Chapter 15: Financial Management and Accounting Systems

Note: This chapter contains language that was revised based on the Bipartisan Budget Act of 2018. View the revisions (PDF - 582 KB).

In this chapter:

• Authority
• Requirements
• Demonstrating Compliance
• Related Considerations

Authority

Sections 330(e)(5)(D), 330(k)(3)(D), 330(k)(3)(N), and 330(q) of the PHS Act; 42 CFR 51c.113, 42 CFR 56.114, 42 CFR 51c.303(d), and 42 CFR 56.303(d); and 45 CFR Part 75 Subparts D, E and F

Requirements

• The health center must maintain effective control over, and accountability for, all funds, property, and other assets in order to adequately safeguard all such assets and ensure that they are used solely for authorized purposes.
• The health center must have written policies and procedures in place to ensure the appropriate use of Federal funds in compliance with applicable Federal statutes, regulations, and the terms and conditions of the Federal award.
• The health center must develop and utilize financial management and control systems in accordance with sound financial management procedures which ensure at a minimum:
  • The fiscal integrity of grant financial transactions and reports; and
  • Ongoing compliance with Federal statutes, regulations, and the terms and conditions of the Health Center Program award or designation.
• The health center’s financial management system must specifically identify in its accounts all Federal awards, including the Federal award made under the Health Center Program, received and expended and the Federal programs under which they were received (see 45 CFR 75.302). This financial management system must also provide for all of the following:
  • Accurate, current, and complete disclosure of the financial results of each Federal award or program in accordance with the reporting requirements (see 45 CFR 75.341 and 75.342);
  • Records that identify the source (receipt) and application (expenditure) of funds for federally-funded activities. These records must contain information pertaining to Federal awards, authorizations, obligations, unobligated balances, assets, expenditures, income, and interest, and be supported by source documentation (see: 45 CFR 75.302(b)(3));
  • Written procedures that minimize the time elapsing between the transfer of Federal award funds from HHS and the disbursement of these funds by the health center (see 45 CFR 75.305);
  • Written procedures for assuring that expenditures of Federal award funds are allowable in accordance with the terms and conditions of the Federal award and with the Federal Cost Principles (see 45 CFR Part 75 Subpart E).
• A health center that expends $750,000 or more in Federal awards during its fiscal year must have a single or program-specific audit conducted for that year in accordance with the provisions of 45 CFR Part 75 Subpart F.
• The health center must use any non-grant funds as permitted under section 330, and may use such funds for such other purposes as are not specifically prohibited under section 330, if such use furthers the objectives of the [health center] project.

Demonstrating Compliance

A health center would demonstrate compliance with these requirements by fulfilling all of the following:

1. The health center has and utilizes a financial management and internal control system that reflects Generally Accepted Accounting Principles (GAAP) for private non-profit health centers or Government Accounting Standards Board (GASB) principles for public agency health centers¹ and that ensures at a minimum:
   • Health center expenditures are consistent with the HRSA-approved total budget² and with any additional applicable HRSA approvals that have been requested and received;³
   • Effective control over, and accountability for, all funds, property, and other assets associated with the Health Center Program project;
   • The safeguarding of all assets to assure they are used solely for authorized purposes in accordance with the terms and conditions of the Health Center Program award/designation;⁴ and
   • The capacity to track the financial performance of the health center, including identification of trends or conditions that may warrant action by the organization to maintain financial stability.
2. The health center’s financial management system is able to account for all Federal award(s) (including the Federal award made under the Health Center Program) in order to identify the source⁵ (receipt) and application (expenditure) of funds for federally-funded activities in whole or in part. Specifically, the health center’s financial records contain information and related source documentation pertaining to authorizations, obligations, unobligated balances, assets, expenditures, income, and interest under the Federal award(s).
3. The health center has written procedures for:
   • Drawing down Federal award funds in a manner that minimizes the time elapsing between the transfer of the Federal award funds from HRSA and the disbursement of these funds by the health center; and
   • Assuring that expenditures of Federal award funds are allowable in accordance with the terms and conditions of the Federal award and with the Federal Cost Principles⁶ in 45 CFR Part 75 Subpart E.
4. If a health center expends $750,000 or more in award funds from all Federal sources during its fiscal year, the health center ensures a single or program-specific audit is conducted and submitted for that year in accordance with the provisions of 45 CFR Part 75, Subpart F: Audit Requirements and ensures that subsequent audits demonstrate corrective actions have been taken to address all findings, questioned costs, reportable conditions, and material weaknesses cited in the previous audit report, if applicable.
5. The health center can document that any non-grant funds generated from Health Center Program project activities, in excess of what is necessary to support the HRSA-approved total Health Center Program project budget, were utilized to further the objectives of the project by benefiting the current or proposed patient population and were not utilized for purposes that are specifically prohibited by the Health Center Program.

Related Considerations

The following points describe areas where health centers have discretion with respect to decision-making or that may be useful for health centers to consider when implementing these requirements:

• The health center determines which accounting software and related systems to use for financial management.
• The health center determines the type, frequency, and format of financial reports used to support the board and the key management staff’s ability to carry out its oversight responsibilities.
• The health center determines which specific actions to take in response to negative financial trending and its method for monitoring the results of those actions.

Footnotes

^1. GAAP and GASB are used as defined in 45 CFR Part 75.

^2. A health center’s “total budget” includes the Health Center Program Federal award funds and all other sources of revenue in support of the HRSA-approved Health Center Program scope of project. For additional detail, see Chapter 17: Budget.

^3. Per 45 CFR 75.308, post-award, Federal award recipients are required to report significant deviations from budget or project scope or objective, and are required to request prior approvals from HHS awarding agencies for budget and program plan revisions (re-budgeting). “Re-budgeting, or moving funds between direct cost budget categories in an approved budget, is considered significant when cumulative transfers for a single budget period exceeds 25 percent of the total approved budget (inclusive of direct and indirect costs and Federal funds and required matching or cost sharing). The base used for determining significant re-budgeting excludes carryover balances but includes any amounts awarded as supplements.”

^4. The requirement to safeguard federal assets as described in this bullet substantially reflects the requirement to have written policies and procedures in place to ensure the appropriate use of Federal funds in compliance with applicable Federal statutes, regulations, and the terms and conditions of the Federal award. See Section 330(k)(3)(N) of the Public Health Service Act.

^5. Federal program and Federal award identification would include, as applicable, the Catalog of Federal Domestic Assistance (CFDA) title and number, Federal award identification number and year, name of the HHS awarding agency, and name of the pass-through entity, if any.

^6. The cost principles are set forth in 45 CFR Part 75, Subpart E.