What is a grant audit? After a grant is awarded, the grantor should ensure that the money is being spent the way it was intended. A grant audit is a formal check-up on a specific grant-funded project. While a “normal” audit generally looks at all of an organization’s finances, a grant audit only looks at funding and compliance for specific grants awarded by the grantor conducting (or outsourcing) the audit. It is a way to look at the receipts, the schedules, and the work done to prove that the project followed the rules and stayed on track.
As discussed in our previous article about grant audits from the grantee’s perspective, the scope of grant 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.
As also previously discussed, grant audits can happen before, during, or after the grant’s period of performance. A grant audit can take several forms. 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.
If a grantor doesn’t perform audits, they are taking a big risk. Without these check-ups, money could be wasted or misspent, which means less money for the people or causes that actually need it. Audits protect the reputation of the grantor and the grantee that received the funding. If a government or a board of directors asks how the money was spent, the audit provides assurance that funding is being spent as intended, project performance is happening, and the grantee is complying with requirements. If done effectively, a grant audit serves as a safety net that keeps the focus on helping others rather than fixing financial messes.
In the end, an audit shouldn’t feel like a “gotcha” moment. Instead, it should be seen as a way for two groups to work better together. When a grantor finds a mistake in how a grantee tracks their spending or documents performance, they can help the grantee learn how to improve its grant management. This builds trust. When a grantee passes an audit, it shows they are reliable and can be trusted with more funding in the future. By checking a grantee’s progress today, a grantor ensures that its money makes a difference in the world tomorrow.
Blue Sky Consulting can help grantmaking organizations design and conduct audits of grantee compliance, performance, and spending.