Any organization that relies heavily on grant money to operate projects or programs will likely experience a grant audit at some point. While many people think of an audit as a broad look at an organization’s overall finances, a grant audit is a more focused assessment. It looks specifically at how grant funds were spent and whether the promised work was completed. This process ensures that every grant dollar is used honestly and that the public or private donors are getting exactly what they paid for.
The scope of these reviews often covers three main areas. First, auditors look at the grant’s financial records to make sure costs were billed correctly to the project. Second, they check for compliance, to ensure the organization followed the requirements in the grant award. Finally, they look at performance to see if the project met its goals and milestones on time.
Not every grant gets audited, but certain factors can increase a grantee’s chances of being audited. For example, large federal or state agencies audit much more often than small family foundations because they are legally required to oversee taxpayer money. The size of the grant award matters too, as larger sums of money naturally come with more eyes watching them. Complexity also plays a role; if a project involves international partners, complicated projects, or construction, it can be more likely to be reviewed. Even an organization’s own history can be a factor, as prior late reports or past mistakes can trigger more frequent check-ups. In the United States, the Single Audit Act mandates that any group spending more than $750,000 in federal funds in one year must undergo a strictly-outlined annual audit of those funds.
Grant audits can happen before, during, or after the grant’s period of performance. There are several different ways to conduct a grant audit. It can be a simple desk review where the grantor looks at electronic files from their own office. A full financial audit can dig deep into grant accounting records. There are also compliance audits that focus on the rules, performance audits that measure the program’s impact, and even pre-award audits to see if an organization is ready to handle money before they even receive it. In extreme (and rare) cases, an investigative audit might be launched if a grantor suspects fraud or serious waste.
To stay prepared, a grantee should act as if auditors are arriving tomorrow. A best practice is to maintain a permanent file for every grant that includes all necessary grant documentation – the signed award, receipts, supporting information for reports, and evidence of performance, like photos or data sets. A grantee should track exactly how much time employees spend on the project. A grantee should also conduct periodic internal monitoring, to find and fix mistakes before an external reviewer ever steps through the door. Maintaining strong grant records and being prepared for an audit can protect an organization’s reputation and help them stay eligible for more funding in the future.
Blue Sky Consulting can help grantees prepare for, navigate, and respond to grant audits. Contact us for details on how we can help you.