A couple weeks ago we looked at When Good Grants Go Bad | Federal audit findings of more than $700,000 in misspent award funds.
In this article, I want to dig deeper into the specific findings and do a mini-case study on how the new grant regulations apply to the issues that surfaced When Good Grants Go Bad | .
The primary findings included:
Problem #1: Sole Source Contracts
- Finding: Awarding of sole source contracts without the prior written approval of the funding agency. (One for $1 million and one for over $491,000.)
Solution: 2 CFR Part 200 spells out the requirements for procurement which include five procurement methods.
One of the methods is a sole source method.
- This method can be used with any size of purchase.
- It is used when the uniqueness of the goods or services, or the immediacy of the need make open competition not possible or practical.
If these cases, the sole-source method states that the procurement must be pre-authorized by agency (or pass-through entity for sub-recipients) When Good Grants Go Bad | because there is not full and open competition.
There are some exceptions to the pre-approval requirements such as a public emergency.
Make sure any sole source procurement either has the pre-approval of the Federal funding agency, or you have documented why it meets a valid exception When Good Grants Go Bad | .
Problem #2: Unallowable Costs-Promotion and Meeting Costs
- Finding: Improper use of grant funds for promotional items and meals for spouses of the employees attending meetings.
Solution: Unallowable advertising and public relations When Good Grants Go Bad | costs include the following:
- Costs of advertising and public relations designed solely to promote the non-Federal entity.
- Costs of promotional items and memorabilia, including models, gifts, and souvenirs.
Hint-this includes t-shirts, jackets, and commemorative mugs.
Non-Federal entitites must exercise discretion and judgment in ensuring that conference costs are appropriate, necessary and managed in a manner that minimizes costs to the Federal award.
Hint-providing meals for spouses of participants would not be appropriate or necessary When Good Grants Go Bad | .
Spending on unallowable costs are subject to disallowance and possible repayment by the non-Federal entity.
Problem #3: Expenditure Reports Not Based On Accounting Records
- Finding: Numerous instances where the amounts reported on Federal expenditures reports did not match the organization’s accounting records.
Solution: Part 200.320 on Financial Management covers records that identify the source and application of funds for federally-funded activities.
These records, such as expenditure reports must be supported by source documentation.
Hint-the accounting records and the backup for them in the accounting system are the source documentation.
Make sure your award reporting can be tied back to the accounting records.
Problem #4: Purchases Made After the Period of Performance
- Finding: Purchases made after the period of performance expired for the grant
Solution: This one seems like a no-brainer and yet award recipients get tripped up on a regular basis. Section 200.309 says that a non-Federal entity can only charge the Federal award allowable costs that are incurred during the period of performance.
If you spend outside the period of performance, the Federal government is not under any obligation to pay for those costs.
Hint-watch your calendar. Put a big circle around when the period of performance ends.
Problem #5: Drawing Too Much Money on the Federal Award
- Finding: Drawing advance funds in excess of the immediate cash needs of the grant
Solution: Advance payments must be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements in carrying out the purpose of the award.
The amount and timing of advance payments must be as close as is possible to the actual disbursements by the non-Federal entity for direct costs and the proportionate share of any allowable indirect costs.
Hint-again this one is easy to determine. Make sure you are only drawing advance funds that you will be paying out right away.
Problem #6: Improper Cost Match
- Finding: Did not properly cost match funds as required in the terms and conditions of the award
Solution: Cost sharing or matching can have unique requirements listed in the terms and conditions of the Federal award.
Assign at least one person to review and communicate the conditions of the cost-share to the rest of the team.
Make sure that someone is responsible for ensuring that cost match is documented and monitored.
In our case study, the association failed to qualify for $620,000 of the federal funds for grant money because they didn’t ensure the match happened.
Don’t leave money on the table because no one is paying attention!
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It’s a great guide full of tips and success secrets for surviving the Single Audit Act blues.
Click here to get our Common Types of Disallowed Grant Costs poster.
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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” The 2nd Edition is now available on Amazon in Paperback and Kindle versions.
Monitoring sub grantee performances to make sure they are in compliance with the donor rules and regulations had always been a challenging task for pass thro agencies. I had been working for a US based development organisation thro which we had disbursed funds to sub grantees.
The sub grantee will be requesting funds periodically by submitting their financial reports accounting for the funds already advanced. As the the grant activity continues, there will be a small window of time for the pass thro agency to “desk audit” the financial report of the sub grantee and be “generally” satisfied that they are eligible to receive the next tranch of funds. Therefore complete checking of the report against the supporting documents will not be the basis to release the next batch of funds to the sub grantee. It had always been the mentality of the sub recipient that if the funds are released, they are then “off the hook” and would be reluctant or not prepared to accept any later findings by the pass thro agency or the primary donor.
To avoid such problems we had spent a lot of resources in conducting training sessions and workshops for the potential and existing sub grantees. We also help them in developing their operational manuals. Close interaction with the sub recipients, routine visits, interim audits would be helpful in ensuring proper compliance. However, with a fairly large sub grantee base, the pass thro agency must possess adequate personnel and other resources to handle this task effectively.
Usually sub recipient organisations are very small in terms of resources and sometimes created only for the required grant activity. They survive with the funds granted and in a case where the monies have to be returned due to an audit finding, they will not have any funds to return as they are already spent same. Again, some Federal audits take place years after a program is ended, by such time some sub recipient organizations would not be in existence. Although we add a clause on report retention period after the grant activity ends in the sub grant agreement , such small grantees will not have resources to safe keep the records for the specified period.
Nihal,
You raise many great points! It’s hard to drive compliance after the money is sent and spent, so the more upfront work that can be done, the better! The new grant regulations in 2 CFR Part 200 mandate that pass-throughs perform a risk assessments with their subawardees prior to awarding work. (And yes, different Federal agencies are interpreting this a little differently among themselves.)
But the overall goal is to reduce risk to both the Federal agencies and the Pass-through entities. More and more we will see subawardess that don’t have sufficient staff and infrastructure to manage grants being passed “over” instead of passed through “to”.
Thank you for your contribution!
All the best,
Lucy