I admit it!

I am a grant management optimist!

I want to believe that it 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 management means even more requirements to prevent the misuse of grant funds.

Additionally, even more disclosures are required when federal grant funds are misused.

So let’s get into the details of what these terms mean…

How Is Misuse Defined?

By definition, misuse of grant funds is using funds for purposes outside of those dictated by the grantor.

Misuse can happen either intentionally, such as in the case of grant fraud, or unintentionally, through misapplication of grant funds.

Good grant management recognizes that a grant is a legally binding agreement with a federal agency.

The federal awarding agency commits to provide a specific amount of funding, while the grant recipient agrees to administer those funds according to the grantor’s specific award terms and conditions.

Grant Management: How Do You Avoid Misuse of Grant Funds?

Grant management education and preparation are critical elements for an organization to reduce the risk of misusing funds.

Consider:

• How do staff know what activities and costs are allowable with federal funding?
• How are the various assets of the award, from funds to property, safeguarded?
• How are processes and policies monitored for compliance?

And while it can be a challenge to remain in compliance with a variety of grant terms and conditions, grant managers must maintain vigilance for both intentional and accidental misuse of funds.

Who Should Receive Training on the Proper Use of Grant Funds?

The most critical groups for grant management training are those responsible for administering the grant agreement and all other employees working directly to support the grant work.

These groups are on the front lines for avoiding misuse of grant funds.

In addition, it is often advisable for organizations to educate grant management support staff responsible for maintaining strong internal controls, such as finance and human resources staff, as to the terms of the federal grants.

Grant Management: How Can We Prevent the Misuse of Grant Funds?

There are many ways to prevent the misuse of grant funds.

Here are three steps 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 and review the budget plan delivered to the grantor, ensuring that the funding request is adequate and realistic in meeting grant objectives and compliance 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.

Critical 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

To accurately report on how funds are used, the organizations must maintain strong grant management best practices with those responsible for accounting, documentation, and record keeping.

For example, concerning 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, the 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 spent as agreed.

Step 3: Identify weaknesses in your existing compliance plans

Reducing the risk of misuse of funds is critical as the grantee must 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 procedures:

• Does the plan include procedures for ensuring adequate documentation of purchases covering both receipts and invoices?
• Does the organization have a formal procurement process compliant with the current regulations?
• If the grantee is required to perform specific services in exchange for grant funds, does the plan address documentation to prove the grant conditions are 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? (Correct categorization 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 toward preventing the misuse of funds.

Which of these does your organization have in place?