I admit it! I am an optimist!
I want to believe that is rare for a grantee to intentionally misuses funds.
However, without proper planning and documentation, an organization places itself at risk for misuse of funds-both accidental and intentional.
Prevent Misuse of Grant Funds
Since the implementation of 2 CFR Part 200 aka the Uniform Guidance, grant recipients have even more requirements to prevent the misuse of grant funds.
Additionally, there are more disclosures required for when federal grants funds are misused than ever before.
So let’s get into the details of what these terms mean…
How Is Misuse Defined?
By definition, misuse of funds is simply using funds for purposes outside of those dictated by the grantor. This can happen both intentionally, such as in the case of grant fraud, or unintentionally, through misuse of grant funds.
Because a grant is a legally binding agreement with a federal agency, the grantor commits to provide a specific amount of funding, while the grantee agrees to administer those funds according to the grantor’s specific terms and conditions.
How Do You Avoid Misuse of Grant Funds?
Education and preparation are both key elements in order for an organization to reduce the risk of misusing funds and remain in compliance with the grant terms and conditions.
Who Should Receive Training on the Proper Use of Grant Funds?
The most critical groups for grant management training are those directly responsible for administering the grant agreement and all other employees working directly on the grant.
These two groups are on the front-lines for avoiding misuse of grant funds.
In addition, it is often advisable for organizations to educate their support staff who are responsible for maintaining strong internal controls such as finance and human resources staff as to the terms of the grant.
How Can We Prevent Misuse of Grant Funds?
There are many ways to prevent misuse of grants funds.
Here are three that are often overlooked.
Step 1: Start with a realistic budget
Prevention of misuse of grant funds starts at the beginning of the grant application and writing process.
Organizations must carefully construct, as well as review, the budget delivered to the grantor, making certain that the budget is both adequate and realistic in terms of meeting grant requirements.
Key personnel such as department heads and accounting should be involved in the planning and review process.
Step 2: Have strong compliance plans in place
Ensuring that grant funds are not misused includes having strong internal controls and compliance monitoring.
Key elements of a good compliance plan include three main mechanisms for reporting:
• How funding is received
• How funding is accounted for
• How funding is spent
In order to accurately report on how funds are used, the organizations must properly maintain strong best practice methods within accounting, documentation, and record keeping.
For example, with regard to the areas of program income and cost-share, staff members may need a closer understanding of how the funding agency treats program income and cost-share. Without that understanding, required documentation and reporting could be missed. Additionally, it is essential to follow the reporting schedule required by the grantor to demonstrate the funds are being spent as agreed.
Step 3: Identify weaknesses in your existing compliance plans
Reducing the risk of unintentional misuse of funds is critical as the grantee will be expected to replace the misspent funds from non-federal sources.
Early detection is key to preventing big expensive problems down the road.
When planning or reviewing your current compliance plans, ask the following questions to identify weaknesses in your current plans:
- Does the plan include procedures for ensuring adequate documentation of purchases covering both receipts and invoices?
- Does the organization have a formal procurement process that is compliant with the current regulations?
- If the grantee is required to perform specific services in exchange for grant funds, does the plan address documentation in order to prove conditions of the grant are being met?
- If program income is generated via activities described in the grant, does the organization understand how the agency requires this income to be treated?
- If cost-share is a condition of your grant, does the organization understand how and when cost-share funds must be received and reported?
- Does the organization have safeguards around the classification of indirect versus direct funds? This is a complex issue and can result in unintentional misuse of funds.
- Does the organization have appropriate procedures to document time and effort requirements specified in the grant (i.e. time sheets or other time and effort reporting)?
Addressing these questions will go a long way towards preventing misuse of funds.
Which of these does your organization have in place?
Learn More About Grant Management
Want to learn more about how to be a better grant manager?
We offer two-day grant management training online, on-site and at our live training seminars called “Grant Management Boot Camp.”
Lucy Morgan CPA, MBA
CEO, Compliance Warrior