Can You Have Compliance Without Controls?

Posted on Jan 13, 2015

By Vincent Stevens, CPA, CGMA

The federal grantor arrives for a monitoring visit and just like clockwork, the first thing that is requested is the organization’s policies and procedures. The finance director, anticipating the request, points to the thick binder on the table labeled “Accounting Policies and Procedures.” But is this binder enough?

Although the grant monitor will be interested in financial controls and procedures, the primary reason for the visit is grant compliance. Well-written accounting policies and procedures will address some compliance issues, but not all. What the federal grant monitor wants to see are “Grants Management and Compliance Policies and Procedures.”

Grant monitors are not the only ones who need to see these specific policies and procedures. Independent auditors performing a Single Audit will also be interested because the Single Audit requires the auditor to obtain an understanding of the internal controls used to ensure compliance with major program compliance requirements and to test these controls.

Compliance requirements are primarily nonfinancial in nature and cover topics such as eligibility, activities allowed (what services are within the scope of the grant), subrecipient monitoring and performance reporting. Grants management and compliance policies and procedures document the grants management process for the organization and what controls the organization has in place to ensure compliance, especially the nonfinancial aspects of compliance.

Most organizations have a grants management process and controls to ensure compliance, but they are not well documented. A great way to start the New Year is to document the grants management process.  This can be done in a step-by-step format and/or a flowchart. The grants management process should ensure that communication, controls, reporting and monitoring happen at the right time and involve the right people in the organization and follow the life cycle of a grant.

As depicted below, the life cycle of a grant begins before the grant is even awarded. Unfortunately, in some organizations the formal process for grant management doesn’t begin until after the grant is awarded, which often results in critical steps such as the accountant determining the “true cost” of running the program being left out or performed when it is too late.

Life cycle of a grant from the perspective of a Grantor and a Grantee:

table-1-grant-article

(Developed for the AICPA 2003 Not-for-Profit Conference in Washington D.C. by Vincent Stevens CPA, Clark Nuber P.S. and Gwen Sherman CPA, Bill & Melinda Gates Foundation)

The steps listed above can be used to begin documenting your grants management process. After the process is documented, policies and procedures, including internal controls related to compliance, can be developed and documented. The final step would be to actually implement the policies and procedures (sometimes easier said than done). You should also periodically review and modify your policies and procedures as your organization grows and changes.

Some organizations are actually “bringing their policies and procedures to life” through the use of software that makes the policies and procedures available electronically and sends automated task lists by day, week, month, quarter and year to people involved in the grants management process. These automated task lists are hyperlinked to the procedure or instructions for completing the task and to the form, report, template or schedule that needs to be completed. The software will also email status updates of these tasks to supervisors, letting them know when tasks are ready for review.

Whether it’s accomplished manually or electronically, completing your “Grants Management and Compliance Policies and Procedures” will make your federal grant monitors and your independent auditors happier, but more importantly, having a clear understanding of how your grants management process should work throughout your organization, just might help make your life a little easier too.

© Clark Nuber PS, 2015.  All Rights Reserved

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This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.

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