3 Steps for Avoiding Deficiencies During a Single Audit

February 9, 2017 Lucy Morgan

This article was originally published on npENGAGE.


(part 3 of 3 in Single Audit and Uniform Guidance series)

The future of grants funding will increasingly go to organizations with “clean” audits. That is because the new risk assessment is heavily weighted to non-federal entities that manage grants well and pass their audits with flying colors.  The more you resolve areas of non-compliance, the more likely you are to tap into the over $620 billion in federal awards available to nonprofits, state, local and tribal governments, and institutions of higher education to make a bigger difference in your communities and the world.

In the second installment of this blog series, we walked through the three key changes in single audit regulations for grant managers as outlined in the new Uniform Guidance. Now, in this final installment of the series, we’ll cover three steps you can take to avoid the negative effects of audit findings and deficiencies.

3 Steps for Avoiding Deficiencies During a Single Audit

Step One: Assess the Areas of Deficiencies You Have Experienced in the Past

Most grant recipients are not aware of the “dirty dozen” of audit finding categories.  Review and resolve these areas prior to the audit, and you can greatly reduce the chances of having audit findings.

The 12 audit finding categories are:

  1. Activities Allowed or Unallowed
    • How do you ensure that personnel only work on activities that are in support of the award objectives?
    • How would you detect unallowed activities if they were occurring?
  2. Allowable Costs/Cost Principles
    • How are you ensuring that unallowable costs are not charged to the federal award?
    • Do you have a written policy to ensure costs are necessary for the effective and efficient delivery of the federally sponsored program objectives?
    • Are you getting prior approval of certain types of spending as required by the Cost Principles contained in 2 CFR Part 200?
  3. Cash Management
    • If you are receiving advanced funds from the federal government, do you only draw what is needed for the immediate cash needs of the organization?
    • Do you have a written payment management policy?
  4. Eligibility
    • If your award has eligibility requirements, how do you ensure only eligible participants are served by the award?
  5. Equipment and Real Property Management
    • How do you track and report equipment and real property purchased with federal funds?
    • Are you maintaining the property in good condition and safeguarding it from loss, damage or theft?
  6. Matching, Level of Effort, Earmarking
    • If you have a matching (i.e., cost-share) level of effort or earmarking obligations, how are you ensuring these contributions or requirements are met in the timeframe specified in the federal award?
  7. Period of Performance
    • Do you make sure spending does not occur outside the period of performance unless prior approval of the funding agency is received?
    • Does your supporting documentation, such as invoices and time and effort reporting, provide enough detail to determine when the work was performed?
  8. Procurement and Suspension and Debarment
    • Do you have written procurement policies?
    • Have they been updated for the new Uniform Guidance?
    • Does your procurement department follow the requirements for ensuring vendors and sub-recipients are not suspended or debarred?
    • Where is that supporting documentation kept?
    • How are you ensuring competition in procurements to the extent possible?
    • What affirmative steps are you taking to include minority owned, women owned and small businesses in your procurement process?
  9. Program Income
    • If you have program income, are you reporting those amounts on a continuing basis as required by the terms and conditions of your award?
  10. Reporting
    • Are you submitting complete, accurate reporting in a timely manner to your funding agencies?
    • Can amounts reported on program reports be traced back to the financial records of the organization where appropriate?
  11. Subrecipient Monitoring
    • Have you performed a risk assessment of your sub-recipients as part of developing sub-recipient monitoring plans prior to awarding funds to them?
    • How are you documenting the steps involved in sub-recipient monitoring and the results of that monitoring?
  12. Special Tests and Provisions
    • Have you read the terms and conditions of your award and identified special provisions related to your grant?
    • Who is responsible for monitoring and complying with special award provisions?

While this list can alert you to many of the common audit findings, understanding where you’ve come from is the next step in reducing your risk of audit findings.

Step Two: Identify the Greatest Threats for Audit Findings

It’s a commonly held belief that the past is a good indication of the future. And the new risk assessment process in 2 CFR Part 200 supports this approach. To understand the greatest threat for audit findings, you need to start with your past audit findings.

  • What findings or deficiencies have already been identified?
  • Did the corrective actions around those findings really correct the root cause of the findings or did they just gloss over the underlying issues, like putting wallpaper over rotten framing? Have you followed up to see how those areas are doing now? What were the results?
  • What new areas have surfaced that need to be addressed? Have there been instances of waste, fraud, and abuse?  Has there been a lot of staff turnover?

This analysis should highlight the areas that need to be addressed prior to your Single Audit so that you can minimize your risk and keep those grant funds flowing.

Step Three: Build a Climate of Strong Internal Control Systems

A successful Single Audit may require a climate change at your organization.  Is senior leadership committed to the right tools that support great grant management and a well-trained workforce?  Is program management supportive of incorporating internal control components into grant management?  Are IT and HR onboard with their pieces of the audit puzzle?

Think of it this way: The shift in grant management requirements has turned the audit process from a ping pong match between the auditor and finance department into more of a team sport like football.  The complexity has increased and so has the need for specific position players who do their part to ensure the whole team wins!

To learn more about this topic read Lucy Morgan’s whitepaper, Step-by-Step Single Audit Prep.

 

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