2025-001: Cash Management: Federal Funds Drawn Down for Indirect Costs not yet Liquidated – Research and Development Cluster Condition During testing of cash management and indirect cost allocations, it was noted that approximately $900,000 in costs included in the Institute's indirect cost pool rem...
2025-001: Cash Management: Federal Funds Drawn Down for Indirect Costs not yet Liquidated – Research and Development Cluster Condition During testing of cash management and indirect cost allocations, it was noted that approximately $900,000 in costs included in the Institute's indirect cost pool remained recorded in accounts payable and had not been disbursed (liquidated) as of December 31, 2025. Despite these costs not yet being paid, the related federal funds had already been drawn down from the awarding agency. Criteria 2 CFR 200.305(b) requires non-federal entities operating under the advance payment method to minimize the time elapsing between the drawdown of federal funds and the disbursement of those funds for program purposes, and to limit draws to amounts needed for immediate cash requirements. Costs recorded in accounts payable but not yet paid do not represent a disbursement and therefore do not constitute an immediate cash need sufficient to support a drawdown. Additionally, 2 CFR 200.1 and 2 CFR 200.413/200.414 contemplate that costs included in the indirect cost pool and allocated to federal awards should reflect costs that are allowable, allocable, and appropriately recognized in the period in which they are incurred and settled in accordance with the Institute's established accounting practices and cash management controls. Cause The Institute's process for requesting federal drawdowns is based on costs recorded on an accrual basis (i.e., invoices entered into accounts payable and included in the indirect cost pool) rather than on the actual disbursement date. As a result, drawdown requests were not reconciled to actual cash outlays, allowing draws to occur before the related liabilities were paid. Effect The Institute drew down federal cash in advance of its immediate cash needs, resulting in excess federal funds on hand for a period during which $900,000 in related costs remained unpaid. This condition represents a noncompliance with federal cash management requirements and may expose the Institute to: • Liability for interest owed to the federal government under the Cash Management Improvement Act (CMIA) for the period the funds were held prior to disbursement; • Questioned costs to the extent the $900,000 was allocated through the indirect cost rate prior to liquidation; and • A control deficiency in the reconciliation between the accounts payable subledger, indirect cost pool, and cash drawdown requests. Recommendation We recommend that the Institute: 1. Revise its drawdown procedures so that federal cash requests are tied to actual disbursement dates rather than accrual/invoice entry into accounts payable; 2. Implement a monthly reconciliation between drawdown requests, the accounts payable aging report, and amounts included in the indirect cost pool; 3. Evaluate whether the $900,000 should be removed from the indirect cost pool for the affected period until liquidated, and adjust the indirect cost rate calculation accordingly if required; 4. Calculate potential interest liability under CMIA for the period excess federal cash was held and remit if applicable; and 5. Document and implement written cash management policies and procedures addressing the timing of drawdowns relative to disbursement. Management Response Management acknowledges the finding and the management staff of the Institute take seriously the federal compliance requirements that apply to drawing funds from the DHHS Payment Management System. The Institute recognizes that it has drawn down excess funds. The Institute plans to improve policies and procedures for cash management in 2026 that will ensure the calculation for allowable cash draw for actual immediate cash needs is complete and accurate. Action Taken Scintillon plans to improve policies and procedures for cash management in 2026 that will ensure the calculation for allowable cash draw for actual immediate cash needs is complete and accurate.