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TANF-ACF-PI-2002-02 (Clarification of Procedures and Methods of Obligating Federal Funds Under the TANF Program)

Published: May 23, 2002
Audience:
Temporary Assistance for Needy Families (TANF)
Topics:
TANF Financial Data
Types:
Program Instructions (PI)
Tags:
TANF Financial Data

To:

State agencies administering the Temporary Assistance for Needy Families (TANF) program and other interested parties.

Subject:

Clarification of Procedures and Methods of Obligating Federal Funds under the TANF program.

References:

Sections 404(e) and 409(a)(1) of the Social Security Act; 45 CFR 92.3 and 45 CFR 263.11

Purpose:

This Program Instruction states the principles and clarifies the procedures and methods for obligating Federal TANF Funds.

Background:

Section 404(e) of the Social Security Act (Act) allows States to reserve Federal TANF funds that they receive "for any fiscal year for the purpose of providing, without fiscal year limitation, assistance under the State program funded under this part."  Thus, States may reserve for expenditure in succeeding fiscal years any unobligated Federal TANF funds received during the current fiscal year.

In the final TANF rules, we stated that, under section 404(e), a State may expend reserved TANF funds only on benefits that specifically meet the definition of "assistance".  Thus, TANF funds carried over as reserve funds from one year to the next cannot be spent on activities generally directed at serving the goals of the program, but outside the scope of the definition of "assistance," given at 45 CFR 260.31.

In addition, States may not transfer reserved funds to either the Social Services Block Grant (SSBG) Program or the Child Care Development Fund (CCDF).  Any use of funds in violation of section 404 of the Act would be considered a misuse of Federal TANF funds and create a potential penalty situation.  (45 CFR 263.11, 64 FR, 17840-841 (April 12, 1999)).  As a result of the limitation on the use of reserved Federal TANF funds, we advised that States must obligate by September 30 of the current fiscal year any funds for expenditures on non-assistance.  The State must liquidate these obligations by September 30 of the immediately succeeding Federal fiscal year for which the funds were awarded.  If the final liquidation amounts are lower than the original amount obligated, the amount not liquidated must be included in the Unobligated Balance Line Item (of Financial Reporting Form ACF-196) for the year in which they were awarded.  Unobligated balances from previous fiscal years may only be expended on assistance and the administrative costs related to providing the assistance. (64 FR 17917 (April 12, 1999))

It has come to our attention that there may be some misunderstanding regarding what constitutes an "obligation."  To protect States against future misuse findings we have decided to provide policy clarification on this issue.

For example, if a proper obligation does not exist, then a State may only use unspent funds carried over into the immediately succeeding fiscal year to provide "assistance" or the administrative costs directly associated with providing the "assistance."  Thus, current year funds that have been improperly obligated will trigger the limitation on the use of reserve funds a year sooner than would otherwise be necessary.  If a State improperly obligates and uses its TANF funds, it would be subject to a penalty for misuse of Federal funds.

Questions and Answers:

Q1.  Why is the meaning of the word "obligation" important under the TANF program?

R1.  As stated in the background above, because of the restriction on the use of reserve funds, States must obligate by September 30 of the current fiscal year any funds for expenditures on benefits and services that do not (with emphasis) constitute "assistance," as defined at 45 CFR 260.31 of the TANF regulations.  The State must liquidate the obligation(s) by September 30 of the immediately succeeding Federal fiscal year.

Q2.  What is an "obligation" in the TANF program?

R2.  The definition of an obligation for the TANF program is found at 45 CFR 92.3.  This regulation defines an obligation as the amounts of orders placed, contracts and sub-grants awarded, goods and services received, and similar transactions during a given period that will require payment by the grantee during the same or a future period.

Q3.  Does an obligation exist when a State makes a financial commitment or enters into a funding arrangement with another State governmental entity to provide TANF-funded benefits or services to TANF eligibles?

R3.  Noan obligation does not exist in this situation.  Federal regulations at 45 CFR 92.3 define the grantee as the "entire legal entity even if only a particular component of the entity is designated in the grant award document," in other words the State in its entirety.  Even though the State's TANF agency (known variously as the State's Department of Human Services, Department of Human Resources, or Department of Social Services, etc.) is the recipient of the TANF block grant funds, all State agencies are part of the same legal government entity.  A State cannot obligate to itself.  This means that one State agency cannot obligate funds to another State agencyFurther, the "obligation" of funds from the State TANF agency to any of its own local offices or to the local office of another State agency does not (with emphasis) meet the definition of an obligation in the TANF program.

Q4.  May State agencies, other than the TANF agency, provide TANF-funded benefits or services to TANF-eligibles?

R4.  Yes.  Under obligation and liquidation rules, the TANF agency may arrange for other State agencies to provide TANF-funded benefits or services.  The TANF agency can sign a Memorandum of Understanding or other forms of agreement with other State agencies to provide activities that are not considered "assistance."  The TANF agency, as the grantee, would reimburse the other State agencies using current-year (with emphasis) TANF funds as those agencies provide the services or benefits.  However, any unspent current year TANF funds carried over into the immediately succeeding fiscal year must be used to provide "assistance" or to pay for the administrative costs directly associated with providing the "assistance."

