by Gloria Fernandez
When organizations receive federal grant funding, they take on compliance obligations to ensure proper use of federal dollars. Many organizations that receive such grants still have a hard time understanding that it is not free money.
After a grant award is signed, the recipient must understand what is required of them in terms of three distinct actions: auditing, monitoring, and corrective action. Each of these three works in tandem to enforce federal grant requirements while supporting the grant recipient’s success.
Nonetheless, it is imperative that recipients understand each element to effectively manage their grants and avoid pitfalls. Staying on top of compliance ensures federal funds make their intended impact.
Now each element has its own distinct purpose and its very particular set of knowledge and skills. Although auditing is regularly performed by CPA’s, monitoring and, especially, taking corrective action, does not require such professional expertise. Maybe because of this misconception, recipients regularly make the same mistakes which have a direct effect on their performance and at times end up in the reimbursement of funds to the granting agency.
Let’s take a deeper dive!!
Grant audits are formal, independent reviews conducted by the federal agency, Inspector General, or an external firm. Audits occur periodically and examine whether the organization complied with regulations and achieved performance goals. They can take place during or after the grant period.
Audits involve extensive documentation review, testing financial transactions, and inspecting equipment/services. The audit results in a formal report identifying any deficiencies or findings of non-compliance. The organization must then provide a corrective action plan.
Here are some common mistakes or misconceptions grant recipients have about audits:
· Thinking audits are rare - Audits may not happen every year, but federal agencies and grantees are routinely audited. Recipients should expect audits.
· Lack of preparation - Not having financial records, progress reports, and other documentation organized and accessible for auditors. Scrambling to pull materials together delays the audit.
· Downplaying findings - When audits uncover issues, recipients sometimes try to justify or dismiss them rather than take ownership. This aggravates the problems.
· Inadequate corrective action - Failing to fully address audit findings through impactful corrective action. Not revising policies, paying back disallowed costs, or enhancing internal controls.
· Lack of communication - Not keeping the federal agency updated on progress addressing audit findings. This can lead to additional scrutiny and requirements.
· Complacency after audit - Treating an audit as a one-time event rather than improving ongoing compliance. Audits should inform stronger systems.
· Misunderstanding purpose - Viewing audits as punitive rather than helpful to get grantees back on track. The goal is compliance, not punishment.
· Isolation mentality - Program staff keeping audit findings to themselves rather than informing leadership and other departments. This limits organization-wide improvements.
· Lack of resources - Understaffing or under-resourcing the audit function and corrective action process. Audits require time and effort.
If you receive more than $750,000 in federal grants a Single Audit is mandatory. Recipients must welcome findings to improve, involve leadership, communicate openly with the agency, and leverage the experience to enhance their management systems.
Grant monitoring is ongoing oversight by the awarding agency’s program and grants management staff. This responsibility trickles down to recipients that will subgrant funding. Monitoring aims to prevent issues with compliance and performance. It can involve site visits, desk reviews of reports, phone calls, and correspondence.
For example, a project officer may review quarterly progress reports and request clarification or additional details. Monitoring flags potential problems early so the agency can provide guidance to the recipient.
Common mistakes or issues grant recipients have when it comes to grant monitoring:
· Not reading monitoring letters/emails - Recipients may overlook important program updates, guidance and reminders from project officers. Missing key information.
· Late or incomplete progress reports - Failing to submit timely, comprehensive reports on program activities and accomplishments prevents effective monitoring.
· Lack of communication - Not keeping the grant agency updated on significant issues between reporting periods inhibits their ability to monitor.
· Resistance to oversight - Pushing back on or failing to cooperate with reasonable agency oversight activities like site visits, reviews, and requests.
· Ignoring feedback - Disregarding agency feedback and recommendations to improve performance or compliance rather than taking corrective actions.
· Missing deadlines - Consistently delaying deliverables past due dates despite reminders reflects poorly on the recipient's reliability.
· Disorganization - Keeping sloppy records, unsupported documentation, and inaccurate data obstructs monitoring and presents compliance risks.
· Lack of policies - Insufficient financial, procurement, records retention, and other key policies undermine accountability.
· Unclear roles - Failure to designate qualified staff to manage the grant and be point of contact for the agency.
· Sole responsibility - Leaving grant monitoring and reporting solely to one staff person without involvement across the organization.
The keys are communication, cooperation, organization, designating roles, and fostering an organization-wide culture of compliance. But above all else, having the foresight to establish policies and standard operating procedures (SOP’s) is critical to be successful in monitoring performance.
When audits or monitoring reveal deficiencies, the grant recipient must take corrective action to resolve the issues. This can involve paying back disallowed costs, revising policies, providing missing documentation, or adjusting activities to improve performance.
Corrective action prevents future noncompliance and brings the organization back into alignment with regulations and the grant agreement. If issues remain unresolved, the agency may impose additional requirements, disallow costs, or terminate the award.
When it comes to corrective actions recipients overlook the following:
· Superficial fixes - Implementing band-aid solutions that don't address root causes of deficiencies. This allows problems to recur.
· Delaying too long - Taking too much time to develop and implement corrective actions after issues are identified. This allows noncompliance to persist.
· Not tracking - Failing to properly document and track corrective actions, making it hard to verify implementation.
· Incomplete follow-through - Starting but not fully completing corrective action steps such as repaying disallowed costs.
· Lack of internal controls - Not developing stronger financial or programmatic controls to prevent future issues.
· No policy updates - Neglecting to revise policies and procedures to codify improvements.
· Resistance - Pushing back on or negotiating down required corrective actions rather than complying.
· Siloes - Keeping corrective plans within a siloed department rather than addressing organization-wide.
· No training - Failing to properly train staff on new procedures resulting from corrective action.
· Disorganization - Lacking organized processes and assigned roles for corrective action tracking.
· Overlooking causes - Focusing only on symptoms rather than analyzing root causes and systemic gaps.
Effective corrective action requires embracing deficiencies as opportunities to improve, implementing systemic changes, updating policies and training, documenting fully, and collaborating across the organization. It's an ongoing improvement process rather than a one-time event.