Auditors Role in Grants Management White Paper

Audits by the General Accountability Office, Office of Inspectors General, internal audit offices and certified public accounting firms have greatly influenced grants management in many Federal, State, and local governmental agencies. While having auditors raise findings and recommendations is not an ideal mechanism for improvement, the role of auditors in grants management cannot be minimized.  The role of auditors will become magnified with the passage of the Coronavirus Act Relief and Economic Security (CARES) Act and the passage of the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act.  If history is any indicator, high risk grants and grantees become more evident when large sums of funds become available result in high risk grantees.  This was evident during the American Resource and Recovery Act (ARRA) of 2009.  During ARRA, more funds were available than the pool of adequate grantees could handle.  As a result, audits of ARRA grants revealed:

  • Issues dealing with grantees not performing the tasks outlined in the grant agreement.
  • Grantees, whose original mission, or area of expertise, did meet the objectives of the grant award.  
  • Issues dealing with non-compliance with Super Circular requirements

Since the CARES Act funding of $2.5 trillion is double the ARRA funding of $1 trillion, grant officials must be ever vigilant to ensure that grant funds are spent to meet grant objectives and legislative intent.  Grant officials can also count on auditors playing a major role to ensure compliance with grant requirements and the legislation that enabled the grant authorization.  

There are many areas in which auditors influence grants management.  The most common areas are due to:

  1. Single Audits
  2. Audits of Individual Grant Awards
  3. Programmatic Audits of Grant Operations

Single Audits- The most common interaction that grants officials have with auditors is through the Single Audit process outlined in 2 CFR 200.501-520.  Under 2 CFR 200.501, any non-Federal entity that expends $750,000 or more during the non-Federal entity’s fiscal year in Federal awards must have a single or program-specific audit conducted for that year.  Under 2 CFR 200.514, the audit must be conducted in accordance with Generally Accepted Government Auditing Standards. The audit must cover the entire operations of the auditee, or, at the option of the auditee, such audit must include a series of audits that cover departments, agencies, and other organizational units that expended or otherwise administered Federal awards during such audit period, provided that each such audit must encompass the financial statements and schedule of expenditures of Federal awards for each such department, agency, and other organizational unit, which must be considered to be a non-Federal entity. The financial statements and schedule of expenditures of Federal awards must be for the same audit period. The grantee is responsible for follow-up and corrective action on all audit findings. As part of this responsibility, the grantee must prepare a summary schedule of prior audit findings and a corrective action plan for current year audit findings.

Audits of Individual Grant Awards. Auditors at all levels of Government perform audits of individual grant awards.  At the Federal level, 2 CFR 200.503(i0 allows a Federal agency, Inspectors General, or GAO to conduct or arrange for additional audits to carry out its responsibility under Federal statutes or regulations.  Grantee cannot constrain, in any manner, a Federal audit except the Federal auditors must plan the audit to not be duplicative of other audits of Federal awards.  State and local auditors perform individual grant audits under various.  If Federal funds are used for subawards, the state and local auditor could perform individual audits of subawards to meet it responsibility to monitor subrecipients as required under 2 CFR 200.331.  The audits can be interim (during the course of the grant award) or a final audit (as part of the close-out process).  Usually the audit objectives are:

  • To determine whether costs claimed are reasonable, allocable, and allowable in accordance with the grant
    terms and conditions.

  • To determine whether costs claimed are reasonable, allocable, and allowable in accordance with the grant
    terms and conditions

Some of the findings that can result from individual grant audits are:

  • No or inadequate oversight by grantee;
  • No or inadequate grantee/implementer accounting system;
  • No knowledge of financial/administrative requirements by grantee/implementer;
  • Noncompliance by grantee/implementer with financial reporting requirements;
  • Unsupported advance payment requests; and
  • Improper sub-awards and/or sub-contract awards and oversight.

Programmatic Audits of Grant Operations.  As part of their oversight responsibilities, auditors at all level perform internal audits of the operations for the agency or organization to which they are assigned.  One of the audits that can be performed are audits of the agency’s grant administration program.  The objective of these audits is to determine whether the agency’s grant administration program complies with Federal regulations and agency guidance.  Usually the findings and recommendations from these audits deal with the lack of resources or policies and procedures within the agency to properly administer grants.