Q5.  Would an obligation exist if the TANF agency arranges for another State agency to provide TANF-funded benefits or services, and the other agency carries out the arrangement through a legal financial obligation (per 45 CFR 92.3) to a third party (e.g., non-profit agency, community organization, or other outside party)?

R5.  Yes, such third-party arrangements would constitute an obligation provided the obligation between the State agency and the third party occurs by September 30 of the Federal fiscal year in which the funds were awarded to the State.  If the third-party will be providing benefits that are not considered "assistance," and a timely obligation exists, the State has until the end of the immediately succeeding Federal fiscal year in which the funds were awarded to liquidate the obligation.  Any unspent funds remaining at the end of the immediately succeeding year must be included in the unobligated balance corresponding to the Federal fiscal year in which the funds were awarded.  The unobligated balance carried over into subsequent fiscal years is limited to expenditures for benefits that constitute "assistance" or to the administrative costs directly associated with providing the "assistance."

Q6.  May a State obligate TANF funds to a county?

R6.  Yes, it is possible for an obligation to exist between the State and a county government for a TANF benefit or service.  The obligation between the State and the county must be a bona fide written legal obligation and meet the definition of an obligation at 45 CFR 92.3.  Counties are considered a local governmental authority.  As such, one government entity (the State) would be doing business with another (different) government entity (the local government).  In addition, as a sub-grantee of the State, the county is subject to all the rules of 45 CFR 92 for the further obligation and expenditure of Federal TANF funds.

Q7.  What are the obligation rules for funds transferred from TANF to the Social Services Block Grant (SSBG) or Child Care Development Fund CCDF)?

R7.  Any Federal TANF funds that a State transfers to the SSBG and/or CCDF programs, as documented by appropriate financial reports, take on the rules and regulations of the receiving program corresponding to the Federal fiscal year the funds were originally awarded to the State and transferred to SSBG and/or CCDF.  The State may only transfer current year TANF funds.

SSBG

SSBG rules require that States must expend TANF funds transferred into the SSBG program by the end of the subsequent fiscal year for which the TANF funds were originally awarded and transferred.  Example: The State transferred $100 of fiscal year 2002 funds to the SSBG program.  The funds transferred to SSBG must be liquidated by September 30, 2003.  The State must report the transfer on the ACF-196 and the SSBG SF-269 and Post Expenditure Reports.

CCDF

CCDF-Discretionary rules require that TANF funds transferred into the CCDF-Discretionary program be obligated in the current fiscal year or by the end of the subsequent fiscal year for which the TANF funds were originally awarded and transferred by the State.   The State must liquidate these obligations by the end of the subsequent fiscal year following the end of the obligation period. Example, the State transfers $100 of FY 2002 funds.   The State CCDF program must obligate these funds by September 30, 2003.   The State must liquidate these obligations by September 30, 2004.   The State must follow 45 CFR 98.60 when obligating TANF funds transferred to CCDF.   The State must report the transfer on the ACF-196 and ACF-696 Expenditure Reports.

Q8.  Can the State transfer funds previously transferred to CCDF or SSBG back to TANF?

R8.  Yes, if the obligation (for CCDF transfers) or expenditure (for SSGB transfers) period is still open for the year corresponding to the year the TANF funds were awarded and transferred, States may transfer these funds back to the TANF program.

CCDF Example: 

The State transfers $100 of fiscal year 2002 TANF funds to the fiscal year 2002 CCDF-Discretionary Fund.  The CCDF program must obligate these funds by September 30, 2003.  On September 1, 2003, the CCDF program has obligated $80 of the $100 originally transferred.  The State has until September 30, 2003, to obligate or return the remaining $20 of unobligated CCDF TANF transfer funds back to the TANF program.  If the State transfers the $20 back to TANF, it must add the $20 to the prior-year unobligated balance for fiscal year 2002.  These funds are then restricted to TANF assistance and the administrative costs related to providing assistance.  The State must also revise entries on both the ACF-196 and ACF-696 financial reporting forms (contained in the next required submission of both reports) for TANF and CCDF.  If the CCDF agency does not return or obligate the $20 by September 30, 2003, the State will receive a FY 2002 negative grant award for $20 to the CCDF-Discretionary program, in accordance with 45 CFR 98.60.

SSBG Example:

The State transfers $100 of fiscal year 2002 TANF funds to the fiscal year 2002 Social Services Block Grant program.  The SSBG program must expend these funds by September 30, 2003.  On September 1, 2003, the SSBG program has expended $80 of the $100 originally transferred. The State has until September 30, 2003, to expend or return the remaining $20 of unexpended SSBG Transfer funds back to the TANF program.  If the State returns the $20 to TANF, it must add the $20 to the prior-year unobligated balance for fiscal year 2002.  The unobligated balance from FY 2002 is restricted to TANF assistance and the administrative costs related to providing assistance.  The State must also submit a revised ACF-196, SSBG SF 269 and Post Expenditure Report for fiscal year 2002. If the $20 remains unexpended in the SSBG program, then the State will receive a negative grant award for $20 against its FY 2002 SSBG grant program funds, in accordance with 45 CFR Part 95.

Effective Date:

Immediately

Inquiries:

Inquiries and comments should be directed to the appropriate Administration for Children and Families (ACF) Regional Administrator.

/s/

Carol Carter Walker

Acting Deputy Assistant Secretary for Administration

Andrew Bush, Director
Office of Family Assistance