Managing Grant Balances

by Kristen M. Conway, CPA, Audit Manager

Posted on April 16, 2025

Arizona school districts receive various federal and state grants each year. Almost all these grants operate on a cost reimbursement basis, meaning funds are expended by the district on allowable and budgeted costs, and then a reimbursement request is submitted to the grantor. As a result, the fund used to track the grant activity typically has a deficit cash balance until the reimbursement is received. While the USFR for Arizona school districts allows these funds to be in deficit cash positions, districts still have a responsibility to ensure that the deficit will be covered by outstanding reimbursement requests.

Steps to take during the year

As the district submits reimbursement requests throughout the year, it should be monitoring the reimbursements. If part of the reimbursement is disallowed, the district should take steps to either revise the budget or move the disallowed expenditures to another allowable funding source.

Steps to take at year end

During the district’s year-end review and prior to the close out of the accounting records and preparation of the AFR, the ending balance for all grant funds should be evaluated. This evaluation should include: 1) reviewing deficit balances and verifying the balance will be zero after receipt of the final grant reimbursement and 2) reviewing any positive balances and determining if monies should be returned to a grantor or closed out to another allowable fund. If a deficit balance will not be zeroed out by a pending reimbursement request, the district should take steps to resolve this as outlined in the paragraph above.

Taking these steps at the end of each year will help keep the district’s accounting records in good shape and reduce the need to resolve accounting errors in later years.