A grant recipient can be at risk of undergoing a grant audit per the grant’s terms and conditions, or based on risk-based factors. Grant audits are usually not audits of the entire grantee organization, but rather just performance and accounting related to the grant itself. A grant audit may be as simple as a remote desk review of previously received documentation, or it could be a full on-site or remote audit consisting of a financial audit, compliance audit, performance audit, or other audit type as discussed below (or a combination of those engagement types); each audit type may have different frequencies and criteria.
The number of grants that undergo audits can vary broadly based on factors such as the size of the granting organization, number of grants awarded, amount of grant funds disbursed, and specific requirements of grant agreements. For organizations receiving grants, it is essential to be aware of audit requirements outlined in the grant agreement and to maintain accurate and transparent records to facilitate any potential audit processes and minimize audit findings.
It’s important to note that not all grants are audited. Grantors often prioritize audit efforts based on factors that pose risks to the proper use of grant funds, compliance with grant terms, and the achievement of programmatic goals. Additionally, many granting entities may use a combination of audit methods, including sampling, to assess compliance across a range of grants.
Factors that can affect a grantee’s likelihood of receiving a grant audit can include the type and size of the grantor, grant amount, complexity of the project, and the grantor’s policies. Larger granting organizations and government agencies that manage numerous grants generally have the capacity to audit a significant percentage of their grants, while smaller grantors with fewer resources may prioritize audits based on risk assessments or focus on a sample of grants. The scale and nature of the grant-funded activities can influence the decision to conduct an audit – grants with larger funding amounts or funding complex or risky projects or programs may receive more scrutiny and can have a higher likelihood of audit. Grantors will also use a risk-based approach to determine which grants to audit, assessing risk areas such as the grantee organization’s age, financial stability, past performance, and adherence to reporting requirements. The granting organization’s policies and procedures play a role in determining the frequency and criteria for grant audits, as many grantors will have specific audit requirements stated in their grant agreements or guidelines.
Some granting organizations, especially government agencies, are required by law or regulation to conduct audits on a certain percentage of their grants. For example, the Single Audit Act in the United States mandates audits for entities that expend federal awards over a certain threshold. Additionally, Congress often provides funding for oversight in appropriations bills, which can require audits of funding disbursed by those appropriations.
Types of Grant Audit
There are various types of grant audits, with each serving specific purposes in evaluating financial, programmatic, and compliance aspects of grant management. Each audit type has an objective and scope, and generally looks at specific areas of grant documentation and activities. Audits generally result in findings and recommendations to resolve those findings; however, if fraud or wrongdoing is found, a grant audit can result in questioned costs, cessation of the grant, or escalation to investigative activities.
Desk Review. A desk review is a comprehensive review of documentation previously received from the grantee, and assesses administrative, financial, and programmatic compliance and grant performance. Desk reviews are typically conducted remotely by the grantor’s grant manager or consultant, and might not include grantee involvement unless a documentation, performance, compliance, or other issue is observed.
Financial Audit. The objective of a financial audit is to examine financial records and transactions related to the use of grant funds. The scope of a financial audit generally focuses on financial statements, accounting records, and compliance with financial regulations. This type of grant audit looks at supporting documentation, budgetary compliance, allowable expenses, accuracy of financial reports, and adherence to accounting principles.
Compliance Audit. A compliance audit verifies that the grantee has adhered to the specific terms and conditions outlined in the grant agreement. It examines whether the organization has followed the rules, policies, and regulations specified by the grantor, and looks at the grantee’s adherence to grant guidelines, regulatory requirements, reporting deadlines, and any other conditions specified in the grant agreement.
Performance Audit. This audit type assesses the efficiency and effectiveness of the grantee’s use of funds in achieving programmatic or project goals. A performance audit evaluates the impact and outcomes of the funded program or project. It looks at the grantee’s effectiveness in achieving project objectives, program efficiency, and the overall impact on the intended target population.
Single Audit Act Audit (sometimes referred to as Uniform Guidance Audit). A Single Audit Act audit is a comprehensive audit that includes both financial and compliance aspects, specifically mandated for entities that expend (not funds received) federal grants exceeding a certain threshold in a year (currently $750,000). It focuses on the organization’s financial statements, compliance with federal regulations, and internal controls. This audit type includes examination of major federal programs, testing of internal controls, and verification of compliance with the Uniform Guidance (2 CFR 200). It is generally conducted annually, and the resulting Single Audit Report (SAR) becomes public record.
Internal Audit. This is an audit conducted by the grantee’s internal audit department or an external auditor hired by the organization. It reviews internal controls, financial processes, and compliance with organizational policies and procedures. An internal audit identifies areas for improvement, assesses risk, and provides assurance of internal compliance.
Pre-Award Audit. A pre-award audit might be conducted to assess the organization’s capacity to manage the grant effectively. It examines the organization’s financial health, internal controls, and ability to meet grantor requirements. It looks at areas such as financial stability, organizational capacity, and compliance with grantor’s pre-award conditions.
Subrecipient Monitoring Audit. This audit ensures that organizations receiving subgrants or subawards are using funds appropriately and in compliance with grant terms. It reviews subrecipients’ financial and programmatic documentation, and looks at subrecipient compliance with grant terms, financial management, and programmatic outcomes.
Closeout Audit. A closeout audit is conducted at the conclusion of a grant to ensure that all activities and expenditures align with the grant agreement. This audit reviews final financial reports, project documentation, and compliance with grant terms during the closeout process. It provides confirmation of project completion, final financial reconciliation, and compliance with reporting requirements.
Investigative Activities. These are triggered by suspected fraud, misconduct, or irregularities related to grant funds. They investigate specific allegations or concerns, and are often conducted by forensic auditors and law enforcement. Investigative activities can include examination of financial records, interviews, and analysis to determine the validity of suspicions.
The type of grant audit conducted depends on the specific requirements of the grantor, the amount of grant funds involved, and the nature of the funded activities, but each type of audit is designed to ensure accountability, transparency, and the effective use of grant resources.
Colhio Grant Consulting can help grantors identify and conduct the type of audit best suited to their organization’s needs and grants. We can help grantees navigate the process of receiving and responding to a grant audit. Contact us for more information on how we can help you.