Lightning strikes over abandoned farmhouse

How to avoid grant deobligation

This edition has the updated Inspector General areas of focus and the outlined four new areas of focus.

In brief

  • FEMA grant Recipients and subrecipients continue to face the same challenges.
  • We have updated these Inspector General areas of focus and have also outlined four new areas of focus.

Download the full brochure on Averting a second disaster: Avoiding grant deobligation (Third Edition)

Based on OIG audit reports from 2017 to 2019, FEMA grant Recipients and Subrecipients continue to face the same challenges that were identified in the first edition of this booklet. We have updated these Inspector General areas of focus and have also outlined four new areas of focus.

1. DHS OIG’s proactive audit approach

DHS OIG continued a proactive approach to conducting audits where the DHS OIG would assess Subrecipients’ capacity to account for and spend federal funds responsibly before the funds are spent. With this approach, the IG has started conducting audits much earlier in the disaster recovery process. In addition to the IG’s proactive approach, FEMA is also proactively scrutinizing eligibility of costs prior to the obligation of funding. As a result, Recipients and Subrecipients will need to be audit-ready from day one in the financial recovery process.

2. Disaster Recovery Reform Act of 2018

In response to the significant impact of natural disasters in 2017, on 5 October 2018, President Donald J. Trump signed HR 302, which contains the DRAA. The DRRA modifies several FEMA programs and provides greater flexibility to assist state and local disaster mitigation, preparedness and recovery. As part of the new Act, FEMA can no longer recoup any aid provided more than three years after its release. Prior to the new act, FEMA was able to deobligate funding and recoup any aid provided to Recipients and Subrecipients at any time, often many years after its release. In most cases, the deobligation of funding was made at the request of the IG after an audit was performed. Due to these programmatic changes and the new timing limitations on deobligation of funds, we anticipate the IG will continue to perform their reviews early in the recovery process.

3. Public Assistance Program and Policy Guide (PAPPG) — version 4

In June 2020, FEMA issued the PAPPG version 4. PAPPG superseded the majority of all prior Public Assistance guidance, and PAPPG version 4 is in effect for incidents declared on or after 1 June 2020.

Version 3.1 incorporated revisions to align with the changes made by the Bipartisan Budget Act, including changes regarding “essential social services” and “essential social-type services,” houses of worship and other private nonprofit educational facilities. Version 4 includes revisions and clarifications relating to administrative requirements, applicant eligibility (specifically for private nonprofit entities), emergency and permanent work eligibility, and cost eligibility.

Also included in this version of the guidance is the Public Assistance Alternative Procedures for Permanent Work Pilot Policy (FP 104-009-7), which establishes Alternative Procedures as the first option considered for all large permanent work projects. This not only enables Applicants to drive their own recovery but also standardizes a single process for the development and consideration of fixed cost estimates for all permanent work projects. Benefits of using this approach include enhanced flexibility in meeting post-disaster recovery needs, no requirement to rebuild community to pre-disaster conditions, shared funds across all Alternative Procedures Permanent Work Projects, and the ability to retain and use excess funds to improve future disaster response.

4. Public Assistance Management Costs Interim Policy (Interim Policy)

On 5 October 2018, as part of the DRRA, FEMA issued the Interim Policy, which redefined management costs. The Interim Policy defines management costs as “indirect costs, direct administrative costs and other administrative expenses associated with a specific project.” The policy is in effect for all major disasters and emergencies declared on or after 1 August 2017. For disasters declared on or after 5 October 2018, all management costs will be processed under the interim policy. For disasters declared between 1 August 2017, and 4 October 2018, Recipients and Subrecipients were required by 15 March 2019, to decide if they wanted to receive costs under the Interim Policy or continue to receive under the existing management costs and DAC policy in effect at the time of disaster (Public Assistance Program and Policy Guide and/or Public Assistance Alternative Procedures for Direct Administrative Costs).

Under the Interim Policy, a Recipient is allowed no more than 12% of the total award, where a maximum of 7% can be used by a Recipient and 5% by a Subrecipient. Costs are funded at 100% federal cost share. Recipients and Subrecipients are required to fully document and demonstrate eligibility and reasonableness of all costs and activities claimed. Section C of the Interim Policy details eligibility and several deadlines to claim the costs. Under the Interim Policy, FEMA bases management costs on the total award amount, which is the actual eligible PA project cost, including the non-federal share, after insurance and any other reductions.

5. Public Assistance Alternative Procedures for Direct Administrative Costs

The DAC Pilot formally ended on 5 October 2018. Version 1.1 of the policy was published on 12 June 2018. It was applicable to incidents declared from 25 August 2017 through 4 October 2018. It was archived on 5 October 2018 upon the discontinuation of the pilot.


We are issuing the third edition of this booklet to highlight certain areas associated with financial recovery through FEMA funding that has been impacted by disaster and responsive FEMA activity over the past four years. This edition will also refresh the information provided in the first and second editions. Our objective remains the same: to assist Recipients and Subrecipients with the financial recovery process.

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