The news headlines citing grant fund waste, fraud and abuse just keep coming.
Recently a former Grant Administrator was sentenced for stealing over $160,000 in grant funds.
The grant funds were intended to support legal costs for victims of domestic violence and sexual abuse.
What went wrong?
How could this happen?
Let’s take a look from the case files at the Department of Justice- Office of the Inspector General.
The case of a mother-daughter combo running a non-profit which received over $1.2M in Federal grants is full of behaviors that should be a red-flag in any organization receiving Federal funds.
Don’t do these 3 things when you are managing your grant:
#1 Ignore Conflicts of Interest
“According to court documents, between May 2005 and September 2007, the mother served as acting executive director and the daughter served as the office manager and grant administrator.”
Families can be close, and working together can be done ethically, but it does require extra care to avoid potential conflicts of interest. Organizations receiving grants should have and follow a comprehensive conflict of interest policy which includes addressing the inherent conflicts of related parties working in the same organization.
#2 Ignore Segregation of Duties
“The daughter, together with the mother, was responsible for submitting applications for federal grant funding, managing federal funds and issuing employee payroll checks. The mother and daughter exercised joint signatory authority over the bank accounts. The daughter worked as one of the assistants and reported directly to the mother.”
Segregation of duties requires that no one person should be both in the position of pulling off the fraud and covering up the records. Proper division of responsibilities separates the person who authorizes a transaction from the one who creates the payment and the one who records the transactions
#3 Ignore Regular Audits
“According to court documents, between September 2005 and September 2007, the pair arranged for themselves and their relatives to receive unlawful payments from the federal grant funds. In her guilty plea, the daughter admitted that she knew …that their receipt of the federal funds violated the terms and conditions of the grants. She also admitted that she had no intention of repaying the money to the federal government, or of requiring others to repay the money.”
Regular audits conducted by an independent public accounting firm are a requirement in most grant’s terms and conditions-and they are also a really good idea. If an organization is not conducting audits-ask why!
While the purpose of an independent audit is to make sure the organization’s financial statements are fairly presented in all materials respects, the truth of the matter is that the process of an audit frequently alerts accountants and others to accounting irregularities and other internal control issues.
It’s hard to stop determined fraudsters, but reducing the opportunity for grant fraud to happen is at the core of reducing risk for prudent grant managers and ethical organizations receiving Federal funds.
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