Treasury-State Cash Management Improvement Act (CMIA) agreements and the default procedures in 31 CFR part 205 govern payments to states. Don't apply the bank account and interest rules below to a state without checking.
• Advance payments for other recipients. Under 200.305(b)(1), a recipient or subrecipient must be paid in advance if it keeps, or shows it is willing to keep, written procedures that keep the time between receiving and spending funds short. It must also keep a financial management system that meets 2 CFR 200 standards.
• Reimbursement. Under 200.305(b)(3), reimbursement is preferred when the advance requirements can't be met, when the agency or pass-through entity sets a specific condition under 200.208, when the recipient asks for it, or when the award is for construction. It is also preferred for some construction projects financed mainly by private loans or federal loans. The agency or pass-through entity must pay within 30 calendar days after it receives the request, unless it reasonably believes the request is improper. The 30-day rule doesn't let you request unsupported or unallowable costs.
• Working capital advance. Under 200.305(b)(4), the agency or pass-through entity may use this method when the recipient can't meet the advance requirements and lacks the working capital for reimbursement. It advances cash for estimated needs for a first period, and after that it reimburses actual cash payments.

The agency or pass-through entity sets the payment method under these rules and any valid award conditions. Read the award for draw frequency, how far ahead you may forecast, required support, the basis for claimed costs, approval roles, and the payment system to use.

Cash rules for advances

For recipients other than states that receive advances, four rules apply:

1. Request only what you need now. Advances must be limited to the minimum amounts needed for immediate cash needs, and timed as close as practical to when you pay the costs. 2 CFR 200 doesn't set a weekly or monthly draw schedule.
2. Use other available funds first. Under 200.305(b)(5), if they are available, you must spend program income, rebates, refunds, contract settlements, audit recoveries, and interest earned on federal funds before you request more cash. Don't draw on the gross cost while ignoring a known credit.
3. Don't request retainage. Under 200.305(b)(8), you can't be paid for amounts you withhold from contractors to make sure work is completed. You can request them when you pay the contractor or deposit the funds in an escrow account.
4. Keep control over the funds. A separate bank account, or a separate cash account for each award, can be a useful control. Neither one is a federal requirement.

Bank account and interest rules for advances

Under 200.305(b)(9), the agency or pass-through entity can't require a separate bank account for federal funds, but you must be able to account for all federal funds received, obligated, and spent. Under 200.305(b)(10), you must keep advances in insured accounts whenever possible.

Under 200.305(b)(11), you must keep advances in an interest-bearing account unless an exception applies. The exceptions include these cases:

• You receive less than $250,000 in federal funding per year.
• The best available account wouldn't be expected to earn more than $500 per year on federal cash.
• The bank's minimum balance would be too high to be practical.
• A foreign government or banking system prohibits or prevents an interest-bearing account, or one isn't readily accessible.

Under 200.305(b)(12), you may keep up to $500 per year of interest earned on federal funds for administrative expenses. You must return any interest above $500 each year to the Department of Health and Human Services Payment Management System (PMS), even if your award isn't paid through PMS. Don't confuse the $250,000 exception with the $500 interest amount, and don't apply these rules to a state without checking 31 CFR part 205.

Build a draw worksheet

Prepare a worksheet for each draw request, and keep the version you submitted. Include at least these items:

Section	Support
Award identity	Agency, award number, Assistance Listing, period, payment method, and payment system account
Cutoff	QuickBooks Online through date, bank through date, forecast window, report basis, and preparation date
Eligible paid costs	QuickBooks Online transaction detail, less exclusions, credits, refunds, and the non-federal share
Immediate unpaid needs	Specific approved invoices, payroll, benefits, subrecipient payments, or other near-term payments, with expected payment dates
Federal share	The share the award allows after match, cost share, indirect cost, and funding limits
Cash position	Beginning federal cash, plus receipts, less cash payments, plus or minus returns and corrections, equals cash on hand
Other available funds	Program income, rebates, refunds, other credits, and interest to apply as required
Request	Supported immediate federal need, less federal cash you can use and other funds you must apply first
Controls	Draw ID, attachments, preparer, independent approver, submission time, and the later match to the deposit

For reimbursement awards, keep these stages separate: costs incurred, paid, claimed, approved, and reimbursed. Follow the basis in the award, and don't treat every QuickBooks Online expense as claimable. How to Track Reimbursable Grants in QuickBooks describes a way to track claim status.

For advances, a forecast must be reasonable and documented, and it doesn't allow you to request any amount you choose. Include only payments expected within the immediate-need window the agency allows, and subtract the federal cash you already hold. After the cash arrives, compare the forecast with the actual payments. If forecasts are often too high, take corrective action.

