Governmental agencies receive trillions annually in federal grant funds to execute goals and priorities for their communities. Each funding program has different goals, priorities, and requirements. In addition, each new administration has different priorities, which can impact funding appropriations. This is illustrated when the president proposes the annual budget in February to Congress for approval. This budget will inform Congress of three things about the president’s agenda:
- An overall recommendation for federal fiscal policy.
- Administrative priorities for federal programs.
- A look at proposals to alter some mandatory programs.1
New administration priorities and other changes make managing grant agency funding quite challenging. Government agencies are tasked with fiscal responsibility, management of competing priorities and deadlines, and balancing various funding sources.
In addition to changes, it is helpful to understand the expectations of agencies when managing these priorities. What is an obligation, what is not an obligation, and why is it significant for your agency? In the federal grant world, an obligation is defined as a “legal liability to disburse funds immediately or at a later date as a result of a series of actions.”2 So, having items such as adopted budgets, budget amendments, or written intentions to enter a contract does not constitute obligation.3
Another way to imagine this is if the federal funds received are not obligated and spent by the deadline, then those funds can be subject to return to the funding agency; therefore, those funds are no longer available to the agency to allocate and expend to meet its desired goals and objectives. After the funds are obligated, they can be expended.
Next, what does it mean to spend or expend funds? The expending of funds simply means the actual payment or disbursement of money for goods or services.4 This is done through issuing checks or electronic transfers to settle the agreement. No entity wants to be in the position of explaining to their leadership or stakeholders why they had to return funds. As an agency, it helps to be proactive in obligating and expending grant funds.
To do so, let’s look at some best practices agencies can consider to help meet obligation requirements for their funding programs.
Best Practices to Consider for Successful Obligation of Federal Funds
- Know the Deadlines and Your Grant – Be familiar with the funding agreement, requirements, and the specific deadlines outlined throughout. For example, for State and Local Fiscal Recovery Funds (SLFRF), all funds must be obligated by December 31, 2024 and expended by December 31, 2026.5
- Maintain Records – Maintain all funding supporting documentation, such as agreements, contracts, purchase orders, budgets, and approval communications. Safeguard all documents in a centralized system to manage and store them. Keeping records organized will help you move through various phases in the grant process.
- Identify Allowable Costs – Understand what the funding agency considers allowable costs. Know the guidelines and have tools, e.g., checklists, for determining which costs are allowable for the program. Confirm that the scope of work for deliverables is specific and ties in with program requirements. In addition, make sure that the costs are accurately documented with necessary approvals and justifications.
- Examine Progress – Once funds are obligated, plan to regularly (monthly or quarterly) review your accounting records to confirm accurate and timely information. This process could include meeting with your finance staff to reconcile obligations and expenditures against financial statements to catch potential gaps or delays. Consider using grant management software to help track obligations, expenditures, and deadlines.
- Eliminate Mistakes – Avoid costly mistakes by planning accordingly and allowing enough time to correct or amend items as needed. Confirm that the necessary justifications and approvals are documented and maintained. Use checklists and tools as necessary to simplify processes and have checks and balances in place to prove multiple levels of reviews are completed.
Managing federal grants can be labor-intensive. These are just a few best practices your agency can consider and deploy as you navigate obligating and expending your federal funds. Note that each agency is different, so no one solution is applicable to all. However, this is a great starting point for agencies.
If you are looking for further assistance in meeting your grant obligation, spending, and compliance requirements, please reach out to a professional at Forvis Mazars.
- 1“Policy Basics: Introduction to the Federal Budget Process,” cbpp.org, October 28, 2024.
- 2“Section 80.91 – What is a Federal Obligation of Funds and How Does It Occur?,” ecfr.gov, January 16, 2025.
- 3“State and Local Fiscal Recovery Funds: New Obligation FAQs Webinar,” home.treasury.gov, May 2024.
- 4“DoD 7000.14-R Glossary: Summary of Changes – Financial Management Regulation”, comptroller.defense.gov, September 2021.
- 5“State and Local Fiscal Recovery Funds: Obligation IFR Quick Reference Guide”, home.treasury.gov, 2023.