When you manage federal grants, you must understand the requirements to have a successful Single Audit.
After all, the goal of the Uniform Guidance regulations is to make sure that money spent on Federal grants is only for:
• Allowable activities
• Allowable goods and services
But three little-considered factors also affect your Single Audit.
Let’s look at these three often over-looked components of good grant management.
#1: The Ethical Environment-5 Things Auditors Look For
Ethics involves more than just signing a Code of Conduct form once a year.
Auditors look at the overall control environment of the organization by asking questions about the ethical climate.
Here are five questions that you may hear during your Single Audit:
- Are there incentives for employees to mischarge spending between federal and non-federal programs?
- Do managers investigate and enforce consequences when grant funds are misused?
- Is there an overall awareness of the importance of keeping federal spending separate from non-federal spending?
- Does a list of allowable and unallowable costs and activities exist for the use of personnel working on the federal award?
- Is there an approval process for spending?
- Want to read more about the consequences of poor grant management? Check out my article https://blog.myfedtrainer.com/federal-audit-finds-sheriffs-organization-misspent-more-than-704000-in-award-funds/
Additionally, auditors evaluate the risk of weak internal controls, leading to federal funds spent on unallowable costs.
They consider management insight and communication in that assessment as they evaluate the risk of missing internal controls on federal grants.
#2: Management Insight-Can You Identify the Holes?
Management plays a crucial role in enabling a successful Single Audit by providing insight into the potential problem areas where bad things could happen.
Some questions that you may hear from auditors include:
- Do managers have a clear enough understanding of their staff, processes, and controls to identify where unallowable costs could “slip through” and get charged to a federal grant without being detected?
- Do managers receive training or onboarding about their role in monitoring program spending to reduce the risk of Single Audit findings?
- Do managers feel empowered to implement corrective action plans when staff, processes, or controls are inadequate?
Much of good grant management boils down to exchanging ideas and information, so communication is our third little-known factor in successful Single Audits.
#3: Communication-What is the Process?
Communication is more than a soft skill; it is a component of strong internal controls.
And good communication involves many aspects of excellent grant management.
- 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 communication channels both within the organization and outside, such as program officers and board members?
When auditors arrive to complete a Single Audit, many compliance activities are undertaken.
And communication between the organization’s staff and the auditors can pave the way for a smoother review.
Here are some examples of activities that may support allowable cost compliance in the minds of 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 segregation of duties exists between authorizing and reviewing federal spending
- Unallowable costs are detected, and there is a follow-up to determine the cause when appropriate.
Whether you’re spending dollars or time on a federal grant, the expenditures need to allowable to charge the federal government.
The Single Audit looks at both the activities you spend time on and the purchased goods and services.
And viewing those activities through the lens of ethical behavior, management insights into problem areas, and strengthened communication will go a long way towards a smooth Single Audit.
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Hope to see you there!
Lucy Morgan CPA, MBA
CEO, Compliance Warrior
Author of “Decoding Grant Management-The Ultimate Success Guide to the Federal Grant Regulations in 2 CFR Part 200” The 2nd Edition is now available on Amazon in Paperback and Kindle versions.