The costs of an external grant auditor might seem like a necessary expense in grant management, but the reality is that organizations are spending as much as 4% of their grant revenue on audit and evaluation costs, some of which is being lost to inefficient audit preparation.
This time and expense can be saved with a more audit-focused grant management strategy.
The Costs of a Grant Audit
StreamLink Software conducts grant management assessments to calculate the time and resources spent on grant administration. Of 150 organizations surveyed with revenue less than $100 million, the average minimum cost of audits and evaluations was $50,000 per year.
While this includes external fees charged by third-party auditors, most of these expenses result from inefficient recordkeeping and audit preparation internally.
The Top 3 Grant Audit Issues
As grant managers know, audits are intended to provide third-party verification of sound financial recordkeeping, compliance with grant agreements and evidence of internal controls. However, the increasing complexity of grant reporting requirements and growing number of consortia grants are making thorough and accurate documentation harder to achieve.
Problem #1: Lack of Supporting Documentation
Many organizations face inadequate recordkeeping in accordance with the grant agreement. Required support documentation could include cost allocation plan(s), vendor invoices, cancelled checks, travel logs and timesheets.
Problem #2: Inadequate Separation of Duties
Lack of separation of duties across key accounting processes (recording transactions, authorizing transactions and housing program assets), reduces opportunities for checks and balances and increases the likelihood of inaccuracy or fraud.
Problem #3: Noncompliance
Noncompliance occurs when ineligible expenditures are claimed or materials are purchased that were not approved by the grantor. This could be evidence of poorly kept financial records, miscommunication between grant managers and grant program administrators, or more serious concerns, such as fraud.
Adopt an Audit-Focused Grant Management Strategy
Start with the end in mind. Review the grant agreement, audit requirements and relevant OMB Uniform Grant Guidance (UGG) standards.
Build your grant management strategy around the documentation, data structure and controls necessary for audit success. This reduces the time required for audit preparation and prevents audit problems, while increasing grant management efficiencies and shifting resources toward grant program execution.
One way to help assure that grant requirements are met in a timely and cost-effective manner is by establishing internal controls:
- Make sure staff have the skills required to perform job requirements and are regularly trained on both grant standards and internal control processes.
- Institute adequate internal financial controls, like monthly reviews of bank and investment accounts and regularly conducted reconciliations of balance sheets.
- Implement separation of duties, so that different individuals are responsible for authorizing, recording and maintaining custody of purchases. Designate two people to be involved in all fund transfers, and limit and secure online access to bank and investment accounts.
- Establish processes for monitoring compliance with grants and contracts.
- Encourage institutional memory; information should be shared, processes documented, and communication open and free flowing in the event of a key individual leaving the organization.
- Implement consistent nomenclature and naming conventions as well as document filing structures, so that files can be pulled easily when needed.
Audit-Proof Your Grant Management System
Even with the most trained staff, thorough processes and organized file structures, many organizations still struggle to keep up with the increasing complexity of grant reporting. Implementing a grant management software solution eases the burden of the OMB UGG and external outcome evaluations with easy reporting functionality.
For example, grant management technologies enable professionals to:
- Create and share reports including budget, performance, Time and Effort, grant portfolio analyses, OMB UGG and outcome evaluations.
- Automate financial and programmatic reporting, and create consistent, formal reports for external funders.
- Easily facilitate the assignment of tasks related to grant goals to make sure programs stay on course to meet objectives.
- Work with financial data from accounting systems to provide an overview of projected and actual revenue and expenditures.
By adopting grant management software, organizations report a 4% decrease in the amount of grant revenue lost to audits and evaluations. With stricter standards and grant competition at an all-time high, grant-funded organizations can’t afford not to shift toward a more audit-focused approach.
How does your organization prepare for grant audits? What steps have you taken to adopt a more audit-focused grant management strategy? Share your experiences in the comments below.