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EXECUTIVE OFFICE OF THE PRESIDENTOFFICE OF MANAGEMENT AND BUDGETWASHINGTON, D.C. 20503March 30, 2018THE DIRECTORM-18-14MEMORANDUM FOR THE HEADS OF EXECUTIVE DEPARTMENTS AND AGENCIESFROM:Mick MulvaneyDirectorSUBJECT:Implementation ofinternal Controls and Grant Expenditures for the Disaster Related AppropriationsOverviewOn February 9, 2018, the President signed into law the Bipartisan Budget Act of2018 (PublicLaw 115-123) which, among other things, provided 84.4 billion in emergency supplementalappropriations to respond to and recover from recent hurricanes, wildfires, and otherdisasters. This Act also amended section 305 of division A of the Additional SupplementalAppropriations for Disaster Relief Requirements Act of 2017 (Public Law 115-72) to applyimproper payment reporting and grant expenditure requirements to funds provided indivision B of Public Law 115-123, and to modify improper payment reporting requirementsfor funds appropriated in division B of Public Law 115-56 and division A of Public Law115-72.The Director of the Office of Management and Budget (OMB) is required to issue standardguidance for federal agencies to use in designing internal control plans, reporting improperpayments and accounting for grant expenditures for applicable funding.Agencies should use this guidance to inform and develop their internal control plans that aredue to OMB pursuant to section 305(a) of Public Law 115-72, as amended. Agencies mayleverage information contained in their risk profiles, as illustrated in OMB Circular No. A 123, Management's Responsibility for Enterprise Risk Management and Internal Control, tohelp inform their internal control plan.SummarvThis memorandum provides guidance to agencies to implement the Bipartisan Budget Act of2018. In particular, this memorandum explains agency responsibilities for managing disasterrelief funds. This includes: identifying and documenting incremental risks and mitigating controls with robust criteriarelated to the disaster relief funding;

noting the applicability of the Improper Payments Infmmation Act of 2002 to disaster relieffunds;documenting the linkages between risks related to disaster and emergency funding andefforts to address known internal control risks; andensuring that grantees expend all awarded disaster relief funds within the 24-month periodfollowing the agency's obligation of those funds, unless waived by OMB.Robust Criteria Related to the Disaster ReliefFundingAs required by OMB Circular No. A-123, each agency has overall responsibility for establishinginternal controls to manage the risk of fraud. Agencies must use a risk-based approach to designand implement financial and administrative controls to identify and mitigate fraud risks. Inassessing risk in disaster situations, agencies should leverage their existing enterprise riskmanagement processes, including assessments that contributed to the development of initial riskprofiles.In disaster situations, fraud risks are higher than under normal circumstances because the need toprovide services quickly can hinder the effectiveness of existing controls and create additionalopportunities for individuals to engage in fraud. As a result, Federal managers face the additionalchallenge of balancing their mission to provide assistance quickly with implementing controls toaddress the increased risk of fraud. A risk-based approach includes establishing risk tolerances indisaster situations. Agencies must balance their priorities to fulfill the program mission. Risktolerance reflects a Federal manager's willingness to accept a higher level of fraud risks and mayvary depending on the circumstances of the program. When determining risk tolerances indisaster situations, managers must weigh the program's operational objectives against theobjective of lowering the likelihood of fraud.Applicability of!mproper Payments Reporting· All programs and activities expending more than 10,000,000, as provided in division B ofPublic Law 115-123, division B of Public Law 115-56, and division A of Public Law 115-72, inany one fiscal year shall be deemed to be "susceptible to significant improper payments" forpurposes of the Improper Payments Information Act of2002 (31 U.S.C. 3321 note),notwithstanding section 2(a) of such Act. Programs or activities susceptible to significantimproper payments shall produce and report an improper payment estimate starting with theFiscal Year 2019 reporting period, to the extent possible. Agencies should refer to OMBCircular A-123, Appendix C for sampling and estimation plan requirements.Agencies should implement improper payment measurements required in the most cost-effectivemanner. For example, an agency may group disaster related programs and activities in areasonable and appropriate manner to decrease the number of required improper paymentmeasurements. Whenever possible, agencies should leverage resources already devoted toimproper payment related activities.Documenting the Linkages between the Incremental Risks Related to Disaster and EmergencyFunding and Efforts to Address Known Internal Control Risks2

