How would you like to write a $2.3 million check to the US Treasury because your grant was mismanaged?
Sound painful?
An Office of the Inspector General report recommended that $2.3 million in grant funds be repaid to the Federal government.
The award was made by the Federal Emergency Management Agency (FEMA) to the state of Louisiana with a pass-through to a local nonprofit.
Payback of Grants: Three Ways Things Went Wrong
With federal funding flowing fast and furiously through the CARES Act, ARPA, and other stimulus funding, this story should be a cautionary tale of the importance of good grant mismanagement.
In this case, the Office of Inspector General cited $2.3 million of grant mismanagement in their scathing report.
Audit findings recommended over $768,667 to be repaid by the nonprofit organization and the remainder by the state.
Here are three ways this good grant went bad:
- $325,853 in spending at the subrecipient was not adequately documented.
- The subrecipient spent $135,319 of the grant funds on ineligible items.
- $307,495 in grant spending occurred after the end of the period of performance.
And finally, the state didn’t adequately monitor the nonprofit’s federally funded activities and didn’t properly closeout the awards.
Let’s look at each of these in more detail.
Inadequate Documentation
The subrecipient had over $325,000 in spending with time and material contracts that were not adequately supported.
The nonprofit officials said they didn’t get supporting documentation from contractors because they were not aware that they needed to obtain records to support the invoices submitted by their vendors.
Just like the state had a duty to monitor the nonprofit, the nonprofit also was required to monitor their contractors for compliance with applicable grant regulations and procurement standards.
- In the world of procurement is called “oversight,” but it is still a monitoring function.
Remember, ignorance of the law is not an excuse.
Ineligible Spending
The spending of Federal funds included over $135,000 of unallowable costs.
The main items disallowed were payments for things outside the federal award’s scope of work.
Additionally, payments were made for things that were not within the subrecipient’s responsibility.
For example:
- Repairs were made in an area co-owned by another legal entity and, therefore, not entirely the nonprofit’s responsibility.
The subrecipient indicated this was an oversight and would work with the state to resolve the issue.
- Read other Good Grants Gone Bad Stories at https://blog.myfedtrainer.com/federal-audit-finds-sheriffs-organization-misspent-more-than-704000-in-award-funds/.
Do people working on your grants understand what the scope of work includes?
And what is not included?
Spending Too Late
It’s a Cinderella moment.
- You know the one.
The clock strikes midnight, and the beautiful carriage turns into a pumpkin.
Grant spending is like that.
- Once the period of performance is over, the party’s over.
The nonprofit spent Federal funds on repairs over three years after the end of the period of performance.
They said they didn’t realize that they had to file an extension of the period of performance to continue spending the money.
Fortunately, they had a fairy godmother with a magic wand.
It looks like FEMA officials retroactively approved an extension for the period of performance.
Should you count on a fairy tale turning into real-life grant management with your spending?
Or keep your spending within the period of performance.
(Please don’t turn your grant into a Grimm Fairy Tale.)
Spend It or Lose It
The Inspector General also recommended that the FEMA de-obligate $1,493,606 of unused funds.
The nonprofit spent $1.4 million less than the project’s budget estimates, but the state didn’t notify FEMA that the funds would not be used as anticipated for over six years.
Think about this.
Six years after most of the work is complete, the award recipient still hasn’t let the Federal agency know that they didn’t spend all the money.
Fast Forward: Adding Insult to Injury
You may be thinking about how bad it would be to have to repay funds.
Now picture what will happen if this bad news story hits the press and social media about your organization!
Federal funding agencies are ramping up accountability expectations along with the penalties and responsibilities of grant recipients.
How?
The grant regulations include the potential prosecution of officials who certify their organization’s costs under the False Claims Act.
And this includes both false statements and omission of material facts.
In other words, knowing something is going on and not disclosing it can also get you in trouble.
Do I have your attention now?
- Yes, people could go to jail under the grant regulations.
Don’t be in denial about this.
Ready to Improve Your Grant Management?
How about you?
Would you like to be a better grant manager?
We have another grant management training seminar coming soon.
Click here to get all the details!
Hope to see you there!
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.
