Grant Accounting and Audit Readiness

Government grants have been and continue to be an important part of funding healthcare and other research and development in the US.  There are many benefits to receiving government grant funding, but accepting funds comes with responsibilities.

We recently had the chance to speak with Kinman Tong, principal at Baker Tilly (formerly Moss Adams), to discuss the current landscape of federal grant funding and what recipients need to know.

“There are a lot of changes happening in the federal grant space, including changes to the rules and regulations around funding. Each administration has its own priorities, and those shifts impact how much funding is available, what gets funded, and the compliance expectations that come with it.” – Kinman Tong

Our conversation covered critical topics like compliance requirements, common challenges, and ways to ease the administrative burden that comes with receiving grant funding.  In this article, we highlight the key takeaways and how grant recipients can put them into action.

Compliance Requirements

The federal government has established requirements to ensure grant funds are properly used.  These requirements are encapsulated in code of federal regulations (CFR), compliance supplements issued by the Office of Management and Budget (OMB) and notices of award that are sent to grant recipients.

Requirements include rules around allowable activities and costs, procurement standards, time and effort reporting, eligibility to participate in federal assistance programs, subrecipient monitoring, and financial and performance reporting.  Complying with these requirements is critical to remaining in good standing, avoiding potential penalties or repayment of funds, and demonstrating responsible stewardship to funding agencies and auditors.

To ensure compliance, grant recipients must have strong processes and controls in place for how funds are spent.  These processes and controls should be clearly documented and effectively communicated across the organization.

Grant Audits

Recipients of federal grant funds that exceed $1 million in a fiscal year are required to get an audit to ensure funds have been properly used. The audit must be performed by an independent auditor with experience in federal grant audits.

The audit must be completed within nine months of the recipient’s fiscal year end and reported to the federal agency that is responsible for the grant. The auditor’s report would contain findings, if applicable, including any deficiencies that need to be corrected.

The top five issues most often flagged during federal grant audits are:

1. Insufficient time and effort tracking

2. Procurement standards are not followed and/or documented

3. Deadline for submission of auditor’s report has passed

4. Incorrect allocation of costs

5. Inappropriate drawdown of funds

Failure to complete required audits or remediate issues discovered during audits could result in suspension of grants that have already been awarded and disqualification from eligibility to receive new grants in the future.

Common Challenges

Some of the more common challenges faced by grant recipients are familiarity with specific rules, good record keeping and adherence to purchasing requirements.

Staying on top of the rules around grants, including audit requirements, in an ever-changing environment requires attention and ongoing effort. Regulations can shift year to year and priorities often evolve with changes in leadership which can make it hard to keep up.

Good record keeping includes time and effort tracking for both hourly and salaried employees who are covered by the federal grant. Time and effort tracking can be particularly challenging for salaried employees who are not use to tracking their time and for anyone who is working on multiple projects that are covered by more than one grant or that are not covered by any grant.

Adherence to purchasing requirements can be difficult because purchasing often happens in silos which makes it hard to see what is happening on the whole. Grant recipients must be able to see the whole picture in order to determine if they are in compliance.

“The biggest thing around procurement is making sure that the company has good procedures and controls in place. This includes proper segregation of duties, approval policies and methods of procurement.” – Kinman Tong

Keys to Success

Experience and knowledge about rules and regulations go a long way when it comes to navigating federal grant requirements. Grant recipients who have people on both the finance and research teams that understand what needs to be done are especially well positioned for success.

Proper staffing is another important factor that can determine how well recipients are able to comply with standards. Sometimes this requires the help of outside contractors that can assist with putting proper processes in place, especially if the recipient does not have a lot of knowledge about or prior experience with grants.

Tone at the top and strong leadership about what is expected are critical to creating a culture that takes compliance seriously. When leaders prioritize grant requirements and model adherence to key policies, they set the standard for the rest of the organization to follow.

“Keys to success include experience and knowledge of the rules and regulations, proper staffing, which may include involvement from outside contractors, and strong leadership who can set the tone at the top.” – Kinman Tong

Leveraging Technology

Technology can play a powerful role in helping grant recipients stay compliant and reduce administrative burden. The right tools can streamline processes, reduce errors, and provide the transparency auditors and grant agencies expect.

For example, simple time-tracking software can be used to accurately track and allocate personnel costs across grants. Likewise, procurement software with built-in approval workflows and budget checks can help ensure purchasing activities align with grant requirements and internal policies. Many organizations also benefit from systems that allow transactions to be tagged and categorized by grant, making it easier to produce audit-ready reports and demonstrate how funds were used.

The goal isn’t necessarily to invest in the most sophisticated systems, but to choose tools that align with the organization’s size, complexity, and stage of growth.

“Technology can definitely help with getting things done right, especially when you have a lean team. On the procurement side, software can be used to ensure purchases are properly reviewed and approved among other things.” – Kinman Tong

About Kinman Tong

Kinman Tong

Kinman has practiced public accounting since 2003. He serves a diverse spectrum of not-for-profit organization and governmental entities, providing assurance and consulting services to educational institutions, research organizations, community health centers, federally qualified health centers (FQHCs), foundations, international nongovernmental organizations, social welfare organizations, and ancillary health care providers and life science companies.