Navigating federal funding uncertainty: What to consider

As news around federal funding continues to evolve, what should recipients be doing now to build resilience against potential changes? 

With news and guidance continuing to evolve around federal funding and financial assistance programs, it remains prudent for recipients to consider their funding sources and prepare to weather any changes. As federal instructions evolve, so too will the implications for the various industries and organizations that rely on this funding.

As we continue to monitor federal actions, consider these potential steps.

Background

In late January, the Office of Management and Budget (OMB) issued a memorandum directing federal agencies to “temporarily pause all activities related to obligation or disbursement of all federal financial assistance, and other relevant agency activities that may be implicated by the executive orders.”

The use of the term “federal financial assistance” was notable in that it implicated every definition of assistance under 2 C.F.R. 200.1 – not merely grants, loans, and loan guarantees. Many agencies interpreted this to include cooperative agreements, non-cash contributions, direct appropriations, food commodities, interest subsidies, and potentially even insurance. These directives had the practical effect of freezing all federal grants and federal financial assistance governmentwide, affecting trillions of dollars and impacting thousands of programs nationwide.

While the OMB rescinded the memo shortly thereafter, the White House reaffirmed that the “temporary pause” would remain in effect while all federal agencies conducted “a comprehensive analysis of all of their federal financial assistance programs to identify programs, projects, and activities that may be implicated by any of the President’s executive orders.” Various legal challenges are pending, and funds are being held and released.

What should funding recipients do now?

Managing uncertainty in the face of potential changes to federal grant programs requires a comprehensive and proactive strategy. What recipients will need to do in response to federal actions will vary based on their specific industry sector and funding sources. Our team stands ready to help you build the best plan for your circumstances. 

In the meantime, we recommend the following actions:

Continue working

• Not every new release will automatically trigger a suspension, a stop-work order, or a termination. If you have an active award with performance obligations, and you have not received a directive to discontinue performance, it is advised to continue working per the terms of your agreement to avoid noncompliance. Send invoices as timely as you can to support prompt payment where possible. 
• If you get a notice of award suspension, stop-work, or termination, act on the instructions in that notice for the specified award. It would be prudent to track (by award if possible) any incremental costs that result from awardee accommodation of changing guidance, as those could be the basis for future claims or adjustments.

Conduct a thorough review of each of your awards and its purpose  

• Review your current grants to be sure you understand each of their terms, conditions, and potential vulnerabilities. Make sure you are current on all reporting obligations. 
• Identify which awards may be at risk for reduction or termination based on administration priorities. Be prepared to explain the specific purpose for your award, how it aligns with administration priorities, and how it does not conflict with law or active executive orders.
• Review your internal controls for effectiveness.
• Make sure your file documentation “tells the story” of your award, its purpose, and any special circumstances regarding its establishment.
• Document the potential effects of loss of funding or changed grant terms on your programs and services. Develop and implement strategies to mitigate identified risks. This could involve diversifying funding sources, reducing expenses, and maintaining flexibility in program implementation. Some risks cannot be mitigated; identify these as well and determine how to cope if such a risk is realized.
• Consider an action plan for the redeployment of personnel and capital currently supporting programs that may be at risk.

Put greater emphasis on careful cash flow management

• Clean up and collect accounts receivable.
• Monitor cash daily, and prepare or update cash flow forecasts (i.e., 13-week cash flow, rolling 12-month forecast) to provide a real-time roadmap for decision-making.
• Review line-item expenses; reduce or eliminate non-core expenses. Implement tight controls with a clear approval process for incurring new costs. Review all contracts in place.
• Carefully manage and control inventory levels.
• Temporarily delay or reduce non-core capital expenditures.
• Exercise caution even when funds are/become available. Depending on the outcome of various court matters, future funds may not be necessarily guaranteed.
• Protect your ability to achieve your objectives. Plan to diversify future funding sources, regardless of whether current risks materialize. Look for future funding opportunities for both bridge and permanent uses. This includes identifying potential grants or loans, networking with stakeholders, researching to develop or find funders, and preparing compelling proposals.

Improve efficiency, reduce losses, and optimize profitability

• Review program operations to identify available actions to reduce costs without compromising quality. Can you renegotiate loose contract provisions, reduce overhead, or leverage technology?
• Choose to draw funds more frequently – for example, just-in-time rather than on a reimbursement basis, if allowed by your funder?
• Focus on the most critical project components that drive positive results to beneficiaries, or that can harm beneficiaries if undone. If need be, be prepared to scale back less-essential activities so you can sustain the core.
• Conduct a vendor assessment; consider switching or negotiating for better prices.
• Review your current debt and costs of borrowing: In seeking more favorable terms, consider refinancing and/or negotiating the timing and amounts of scheduled principal payments.
• Inform and leverage existing relationships with board members, donors, creditors, and other sources of capital to support liquidity needs that may become necessary. 

Prepare subrecipients and contractors

• Let your subrecipients and contractors know your assessment of risks and your intended mitigation actions for realized risks, such as suspending projects or programs. Continue your grant-assisted work with special attention to risk assessments, regular reporting, and desk or on-site monitoring. Get all findings and concerns resolved expeditiously. Continue to make sure that subrecipients comply with federal regulations and achieve performance goals. 
• If you can, offer technical assistance to subrecipients and contractors to help them assess their own risks, manage funds, and complete projects efficiently. Some nonprofit subrecipients may be able to support a program’s mission by raising funds from other sources or undertaking other contingency actions not available to governmental grantees.

Engage stakeholders and drive support

• As much as possible, collaborate with other organizations to advocate for your mission and your beneficiaries’ interests. Clearly articulate why your program or project is beneficial, compliant, and worth funding. 
• Keep your beneficiaries and other stakeholders informed about risks and potential effects. Smart, consistent communication can help build support and keep you informed about grant administration issues or new resource prospects. 

Stay informed

CohnReznick industry advisors are monitoring developments around federal funding, and we will continue to update you through various CohnReznick communication channels. Make sure you are subscribed to receive our updates. In the meantime, if you would like to discuss protective planning measures for your organization, please reach out to your CohnReznick advisor or any of the contacts listed below for assistance.