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Avoiding Uniform Guidance Audit Findings on SF-425 Reporting

December 22, 2018 / Ed Jameson / Blog Posts
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How to avoid Uniform Guidance Audit findings in Federal Financial Report (FFR) aka SF-425 reporting

In our last blog, we discussed internal controls, and how they are tested during the Uniform Guidance Audit (UGA). In our next three blogs, we’ll go into greater depth about how to avoid specific UGA findings. This blog is dedicated to the Federal Financial Report (FFR), also known as the SF-425.

When you receive a federal grant, it comes with regulatory strings attached. One critical requirement is the accurate reporting of revenue recognized on your grant in accordance with the Federal Acquisition Regulations (FAR) as well as funding agency’s supplemental regulations. That’s where the SF-425 comes in.



If you have an NIH grant and are using the Payment Management System (PMS) or making ASAP draw-downs for your DOE grant, you must submit a SF-425 every quarter.  This report should detail the revenue recognized on your grant(s) in accordance with FAR Part 31 and the applicable agency supplemental regulations.


  • You want your draw down funds equal to the amount you’ve earned. This is a function of the direct costs, plus allocated indirect costs and fee.
  • If you drew more than you earned, you owe the government money and they will want you to repatriate the funds.
  • If you spent more than you drew, the government assumes that you have a way of funding your shortfall.



Drawing down the full amount of funding.

We occasionally see this with new grantees, and there are a few (false) reasons it happens:

  • This is the way some NSF awards work and maybe you didn’t realize that NIH and DOE have different rules.
  • Perhaps you’ve put a substantial amount of money into your company and are eager to reimburse yourself.
  • Maybe you thought that you could earn interest on the funds.

Whatever the motivation, this is a serious problem as well as an audit finding that will trigger a phone call for the government looking for immediate resolution.

There are regulations about how quickly you must release funds once they are drawn down.  In most cases, within three days, but be sure to check the regs. for your award type and funding agency.


Thinking that government funding is one big pool of money.

If you have multiple government awards, it’s essential for you to account for each project separately.  The costs (and funds) should not be co-mingled. That means separate job cost reports, with properly allocated indirect costs and fee for each project.  Robbing Peter to pay Paul will not make Peter happy, especially if you have multiple funding agencies.


Drawing down based on cash flow needs, not revenue recognized.

Some people believe that as long as a cost is valid that they can draw down funds to cover the expenditure.  For most direct cost spending, this is true.  However, when drawing down funds to cover indirect expenses, be careful.  Indirect costs are capped at the proportional indirect costs allocated to the project based on the indirect cost recovery methodology that you proposed.  The only way to avoid this limitation is to negotiate an indirect cost rate without a cap with your funding agency.


Saying spending matches funds drawn without knowing if it’s true.

The most common mistakes we see with SF-425 reports is grantees simply reporting amounts drawn down to equal the amount earned without having the reporting to know it’s true.

You have to recognize revenue and draw against revenue earned based on the rules and regulations.  Simply plugging the form is a recipe for disaster!


Late Submission of Report

The quarterly SF 425 is due thirty days past the report period end date.  If you are one day late, it’s a UGA finding.  For most agencies, the FFR is due:

  • January 30th
  • April 30th
  • July 30th
  • October 30th



To get through the SF-425 portion of the UGA, make sure you’re handling the government’s funds properly. You must maintain a FAR-compliant accounting system, produce monthly job cost reports, maintain good record-keeping, and only draw down funds to reimburse expenses that you can prove are related to your award.

Ready to learn more about SF-425 and FAR-compliant accounting system? Speak With A Government Funding Award Expert!
Call Now: 781-862-5170 – or – Schedule A Call

To better understand the strings attached to your grant award, read our white paper.

This is the fourth of our seven-part series about the Uniform Guidance Audit: 

  1.  Is Your Grant Subject To a Uniform Guidance Audit?
  2. What Happens During a Uniform Guidance Audit?
  3. How a UGA Auditor Tests Your Company’s Internal Controls
  4. How To Avoid Uniform Guidance Audit Findings on SF-425 Reporting
  5. How To Avoid UGA Findings: Direct Subcontractors
  6. How To Avoid UGA Findings: Direct Consultants
  7. What Happens To NIH and DOE Grant Audit Findings?
Ed Jameson, CPA, Managing Partner

I’ve been in practice for over 40 years helping our small business clients procure, manage, and survive audits on more than $6 billion in federal government contract and grant funding. We’ve been featured presenters and panel moderators at Tech Connect’s National SBIR/STTR conferences since 2010, and I’ve presented at the DOD’s Mentor Protégé Summit and present regularly for several state and local organizations.