As a reminder, agencies in receipt of disaster relief and emergency funding must providereasonable assmance that their internal control plans specifically address disaster relief. As statedabove, these plans should complement risk management practices as directed in OMB CircularA-123, Management's Responsibility for Enterprise Risk Management and Internal Control.Expenditure o(Grant FundsFunds for grants provided by division B of Public Law 115-56, division A of Public Law 115-72,and division B of Public Law 115-123 must be expended by the grantees within the 24-monthperiod following the agency's obligation of those funds, unless waived by the Director of OMB.Further, each agency must include a term in the grant's terms and conditions to require thegrantee to retmn to the agency any funds not expended within the 24-month period following theagency's obligation of funds for the grant.To meet this statutory requirement, agencies must specify criteria for approval of grantapplications or proposed plans for the use of grant funds, and ensme each proposed grant activityhas clear timelines for completion within the period available for grantee expenditure. WhileOMB may waive or extend this period for certain programs and expenditures, each agency mustensure that any such requests are limited to only those activities that are long-term by design orwhere it is impracticable to expend funds within the 24-month period and still achieve programmissions. OMB will grant waivers only on a case-by-case basis, where such requests are justifiedby compelling legal, policy, or operational challenges and consistent with applicable laws. Agrant funds extension request note and template for extension request are attached to thismemorandum.Points ofContactFor questions regarding internal control plan submissions, contact Dan Kaneshiro atDaniel S [email protected] For questions regarding the applicability of disaster fundsto improper payments reporting, contact Heather Pajak at Heather C [email protected] Forquestions regarding the expenditure of grant funds, contact Gil Tran atHai M. [email protected] Grant Funds Extension Request Note2. Template for Extension Request3

ATTACHMENT 1GRANT FUNDS EXTENSION REQUEST NOTE UNDER SECTION 305(c)This note provides instructions on the process for requesting a waiver from the requirements ofsection 305(c) of the Additional Supplemental Appropriations for Disaster Relief RequirementsAct, 2017 (Public Law 115-72), as amended by the Bipartisan Budget Act of2018 (Public Law115-123). Section 305(c) requires that all agencies expend grant funds 1 within24 months of thetime of obligation, absent a waiver from the Office of Management and Budget (OMB).Agencies should work with grantees to expend funds as quickly as possible programmaticallyand request waivers only for those activities or programs that are specifically designed to belong-term in order to achieve their objectives. If OMB does not grant a waiver, grant agreementsmust specify that grantees must return to that agency any funds not expended within the 24 month period.In evaluating waiver requests, OMB will consider the following criteria: (1) the optimal timelinefor achieving the stated objectives of the program or activity; (2) the historical outlay rate of theprogram; (3) the ability of the program to accelerate from its historical outlay rate; and (4)internal controls, including agency capacity for grantee oversight, that are likely to promoteaccountability in the event a waiver is granted.Attached to this note is a template that agencies must complete as part of any waiverrequest. Each waiver request should specify the types of activities and associated funds withinthe program or activity that require a waiver. Please supplement the template withdocumentation supporting specific factual claims identified in the responses.To maximize the efficiency of this process, we ask that agencies coordinate among theircomponents to consolidate waiver requests, along with supporting documentation, into a singledocument per waiver submission, to the extent possible. Please submit completed submissions atMAX page.To streamline review, OMB will coordinate with agencies to process waiver requests in severalphases, with dates noted below: For all waiver requests received by OMB on or before April 13, 2018, OMB willprovide a preliminary response and/or a request for additional information to agenciesby April 30, 2018.For all waiver requests received on or before May 31, 2018, OMB will provide apreliminary response and/or a request for additional information by June 15, 2018.An agency should notify OMB by July 31, 2018, if it expects to request additionalwaivers.1Section 305(c), as amended, is applicable to grant funding provided under division B of Public Law 115-56,division A of Public Law 115-72, and division B of Public Law 115-123.4

OMB will work collaboratively with agencies on waiver requests and will notify them of itsdecisions. As required by statute, OMB will submit a written justification for all waivers to theCommittees on Appropriations of the House of Representatives and the Senate.Please note an agency may begin to announce and obligate appropriated grant funds effectiveimmediately and without obtaining a waiver, provided the statutorily-required term concerningthe 24-month deadline is included in the announcement and award agreement. If such awardsare subsequently waived from the requirements of section 305(c), an agency must take thenecessary administrative steps to apply the appropriate internal controls to monitor theseawards. For such awards, each agency should submit waiver requests as soon as possible.If you have any further questions, please reach out to our staff, Gil Tran (202-395-3052) andMary Tutman (202-395-1703).5

ATTACHMENT 2:TEMPLATE FOR EXTENSION REQUESTEnter the CFDA program nameEnter the CFDA program numberEnter the created CFDA program descriptionEnter the total amount provided for this programProvide a brief description of the activities or programs for which a waiver isrequested.Amount offunds for which waiver is requested. Please break out if there aredifferent amounts with different justifications. For example, an agency mayrequest a waiver for two or more groups of projects within a program.list any additional documentation provided with this request.oint o contact with email address and tele hone number6