Have You Received a Grant That Requires An Audit?
We are regularly asked to complete audits for grants for entities that have been awarded a grant to help complete a specific project. These grants require an independent review to be undertaken and the results of this review reported to the grant supplier with the financial report showing how the grant has been spent on the project.
It is important that prior to the audit commencement, all the necessary information that is required to complete a timely and efficient audit, is supplied to the auditor in good time and this will help to ensure that any deadline is met.
A financial report which shows an analysis of the project costs will also have to be completed, reviewed by the auditor and submitted to the grant provider.
Information required during the audit will include the following:
- Payroll records;
- Employment contracts for members of staff that have worked on the project;
- Time records which show the amount of time spent on the project;
- An analysis of other costs suffered during the project with evidence showing how;
- Original invoices showing costs suffered.
Areas to consider:
- The grant agreement should be carefully reviewed before the project starts to ensure that all eligible costs are determined in advance.
- It is important to ensure that all staff costs included in the financial report agree to time records. A request that time spent on the project is recorded carefully by staff is therefore necessary.
- Most grants allow a certain amount of indirect costs to be included in the overall project costs. These are normally calculated as a percentage of the direct costs.
- Keep all invoices and receipts to ensure that the costs recorded in the financial report can be traced back to the source document
How we can help:
- Our dedicated audit team has experience of grant audits and can complete this work for a competitive fee
Grant Audits: An Overview
A grant audit is a must for organisations that receive funding from government or other external sources. It ensures the funds are used properly and meet the requirements of the grant. This audit checks that your organisation is meeting the compliance standards set by the funding body.
Grant audits are about financial accountability and following the rules. Doing these audits protects the grantor and grantee by being transparent and building trust. By being compliant you can ensure your organisation uses the funds wisely and well.
Organisations often use specialist firms to do grant audits. These firms review the financial statements and operations to find any anomalies. Internal audits may also occur in larger organisations to provide objective advice and guidance on grant management processes.
Accountability in grant audits involves reviewing documents such as financial reports and expenditure records. These audits will identify areas where you can improve fund use and enhance your organisation’s grant administration efficiency.
You need to be prepared for a grant audit. This means having all your documents in order and keeping detailed financial records. Being prepared and on time will make the audit process smoother and less disruptive to your organisation.
Legal Framework and Regulations
Understanding the legal environment around grant audits is key to compliance and management. There are different regulations and guidelines for grants depending on the region and funding body.
UK Financial Audit Regulations
In the UK, grant audits are governed by a combination of statutory regulations and practice guidance. The Local Audit and Accountability Act 2014 sets out accountability for local public bodies. It gives powers to the Financial Reporting Council (FRC) under certain statutory frameworks. The Accounts and Audit Regulations 2015 require officers and members to provide necessary documentation and explanations. These regulations ensure transparency and integrity in the audit process, protect public resources and build public trust in public financial management.
European Grants and Horizon 2020
European grant audits, particularly those for Horizon 2020, have separate regulations under EU law. This programme funds research and innovation and requires compliance with the EU Audit Regulation. Article 13 sets out the transparency requirements and provides the framework for reporting and accountability. Audits under Horizon 2020 look at both financial compliance and project performance metrics. These regulations ensure efficient use of funds and support the overall strategy of the European innovation landscape. Recipients must comply with these requirements to stay funded and to be able to participate in future initiatives.
Grant Audit Process and Reporting
A grant audit is a review of the financial aspects to ensure compliance with reporting requirements. You need to be prepared for close scrutiny to get a good audit outcome.
Audit Requirements and Planning
The planning phase sets the stage for a good audit by identifying the specific grant audit requirements from the funding body. This includes understanding the legal requirements and document standards for proper reporting.
The Audit
During the audit the focus is on checking that funds have been used as per the grant conditions. Accurate reporting of labour, overheads, subcontractors and materials costs is key when submitting a grant claim. As the auditor reviews financial records, making sure all expenses are properly documented is critical. Discrepancies or missing documentation can lead to findings of non-compliance.
Audit Report and Findings
Once complete the auditor will issue an Independent Accountants Report. This document will include a schedule of the expenses related to the grant. Businesses are often required to submit Independent Accountants Reports as part of their grant draw-down claims on an quarterly basis. Key findings are highlighted and any exceptions or discrepancies are noted.
You need to review these findings carefully. Implementing recommendations is key to compliance and better audit outcomes. An Independent Accountant Report adds weight and responding to the issues identified will increase the confidence of the funding body in your organisation.
Ultimately a good audit process meets the formal requirements but also strengthens financial and operational practices so the funds achieve their purpose.
Financial Management and Controls
In grant audits financial management and controls are the framework that ensures proper use of funds, minimise risk and maximise accountability.
Management of Allowable Costs and Expenses
Good management of allowable costs and expenses is key to compliance with grant regulations. You need to read the specific terms and conditions in your grant agreement regarding eligible expenditure. Keeping detailed records and documentation will support accurate financial reporting and confirm funds are being used for the intended purpose.
You should review expense reports regularly to ensure they are aligned to the grant objectives. Having policies for pre-approval of costs will prevent unallowable expenses. Being proactive and regularly updating financial staff with guidelines will help compliance.
Financial Risk and Reputational Damage
Managing financial risk builds integrity of the funding process and your organisation’s reputation. Identifying financial risks early will allow you to mitigate them effectively. Having a risk management framework that monitors and reviews financial operations regularly is critical.
Reputational damage often follows financial mismanagement and can impact future funding opportunities. Transparent communication and swift issue resolution will help preserve trust.
Non-Compliance and Remedial Actions
Non-compliance can be due to incorrect financial reporting, inadequate documentation or even fraud. An internal audit will help you identify these issues early.
Organisations should have a Corrective Action Plan (CAP) in place to address non-compliance. This includes identifying weaknesses, proposing actions and setting deadlines. CAPs will ensure audit findings are not only acknowledged but acted upon.
When remedial actions are required, focus on both short and long term solutions. Short term might be tightening financial controls or improving record keeping practices.
For long term effectiveness, continuous monitoring and regular training sessions can be implemented. This will maintain compliance and reduce the risk of future non-compliance incidents.
If fraud is detected, forensic auditors need to be involved to investigate thoroughly. Transparent communication with stakeholders is also important in this situation to ensure remedial actions restore trust and compliance.
Author: Chris Morey, Director, Plus Accounting
Email: chrism@plusaccounting.co.uk
Telephone: 01273 701 200
Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.