Employment and Training Administration
Washington, D. C. 20210






April 30, 1996




April 30, 1997











Unemployment Insurance Service




Guidance for Unemployment Insurance (UI) Grant Management

  1. Purpose. To transmit to State Employment Security Agencies (SESAs) copies and highlights from the pertinent Federal requirements for managing grants for their Unemployment Insurance (UI) Programs. This is the first in a series of basic program letters that will address issues raised by stakeholders, including Reed Act requirements, contracting out of functions, and merit staffing requirements.

  2. Background. All States are required to use a common set of administrative rules in administering Federal grants for their UI Programs. Because States are changing some of their methods for providing services to the public, including the development of systems for One-Stop Career Centers, the Department of Labor/UIS is issuing this UIPL to ensure an understanding of the existing administrative rules applicable to those grants including those governing such activities as the allocation of costs and audit requirements. This UIPL provides a brief summary of each applicable administrative rule.

  3. 29 CFR Part 97 - Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments, ("Common Rule") - Attachment I

    The Departmental requirements applicable to Federal grants and cooperative agreements with governmental entities (State, local, and/or Indian Tribal) are codified at 29 CFR Part 97. These regulations are sometimes referred to as "the Part 97 regulations" and sometimes as "the common rule". The term "common rule" is used because all Federal agencies that administer Federal grants with governmental entities were required to adopt and publish the same set of regulations in 1988. Therefore, a grantee uses the same set of administrative rules in administering all Federal grants regardless of which Federal agency actually provided the grant. Each Federal agency codified the same set of rules (regulations), each in its own portion of the Federal Register. The Department's regulations are found at 29 CFR Part 97.

    These regulations, coupled with the UI Program Budget Plan (PBP), are the cornerstone of the UI Program's Federal grant management requirements. Sections of the regulation pertinent to the UI program are:

    97.3  Definitions. This section defines the terms used throughout 29 CFR Part 97.

    97.5  Effect on other issuances. This section indicates that all other grants administration provisions of codified program regulations which are inconsistent with Part 97 are superseded, except to the extent required by statute, or authorized in accordance with the exception provision in 97.6.

    97.6  Additions and exceptions. This section sets out the circumstances under which additions and exceptions may be made to administrative requirements covered by Part 97.

    97.20  Standards for financial management systems. Only paragraphs (a) and (c) apply to State grantees, including SESAs administering the UI program. Paragraph (a) basically provides that State grantees shall account for Federal grant funds in accordance with State laws and procedures for accounting for State funds, except that procedures must be in place to permit 1) preparation of required Federal reports and 2) tracing of expenditures to document that funds were used for allowable UI purposes.

    97.21  Payments. Paragraph (b) of this provision requires adherence to the U.S. Treasury regulations at 31 CFR Part 205, which implement the requirements of the Cash Management Improvement Act (CMIA).

    97.22  Allowable costs. Paragraph (b) of this provision requires UI grantees to adhere to Office of Management and Budget (OMB) Circular A-87 (attachment 2 of this UIPL) in determining costs chargeable to UI grant funds.

    97.23  Period of availability of funds. This section, coupled with Federal appropriation language, establishes the "life" of UI administrative funds. As long as DOLcontinues to specify five quarters for obligating UI funds, then UI grantees have 15 months from the beginning of a fiscal year to obligate the funds and an additional 90 days (quarter) to liquidate any outstanding obligations (see definitions section for "unliquidated obligations"). No expenditures may be incurred or recorded after the sixth quarter unless approval is obtained from the ETA grant officer. UI grantees have 36 months from the beginning of a fiscal year to obligate funds for automation acquisitions (as defined in the PBP) and an additional 90 days to liquidate any outstanding automation obligations.

    97.25  Program income. This section defines what is program income, what is not program income, and the allowable uses of program income.

    97.26  Non-Federal audit. This section requires grantees and subgrantees to obtain audits in accordance with the Single Audit Act and Departmental regulations that implement the Single Audit Act. These regulations are codified at 29 CFR Part 96 (attachment III to this UIPL).

    97.31  Real property. (The definition of real property is found in section 97.3.) This section provides for the use and disposition of real property acquired with UI grant funds. It does not address the allowability of costs incurred for such acquisitions. That subject is covered in OMB Circular A-87.

    97.32  Equipment. (The definition of equipment is found in section 97.3.) This section provides for the use, management, and disposition of equipment acquired with UI grant funds. It does not address the allowability of costs incurred for such acquisitions. That subject is covered in OMB Circular A-87. More specifically, paragraph (b) of this section establishes that State grantees, e.g., SESAs administering the UI program, shall follow State laws and procedures for the use, management, and disposition of equipment acquired with grant funds. State grantees are not required to abide by paragraphs (c), (d), and (e) of this section (unless their own State rules require it). The only other provisions of this section that apply to State grantees are paragraphs (f), Federal equipment, and (g) Right to transfer title.