Set up QuickBooks Online without mixing up tracking fields

• Use one Customer or Project, Class, or other tracking field for the award, and use it consistently. If one field isn't enough, document how you combine them.
• Post deposits to the account your approved accounting policy requires. A deposit isn't necessarily revenue, and recorded revenue isn't necessarily cash.
• Keep bank feed matching and monthly bank reconciliations. Don't record the same deposit twice by both entering it and adding it from the bank feed.
• Record receivables and amounts you may have to refund under a policy your CPA approves. Federal cash rules don't decide GAAP revenue recognition.
• Mark corrections clearly, and keep the trail from the original entry to the corrected one. Never change a transaction just to make a draw total work.

Do a four-way reconciliation

After every draw, or on a schedule based on risk, reconcile the same cutoff date across four records:

1. QuickBooks Online. Award cash receipts, eligible expenses, cash payments, credits, receivables and liabilities, and corrections.
2. Bank. Deposit amounts and dates, cleared payments, outstanding items, interest, and returned transfers.
3. Payment system. Amounts requested, approved, paid, rejected, and returned, and the system balance. Your agency may use PMS or another payment system.
4. Award and report schedules. Total draws to date, federal spending, unliquidated obligations where they apply, program income, the recipient's share, and the remaining authorized amount.

Use a rollforward for cash. Beginning cash, plus federal receipts, less federal cash payments, less principal returned, equals ending federal cash. Reconcile eligible federal spending and claims separately, because cash on hand and spending to date answer different questions. Investigate timing differences, document each reconciling item and its owner, and clear it promptly. For the financial report tie-out, see How to Prepare and Reconcile the SF-425 from QuickBooks Online.

Returns, excess cash, and closeout

Don't leave excess advances sitting until the next report. Stop or reduce the next request, and identify what kind of return you need to make. Interest above the $500 yearly amount goes to PMS, even when the award is paid through another system. Under 200.305(b)(13), you return other federal funds, such as principal, to the awarding agency's payment system. Follow the instructions for that system, and don't offset one award's excess against another award without explicit authority.

At closeout, follow these steps:

1. Stop routine draws, and identify the date of the final request or adjustment.
2. Post and review final costs, payroll, subrecipient activity, credits, refunds, program income, and indirect costs.
3. Liquidate obligations within the deadline in 2 CFR 200.344(c), which is 120 calendar days after the period of performance for recipients and 90 days for subrecipients, unless an extension is approved.
4. Reconcile QuickBooks Online, the bank, the payment system, and the final financial report on a cumulative basis.
5. Return excess principal and interest through the correct channel.
6. Confirm that the final draw, the final financial report, and QuickBooks Online agree, or that the differences are documented and accepted.
7. Keep submission confirmations, return evidence, reconciliations, approvals, and source documents under the award terms and 2 CFR 200.334.

Closeout doesn't end later refunds, corrections, audits, or the government's right to recover funds. Send post-closeout credits and questioned costs through the agency, and don't net them into an unrelated draw.

Common control failures

• Drawing the full remaining budget instead of the immediate cash need
• Using a profit and loss total without checking payment status, federal share, allowability, period, credits, or cash already on hand
• Treating QuickBooks Online revenue, GrantLink Money received, a draw request, and a bank deposit as the same thing
• Drawing again because a request doesn't show in QuickBooks Online yet, before checking the payment system and bank timing
• Counting accrued expenses as cash payments, or counting commitments twice
• Ignoring refunds, rebates, program income, bank interest, or earlier excess cash
• Applying the $250,000 and $500 rules for non-state recipients to a state without checking 31 CFR part 205
• Calling separate bank accounts, daily draws, or monthly reconciliations federal requirements, when they are controls you choose
• Returning principal to PMS when the award uses another agency payment system, or not returning excess interest to PMS
• Letting one person prepare, approve, submit, record, and reconcile every draw

Official sources

• 2 CFR 200.305, Federal payment, covering payment methods, immediate need, bank accounts, interest, retainage, and returns
• 2 CFR 200.344, Closeout
• 31 CFR part 205, Treasury-State Cash Management Improvement Act rules, covering payment timing for states
• 2 CFR 200.302, Financial management, covering financial systems, source documents, and control over funds
• 2 CFR 200.307, Program income, and 2 CFR 200.406, Applicable credits, covering funds to account for in draw calculations
• HHS Payment Management Services, Returning Funds/Interest, covering how to return excess interest and funds paid through PMS
• 31 CFR part 208, Management of Federal agency disbursements, covering electronic federal payments

Award and agency instructions control. This guide doesn't replace legal, accounting, or federal grants advice.