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Understanding How Funds Expire

Time waits for no one… but when you need more time to wrap up your research project, you definitely have an option. Grantees can receive a no-cost extension for up to 12 additional months beyond the final budget period end date, provided it meets NIH qualifications described in the NIH Grants Policy Statement.

I have detected conversation swirling in our community about a rumored change in NIH’s policy for granting no-cost extensions. The thought is that no-cost extensions should not be sought because if funds remain at the end of the project period then NIH will take money back from the grantee.

Thankfully this is not true – our no-cost extension policy remains intact. But let me give some background on project periods and the budget process, and clarify the policies that may have led to this misconception.

Under NIH’s project period system, grants are funded in 12-month increments, and each 12-month increment is called a budget period. We use this incremental system because our budget at NIH is likewise determined annually — by a new Congressional appropriation each year.

Grantees are required to use funds within 5 years from when the funding is first available to them, and funds that are not spent in this time frame can be recovered by the U.S. Treasury. This has always been the policy; it is not a new way of doing business, and it is not tied to requesting a no-cost extension. As described above, most NIH awards are funded incrementally based on annual appropriations, and funds only become available one fiscal year at a time, so the five year rule applies to each fiscal year increment.

Let me give you one example of when funds might expire: We have a 5-year award made in 2007 with a no-cost extension into the 6th year (2013). If there are unspent funds from 2008 (for instance due to first-year invoices not yet paid to a subcontract), those unspent first-year funds can be recovered by the Treasury in 2013, as they have expired.

So, what does this mean to the research community? Institutions need to make sure to spend their grant funds on a first-in, first-out basis. Check for old, unliquidated funds and use those first to avoid losing them. It is especially important to recognize where you are in your budget cycle for all awards.

I believe this rumor arose because HHS and NIH have been visibly involved in a major initiative to recover expired funds, which is an important thing to do as stewards of taxpayer dollars. But it is equally important for me to help you understand how the no-cost extension portion is not impacted by this other activity. Keep up the great science!

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3 thoughts on “Understanding How Funds Expire

  1. I’m confused about one thing: Is it possible to spend out 2008 funds before spending out 2007? Don’t funds from the same grant typically go into the same account at the institution–and so become indistinguishable? Or does the institution somehow distinguish 2007 funds from 2008 funds?

  2. Dr. Rockey, thanks you for that clarification of NIH policy re: first in-first out use of funds. However, I know from personal experience that some institutions are not following that policy. When changing institutions, I was told by my old institution that they had used the last in-first out accounting method, and that my carryover funds from prior fiscal year had not been used before funds from the current fiscal year. This would have meant that I would have had to forfeit carryover funds from the prior year, had it not been for a diligent official at my new institution who pointed out to the officials from the old institution that their accounting method was flawed and non-compliant with Federal policies:
    NIH Grant Policy Statement Unobligated Balances and Actual Expenditures
    Disposition of unobligated balances is determined in accordance with the terms and conditions of the award. (See Administrative Requirements—Changes in Project and Budget for NIH approval authorities for unobligated balances.) Using the principle of “first in-first out,” unobligated funds carried over are expected to be used before newly awarded funds.

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