When you manage a federal grant, good grant management expects you to understand the allowable cost compliance requirements.
After all, the goal of the Cost Principles regulations is to make sure that money spent on Federal grants is used for:
• Allowable activities
• Allowable goods and services
But there are also three little considered factors that affect your A-133 Audit. They are:
Ethics Matter: 5 Things Auditors Look For:
Ethics involve more than just signing a Code of Conduct once a year. Auditors look at the overall environment at the organization as well.
What is the ethical climate at the organization?
1. Are there incentives to mis-charge spending between federal and non-federal programs?
2. Do managers investigate and enforce penalties when grant funds are mis-used?
3. Is there an overall awareness at the organization of the importance to keep federal spending separate from non-federal spending?
4. Does a list of allowable and unallowable costs exist for the use of personnel working on the federal award?
5. Is there an approval process for spending?
2 Ways Auditors Evaluate the Risk of Bad Internal Controls:
Additionally, auditors evaluate the risk of bad internal controls which could lead to federal funds being spent on unallowable costs. They look for management insight and communication in that assessment.
#1 Insight: Can You Identify the Holes:
• Do managers have a clear enough understanding of their staff, processes and controls to identify where unallowable costs could “slip through” and be charged to a federal grant without being detected?
#2 Communications: What is the Process?
In other words, how is the concept of allowable costs vs. unallowable costs communicated to staff?
• Are budget vs. actual reports shared and reviewed by the appropriate level of management on a timely basis?
• Are there established channels of communication both within the organization and outside such as program officers and board members?
Examples of Compliance Activities:
Here are some examples of activities that support allowable cost compliance in the minds of A-133 Auditors:
• The supporting documentation for spending is compared to a list of allowable and unallowable costs
• An individual who is knowledgeable about the allowable activities and the allowable types of costs is the one who authorizes the spending.
• Calculations are checked for accuracy
• Responsibility for activities and spending on federal vs. non-federal projects are clearly separated
• Adequate separation of duties between authorizing and reviewing federal spending
• Unallowable costs are detected and there is follow-up to determine the cause when appropriate.
Whether you’re spending dollars or time on a federal grant, the expenditures need to allowable. Allowability includes both the activities you spend time on, and the goods and services that are purchased.
What to learn the basics of grant management? Sign up for our free 5-part series “Grant Management Basics” today.
Lucy Morgan CPA, MBA
CEO, Compliance Warrior