As we have seen recently, federal funding operations and priorities often shift with new administrations or during economic uncertainty. Organizations relying heavily on federal funding are especially vulnerable. In the context of the Trump administration’s recent proposal to pause some categories of federal spending, organizations should consider the following best practices to mitigate liquidity and financial risk due to operational disruptions:
- Diversify revenue streams, such as seeking other grant or contract opportunities, organizing fundraising events or collaborating with local corporations or nonprofits
- Maintain clear communication with major supporters and those charged with governance
- Review reserves on a regular basis
- Establish a line of credit to cover immediate expenses
- Develop a contingency plan
- Monitor cash flow
- Discuss potential audit implications early with your auditors
Federal agencies are responsible for determining which programs are implicated by executive orders. The only way for a recipient to know for sure that their program is affected is to receive written notice from their agreement officer or grant officer. If organizations receive notice that an award is being suspended, paused or terminated (fully or partially), recipients should consult with legal counsel and advisors.
Here are suggestions to improve the chances of cost recovery if an award is paused:
- Read any notices of award suspension or pauses carefully for information about costs that will be allowable during the suspension period.
- Read through award terms and applicable agency supplements to the Uniform Guidance for provisions that address suspensions to pause activities for non-disciplinary reasons. For example, USAID addresses suspensions at 2 CFR 700.14. Other agencies do not address non-disciplinary suspensions in their regulations, and they may or may not include separate award terms for non-disciplinary suspensions or pauses to the award.
- For pre-pause costs, document allowable award costs incurred before the award was paused, any related in-progress reports or other award deliverables. Attempt to collect for allowable costs incurred prior to the pause.
- For pause-related costs, separately track costs (e.g., setting up a separate charge code) that are related to the pause (e.g., winddown costs, legal fees), and costs you will continue to incur that are unavoidable or necessary to promptly continue activities if the award is resumed (e.g., lease costs, securing project property). Keep detailed documentation of your efforts to minimize costs during the pause period.
- Communicate with your grant officer. Acknowledge receipt of the suspension or pause notice and confirm you are halting activities as directed. Explain that certain costs will continue to be incurred and provide estimates and justifications for pause-related costs.
If an award is terminated, here are some best practices to consider:
- Read through the notice of termination, note the effective date and refer to the process described at 2 CFR 200.340 “Termination.” Also note any applicable agency supplemental regulations and specific award terms addressing the termination process.
- Document pre-termination costs and in-progress work. Also separately track and document termination-related costs that are incurred to close out the program (e.g., staff time to close out activities, legal costs), including any unavoidable costs (e.g., pre-paid, nonrefundable vendor costs, costs of breaking leases). Be prepared to justify termination-related costs and develop a written request to be reimbursed for these costs.
- Again, communicate with your grant officer. Acknowledge receipt of the termination notice and confirm you are complying. Explain that certain costs will be incurred to promptly and responsibly close out award activities and provide examples and justifications for termination-related costs. Indicate your intent to submit a request for reimbursement of these allowable termination costs.
To learn more about federal funding, visit RSM’s nonprofit page.
Organizations can be ready in the short term for any pauses in funding by creating a plan for how activities can be wound down, which improves the chances of recovering pause-related costs. In the long term, organizations can mitigate the risk of a stoppage from any one funder by diversifying funding streams across multiple donors.
Kristen Blandford contributed to this article.
