We’ve been looking at the major areas of non-compliance revealed by the Department of Justice for over $20 million dollars of federal spending earmarked for mentoring at-risk youth through Big Brothers/Big Sisters (BBBS) of Philadelphia.
In this series we’ve been looking at the major grant management mistakes so you can avoid having similar serious consequences at with your grant spending and reporting.
Big Mistake #2 Who’s Watching the Store?
This week we’ll look at the next big area of non-compliance: Lack of monitoring by the grantee for their sub-recipients and contractors.
There were three main monitoring deficiencies:
1) There was inadequate monitoring of subrecipients-and the subrecipients were did not provide supporting documentation of how the funds were received and spent.
2) Consultants were not monitored adequately.
3) Grant spending was not monitored against the approved budget for the project.
Let’s look at the requirements for each of these areas of Grant Management:
Grantee Required to Monitor Subrecipient
First of all, federal grantees are responsible for monitoring all activities of subrecipients since both are responsible for the proper use of federal funds.
Federal grantees are responsible for ensuring subrecipients are complying with applicable federal administrative requirements.
Grantees have primary responsibility for ensuring their subrecipients are compliant.
The grantee “steps in the shoes” of the awarding agency to monitor subrecipients and make sure they are following the federal regulations.
But Wait There’s More…
It’s not enough to just make sure that the subrecipient has provided adequate documentation of what they spent the grant funds on.
- The grantee must be able to “prove” that they are actually conducting monitoring activities.
This means the grantee must document the steps they are taking to monitor the “subs” as well as evidence of that monitoring such as copies of A-133 audits and other supporting documentation.
Consultants Must Be Monitored Too
Consultants; aka “Professional Service Costs” get special mention in the Administrative Requirements because historically there have been numerous cases of waste, fraud and abuse of taxpayer funds through the use of consultants.
Professional service costs are defined as services rendered by persons who are members of a particular profession or who possess special skills.
- Examples of professional service costs include attorneys, accountants, engineers, and others who possess specialized skills.
The spending of consultants-just like any other group is bound by the requirements of allowability.
No Unallowable Spending…by anyone
In other words that costs must be:
• Not be limited or excluded by federal cost principles regulations
• With policies uniformly to all activities, not just federal awards
• And finally, allowable costs must also be adequately documented
The grantee is required to monitor the consultants to make sure they are only billing for allowable costs.
Budget vs. What?
Finally, grantees are required to monitor their actual spending against the award budget.
These requirements are part of the financial management system reporting requirements to be in compliance with 2 CFR Part 215.
Recipients must have the ability to track and report on the project or program budget and also report the actual spending against that budget.
Does it Match the Financial Records?
This may seem obvious, but the reports of actual spending must tie back to the financial records and source documentation of the organization.
- The source documentation should be reviewed for reliability.
Explanations for cost overruns and underruns should be obtained from operational personnel in a position of responsibility for the source data.
How about your organization?
Are you monitoring both your subrecipients and consultants to make sure their spending is allowable to charge your federal award?
Do you track budgeted spending vs. actual expenditures?
The lesson learned from this unfortunate situation with BBBS is:
Don’t wait until it’s too late to have these systems in place!
Lucy Morgan CPA, MBA
CEO, Compliance Warrior
P.S. If you’d like to find out more about how to avoid grant management problems and pitfalls?
Check out Grant Management Boot Camp training that helps that helps people work through these issues.
Click the link below for your type of organization to get more information about our courses and to get signed up.