The last few days have seen a series of directives around a temporary pause on federal financial assistance programs, including grants, loans, and other financial support.
Source of Uncertainty
On January 27, 2025, the Office of Management and Budget (OMB) issued Memorandum M-25-13.1 The memo announced a temporary pause on federal financial assistance programs, including grants, loans, and other financial support.
On January 28, OMB issued a Question-and-Answer Clarification Document to Memorandum M-25-13. The clarification stated “Any program not implicated by the President’s Executive Orders is not subject to the pause.”
Later on January 28, a federal judge ordered the pause on federal financial assistance programs be delayed until a hearing scheduled Monday, February 3 could be held to determine the next steps.
OMB issued a rescission to Memorandum M-25-13 on January 29. The White House has stated it is committed to freezing funds covered by the administration’s executive orders.
Best Practices Moving Forward
With the rapidly changing regulatory landscape, it may be a good time to consider steps your organization can take to prepare for potential disruptions that may occur in the future.
Risk Assessment of Funding Programs
To prepare for discussions among the executives, boards, and/or banks and to plan for future cash flow needs, grantees can assess the risk of their current federal funding in light of recent White House communications. Noted in the initial Memorandum M-25-13, which has subsequently been rescinded, federal agencies that provide federal financial assistance were instructed to complete a spreadsheet and submit it to OMB (OMB Survey).
The OMB Survey may be an appropriate place to begin performing a self-evaluation of potential risk rankings of your entity’s grant programs. For example, presumably, the responses in the spreadsheet would have triggered additional funding challenges. Accordingly, the OMB Survey may be an appropriate place to begin the risk-ranking process to help identify programs that have the potential for additional scrutiny in the future.
Specifically, assistance listings/programs that may pose a high risk to future funding might be those that have a “yes” response to any of the following questions asked in the OMB Survey:
- Does this program provide federal funding to nongovernmental organizations supporting or providing services, either directly or indirectly, to removable or illegal aliens?
- Is this program a foreign assistance program, or provide funding or support activities overseas?
- Does this program provide funding that is implicated by the revocation and recission of the U.S. International Climate Finance Plan?
- Does this program include activities that impose an undue burden on the identification, development, or use of domestic energy resources (including through funding under the Inflation Reduction Act of 2022; and the Infrastructure Investment and Jobs Act)?
- Does this program provide funding that is implicated by the directive to end discriminatory programs, including illegal DEI and “diversity, equity, inclusion, and accessibility” (DEIA) mandates, policies, programs, preferences, and activities, under whatever name they appear, or other directives in the same executive order, including those related to “environmental justice” programs or “equity-related” grants?
- Does this program promote gender ideology?
- Does this program promote or support in any way abortion or other related activities identified in the Hyde Amendment?
- If not covered in the preceding columns, does this program support any activities that must not be supported based on executive orders issued on or after January 20, 2025 (including executive orders released following the dissemination of this spreadsheet)?
To prepare for this, organizations could list their participating assistance listings/programs and answer the above questions to assign a low, medium, or high risk ranking and then summarize financial impacts to the organization of each program.
Drawing Down Federal Funds
Grantees should consider submitting drawdown requests for any open grant programs. When submitting drawdown requests, be prepared for potential objections.
The grantee should allow sufficient time to submit the drawdown requests, as the increased demand may result in delays or outages in system access. In addition, grantees should evaluate their policy on the frequency and methodology of drawdowns on federal funds.
Best practices regarding drawdown of grant funds:
- Go over your grant agreement to see whether the funding agency requires an advance or reimbursement method for drawdowns.
- If advances are permitted, carefully read the Notice of Award (NOA) and agency funding guidance to understand how far in advance you can request funds.
- Know whether your entity uses the cash or accrual method of accounting for managing and reporting your grant funds.
- Calculate the drawdown based on appropriate reimbursement methods (advance/reimbursement) and method of accounting (cash/accrual).
- Request reimbursement using the funding agency’s defined procedures. Please note increased demand may result in delays or outages in system access, so please plan timelines accordingly.
Check your grant agreements (sometimes referred to as the NOA) for terms and conditions related to the drawdown of your funds. The NOAs should stipulate whether your entity can request an advance on your grant funds, or if your entity must request funds on a reimbursement basis.
- Advance Structure: A payment structure in which the government provides the grant money upfront before it is spent. With this method, the funds are available for the project to start immediately.
- Reimbursement Structure: A payment structure in which the entity pays expenditures directly before later receiving the spent funds from the government. This structure requires proof expenses to be submitted to the government prior to reimbursement.
Another consideration is whether your entity does its accounting on a cash basis or accrual basis.
- Cash Method: A method in which income and expenses are recorded only upon the exchanging of funds. This means grant funds and expenses are recognized when received and paid from accounts.
- Accrual Method: A method in which income and expenses are recorded when they are earned or incurred, regardless of when funds are exchanged. In this method, grant funds and expenses are accounted for at the time they are incurred.
Title 2 of Code of Federal Regulations (CFR) Section 200.305 stipulates the regulations relating to the drawdown request.
- Reimbursements – 2 CFR 200.305(b)(3) states “When the reimbursement method is used, a Federal agency or pass through entity must make payment within 30 calendar days after receipt of the payment request.”
- Advances – 2 CFR 200.305(b)(1) states, “The recipient or subrecipient must be paid in advance, provided it maintains or demonstrates the willingness to maintain both written procedures that minimize the time elapsing between the transfer of funds and disbursement by the recipient or subrecipient, and financial management systems that meet the standards for fund control and accountability as established in this part. Advance payments to a grantee must be limited to the minimum amounts needed and be timed with actual, immediate cash requirements of the grantee in carrying out the purpose of the approved program or project. The timing and amount of advance payments must be as close as is administratively feasible to the actual disbursements by the grantee for direct program or project costs and the proportionate share of any allowable indirect costs. The recipient or subrecipient must make timely payments to contractors in accordance with the contract provisions.”
Cash Flow Planning
Grantees should convene their stakeholders for discussions and cash flow planning relative to the potential implications of funding disruptions. Such disruptions may include short-term and/or long-term impacts to cash flow stemming from possible temporary pauses on federal assistance payments. Entities should examine their resiliency with respect to longer-term funding stops relative to certain programs.
Further, organizations can consider what liquidity levers they may need to pull if there is a temporary pause in federal funding, including utilization of excess cash, investments, lines/letters of credit, etc.
The above program risk assessment, drawdown suggestion, and cash flow scenario planning can help an organization have open and candid conversations with stakeholders regarding risks, risk management, and cash flow planning.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.
- 1 www.washingtonpost.com/documents/deb7af80-48b6-4b8a-8bfa-3d84fd7c3ec8.pdf.