3 Tips for Coping with Questioned Federal Grant Costs

It can happen to the best of us. 

The auditors come in and start asking uncomfortable questions. 

Sometimes you can feel like you are on solid ground with your defense, but then…

Oh, there’s the little item you missed in the award terms and conditions.

Or maybe your notice of funding opportunity put in place some restrictions that the communication didn’t reach the people doing the spending. 

My first exposure to questioned costs came about with a big fight over where or not blue jeans could be considered part of a uniform (allowable) or considered goods or services for personal use (unallowable.) 

Whatever the reason behind the questioned federal grant costs, recovering from this bump in the road requires a solid strategy for navigating the troubled waters. 

Tip #1: Don’t Panic, Partner

The first thing to realize is that even though having costs questioned may feel awful, you are not alone. 

In our research we discovered roughly 1/3 award recipients for federal funding had dealt with some kind of audit finding. 

The next thing to realize is that the federal government and your auditors want you to be successful with your award. 

So, ask yourself. 

• Who could help us make this right? 

Often times your auditors and your program officers are your best resources for understanding the path forward. 

Look for partners to help you navigate the questioned costs.

For example:  

• Are other organizations running into these types of issues?
• Who has a good process around this issue?
• Are there different opinions about interpreting this regulation/condition/restriction?
• What are common outcomes around questioned costs like these?

 Tip #2: Seek First to Understand

In his landmark book “The 7 Habits of Highly Effective People” by Dr. Stephen Covey identified that successful people “Seek first to understand and then to be understood.”

The same strategy can be used with questioned costs. 

Ask your auditors:

• Can you explain why these costs are questioned?
• Did we miss a special condition, or misapply a general principle?
• Is the cost being questioned for lack of adequate documentation (you can’t tell what happened) or for lack of compliance (you believe we did something wrong)?
• How do you see others in similar situations handle this situation correctly? 
• Are they concerned about waste, fraud and abuse of grant funds?
  • Check out my article on how to spot the warning signs of waste, fraud and abuse on your grant.

Once you understand the reasons behind the questioned costs, you are in a better position to present your perspective on the questioned costs. 

For example:

• If the questioned costs are based on a special condition, misapplied principle, ask to be shown the reference, so you can review it as well.
• If the documentation is inadequate, what would be some examples of what they are looking for?
• Will we have an opportunity to provide additional supporting documentation?
• If we are out of compliance, what are some best practices for similar circumstances?

And even though arguing with auditors or program officers about questioned costs may be daunting, a better understanding of the underlying issues can help you push back against what you believe is an unreasonable interpretation of the grant regulations and award terms and conditions.

It also can help you decide whether to contest the questioned costs, or work to make sure that circumstance doesn’t happen again.    

Tip #3: Continuously Improve

I started my career working in manufacturing, and was first exposed to the concept of “lean” in that role. 

Part of the philosophy behind lean improvements in both the manufacturing and service industries is the concept of continuous improvement. 

The same concept applies to questioned costs with federal awards.

Improve the situation by asking:

• How did this situation happen?
• What is the root cause of the costs being questioned?
• What holes are there in our process that let the situation go undetected.
• How can we prevent this from happening in the future?
• What deterrents can we put in place to reduce the risk of a repeat performance? 

If you are unable to demonstrate to the auditors and your program officer the costs should be allowed, you may need to create a corrective action plan.

>>Check out my article on How to Write a Corrective Action Plan

The purpose of a corrective action plan is to analyze what happened, why it happened and how you will prevent it from occurring in the future. 

In other words, how are we accepting responsibility for what went wrong and being accountable to the taxpayers for effectively managing our grants? 

You could even call this process grant “adulting” where the organization grows up to ensure the best possible outcome for the future while helping the people our award is designed to help. 

Wan to Know More About Grant Management?

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You’ll also have opportunities to network with other grant professionals and gain from other’s real-life experiences.

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Click here to get more details.

Author:

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”