“What is your monitoring plan to avoid grant fraud?”
Are you prepared for the day when your program officer asks the grant management team at your organization this question?
Ah…well…you know…
Ouch!
(Hint: You should be prepared to tell your program officer what you are doing to reduce the risk of grant fraud.)
Tips for a Monitoring Plan to Avoid Grant Fraud
There are a wide variety of concealment behaviors that unscrupulous people use to seize the opportunity to commit grant fraud within each of these categories.
Think of this as a fire drill…
You practice so (hopefully) you never have to go through the “real” grant management disaster.
Download Guide: Grant Management Monitoring Plan for Concealment Behaviors
7 “Red-Flag” Behaviors for Your Program Officer
Start practicing today by saying:
“Our monitoring plan looks for these seven grant fraud concealment behaviors, including:”
Monitoring Plan #1 – “We Monitor for Insufficient Documentation”
Here are warning signs of concealment behaviors around documentation:
- Missing documents
- Documents are copies when they should be originals
- Documents are in pencil
- Documents are altered
Your documentation monitoring plan should include the following:
- Requiring original receipts for reimbursements
- Periodic review that sufficient supporting documentation is included with financial and program transactions
- Lost receipt procedures that include higher levels of review
- Training for accounting personnel regarding the chain of review for documents that appear altered
Monitoring Plan #2 – “We Check for Unauthorized Payments”
Part of avoiding unauthorized payments includes checking that people are not writing checks to themselves, fake employees, or fictitious vendors.
- That means checking for falsified signatures or incorrect/unauthorized signatures.
Your unauthorized payment monitoring plan should include the following:
A Signatory Authorization Policy and procedures specifying:
- Who is an authorized signer
- What types of spending they can authorize
- How much spending they can authorize
Monitoring Plan #3 – “We Look for Financial and Program Reporting Falsification”
Would you recognize the signs:
- Excessive journal entries
- Shifting costs from account to account or program to program
- Records that are inaccurate/incomplete, not updated or reconciled
Your monitoring plan for reporting falsification should include:
- Segregating the ability to enter journal entries from the ability to approve and release journal entries
- An authorization process for shifting costs between accounts or programs.
- Periodic review of accounts and program records by someone other than the person maintaining the accounts/records
Monitoring Plan #4 – “We Work to Reduce the Risk for Misappropriation of Funds.”
Part of reducing the risk of misappropriated funds includes watching for:
- Transfers to or from a holding or suspension account
- Use of several different banks/accounts
- Excessive and/or large cash transactions
- Fictitious accounts/employees/transactions/charges
- Duplicate/out-of-sequence invoices
Your monitoring plan for misappropriation of funds should include the following:
- Periodic review of all accounts by personnel other than those maintaining the accounts
- Monitoring of bank accounts by personnel other than those authorized to transfer funds
- Segregation of data creation, such as account/vendor/employee set up from the ability to create or authorize invoices, purchase orders, time cards, etc.
Monitoring Plan #5 – “We are Monitoring for Unallowable Costs and Fictitious Employees”
There are many types of unallowable costs that you have to avoid with your grant.
When it comes to cases of grant fraud, one of the often-overlooked areas is paying for people who are not really working on a grant, including fictitious ones.
Would you detect:
- Non-payroll checks written to an employee
- Unendorsed/questionably endorsed payroll checks
Your monitoring plan for unallowable costs and fictitious employees should include the following:
- Separation of non-payroll checks for employees for additional review of supporting documentation and compliance with organizational policies
- Periodic monitoring of payroll check endorsements to ensure employee name matches endorsement, and for direct deposit, the account name matches the employee being paid
- Review of active employee list by non-Payroll department managers looking for fictitious employees
Monitoring Plan #6 – “We Look for Unallowable Labor Costs and Grant Application Misrepresentations.”
There are many ways that labor costs can be can cause problems with your grant, including charging the grant for the time people really were not working on the project.
Grant recipients should also look for misrepresentation during the application process regarding how much time will be devoted to the allowable activities.
Here are some warning signs:
- Submitting blank time cards or filling time cards out in advance
- Reclassifying employees/salaries from indirect cost to direct cost
- Inaccurate/incomplete Principal Investigator (PI) or other key personnel description and credentials
Your monitoring plan for unallowable labor costs and grant misrepresentations should include
- Written procedures for labor reporting and authorization of labor charges
- Periodic training for employees and their managers about the requirements for tracking labor on Federal grants
- Grant management training on the proper classification of direct and indirect employees
- Review of key personnel description and credentials by the Human Resource department
Monitoring Plan #7 – “We Disclose Conflicts of Interest and Non-compliance with Grant Regulations.”
The days of waiting for the auditors to “find something” ended for federal grants with the implementation of 2 CFR Part 200, aka the Uniform Guidance.
Grant recipients have the duty to disclose when there are conflicts of interest and non-compliance with grant regulations.
Are you watching for:
- Relying on one vendor/source without adequate explanation or review
- Unexplained price increases or failure to cut costs as planned or instructed
- Defining project needs in a manner that only one source can meet
Your monitoring plan for conflicts of interest and non-compliance should Include the following:
- Written procurement procedures, including sole-source justification process
- Multi-level review of sole-sourced procurements
- Cost/Price analysis as required for procurement transactions
Reducing the Risk of Grant Fraud Takes a Team and a Monitoring Plan
It is an uncomfortable fact that those who commit fraud can be quite creative and enterprising as to the means they use to conceal it.
However, when it comes to good grant management, these common situations, circumstances, and practices that are “red-flags” for potential fraud should be carefully monitored and investigated.
Find out more about strengthening internal controls at https://blog.myfedtrainer.com/the-minimalist-guide-to-internal-controls/
Download Guide: Grant Management Monitoring Plan for Concealment Behaviors