How to Prepare for Grant Audits

Grant Audit Preparation: Documents

To successfully prepare for a grant audit, your documentation should be organized and accessible. Consider the following key areas:

• Federal awards listing: Complete inventory of federal grants with program codes and financial activity, including advances and deferrals.
• State/local grant records: Maintain separate tracking for non-federal funding sources with their distinct requirements.
• Grant document collection: Systematically file and store all executed grant contracts.
• Payment request files: Archive all funding requests along with their supporting materials.
• Grant performance reports: Keep current financial documentation that shows grant activities and meet submission deadlines.
• Historical audit files: Maintain access to past audit results and findings.

A sample PBC (Prepared by the Client) List helps organize audit materials by listing required schedules, transactions, and support files by grant.

Preparing for Grant Audits: Timeline

The timeline is another important consideration when preparing for grant audits. We encourage you to engage a grant auditor at least 6-8 weeks before the document submission deadline, as audit reports are typically due 2-3 months after a financial period ends. Prepare documents promptly, allowing 2 weeks for the audit process, which includes reviewing financial records, addressing queries, and submitting the final report on time.

Developing a Strategic Approach to Grant Audit Management

1. Build a Strong Regulatory Compliance Foundation

Start by establishing a solid understanding of all applicable regulations and requirements:

• Understand the rules: Gather all relevant federal, state, and local regulations for your grants, including the Uniform Grant Guidance. Keep this updated as regulations change.
• Review grant agreements: Review each grant agreement carefully to spot any specific requirements or conditions, and summarize these for easy reference.
• Know your funders: Different funders have different rules. Create checklists for each one to ensure you meet their unique requirements.
• Create clear policies: Write simple policies for how your organization will follow all regulations. Cover areas like financial management, procurement, and program requirements.
• Keep good records: Set up an organized system for storing and naming grant documents, with a clear retention schedule.
• Define roles: Outline who handles each part of grant management, with job descriptions and responsibility charts.
• Train your team: Set up training for staff involved in grants. They should receive initial and ongoing sessions to ensure everyone understands their role in compliance.
• Consult with the grantor: Clear communication with your grant provider is crucial; don’t hesitate to ask questions if requirements are unclear or report challenges as they arise. Consider bringing in an outside auditor like ours at SSL Associates to review your grant management before the audit, as we can spot potential issues and help strengthen your compliance practices.

2. Recognize Critical Risk Areas and Compliance Priorities

Here are the key challenges that frequently arise during grant auditing:

• Grant classification accuracy: Getting the categorization wrong between federal and non-federal grants can result in significant compliance issues and affect how the funds should be tracked and reported.
• Federal grant identification: Each federal grant requires specific tracking numbers (assistance listing numbers); missing or incorrect numbers can cause reporting problems and make it harder to track fund usage properly.
• Subrecipient oversight: Organizations need to show evidence of actively monitoring any partners receiving portions of their grant funds, including regular check-ins and documentation of how those funds are being used.
• Report compliance: Regular reporting deadlines must be met, and all submitted information must accurately match your organization’s financial records. Any discrepancies will raise red flags.
• Indirect cost management: Your organization needs current plans that show how overhead costs are distributed across grants along with clear evidence that this distribution follows approved methodologies.
• Cost eligibility tracking: There must be clear systems for tracking time spent directly on grant activities versus using percentage allocations, as improper tracking can lead to questioned costs.
• Billing timeliness: Delayed reconciliation of grant expenses can lead to mistakes in both billing and reporting which can potentially affect your future funding and compliance status.

3. Evaluate Impact and Ensure Ongoing Compliance

Next, be sure to implement continuous monitoring and assessment procedures:

• Regularly review grant expenditures and documentation: Check monthly that all spending follows grant rules and keep clear records of every purchase.
• Monitor progress toward grant objectives: Keep track of how well your program is meeting its goals by collecting and measuring key results.
• Assess the effectiveness of internal controls: Test your control systems periodically to ensure they work and record all findings.
• Evaluate compliance with reporting requirements: Set up a calendar for report deadlines and keep copies of everything you submit.
• Review sub-recipient monitoring procedures: Check that your partners are using funds correctly and if there are any issues, be sure to document them.
• Document program outcomes and achievements: Record both numbers and stories that show your program’s success, with a system to verify all data.
• Maintain clear audit trails for all grant activities: Make sure you can trace every grant-related action from start to finish across all programs.