    97.36  Procurement. Only paragraph (a) of this section, which provides that State grantees shall follow State procurement rules, applies to State grantees. The rest of this section is not applicable to States.

    97.41  Financial reporting. This section requires submission of both an SF-269 and SF-272 report.

    97.42  Record retention. This section sets forth theretention and access requirements for financial and programmatic records to be maintained by grantees and subgrantees.

    97.50  Closeout. This explains the closeout procedures after the grant requirements are complete.

  4. OMB Circular A-87 - Attachment II

    This version of OMB Circular A-87 published in the Federal Register on May 17, 1995 replaced the 1981 version. The Circular consists of five Attachments, transmitted by a short cover memorandum from the Director of OMB to the Federal department heads. Circular A-87 is incorporated by reference in 29 CFR 97.22 and thereby governs the allowability of costs incurred for UI grants.

    Items pertinent to UI grant recipients are:

    Attachment A contains the general principles for determining allowable costs (costs chargeable to Federal grants). Paragraphs A.2. and C. contain the crucial generic guidelines. Paragraph C.3., for example, contains the basic principles on allocable costs/cost allocation. These principles are rooted in a statute originally enacted in 1809 (2 Stat. 535) which specifies that "Appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law." Simply stated, public funds may be used only for the purpose or purposes for which they were appropriated by Congress.

    Attachment B contains treatment for 42 selected items of costs. For each selected item, Attachment B describes whether it is allowable or not and, if allowable, guidelines on conditions or the extent of allowability, any documentation requirements, and any prior approval requirements applicable to the cost item. UI grant recipients should particularly review paragraph 11., Compensation for personnel services, especially subparagraph 11.h., Support of salaries and wages.

    Another attachment B paragraph of particular interest to UI grant recipients is paragraph 19, Equipment and other capital expenditures, which addresses the allowability of charging the acquisition cost of such assets as a direct cost to a Federal grant. Subparagraph 19c authorizes Federal agencies, at their option, to waive or delegate the Federal agency approval requirement.

    Attachment C contains the requirements for submission of the Statewide Central Services Cost Allocation Plan, which must be approved by HHS.

    Attachment D is not applicable to the UI grant.

    Attachment E contains the requirements for submission of the Indirect Cost Rate Proposal of the program agency or Department that administers the UI program. Paragraph F.3. was included in this Circular at the Department's request to cover the accounting system/cost allocation approval process that the Department has used for several years with a number of SESAs. It should be noted that General Administration Letter (GAL) No. 4-91 requires States to submit proposals for allocation of the cost of assessing and collecting non-UI or mixed-use taxes with the SESAs' Indirect Cost Proposals.

    Cost allocation, as it applies to One Stop Career Centers, is also addressed in a Training Assistance Guide (TAG). ETA developed the TAG to provide guidance to the States in developing a cost allocation system within a program environment where several organizations are coordinating or integrating their separately managed programs into a seamless delivery system. The TAG will be tested on a pilot basis in designated States, then the Department will evaluate the results of the pilot. The TAG does not replace or supersede the principles in OMB Circular A-87.

  5. 29 CFR Part 96 Audit requirements - Attachment III

    Audit requirements applicable to UI grant funds are codified at 29 CFR Part 96. The key section is 96.102, which requires audits to be conducted in accordance with OMB Circular A-128, which is attached to the regulations as Appendix A. While most of that Circular pertains to the non-Federal audit that each State conducts annually, paragraph 10 of the Circular addresses the right of Federal agencies to conduct Federal audits.

  6. UI Program and Budget Plan (PBP)

    The PBP is the grant agreement between the State and the Employment and Training Administration, and is a crucial part of the grant process and the attached documents. The Assurances section of the PBP requires the State to administer the UI program in accordance with the attached documents and also provides direction, relief, waivers, etc., within the authorities granted to ETA by the 29 CFR Part 97 regulations and OMB Circular A-87. For example, the PBP delegates the Federal approval requirement for equipment acquisition to the SESA administrator.

  7. Inquiries. Direct questions to the appropriate Regional Office.

  8. Attachments:

    I - 29 CFR Part 97 - Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments.

    II - OMB Circular A-87 - Cost Principles for State, Local and Indian Tribal Governments.

    III - 29 CFR Part 96 - Audit Requirements.

NOTE: Attachments not available to DMS