Grants from A-Z: Preparing for Audit

LSL Webinar ‘Back to Basics | Grants from A-Z’ presented by LSL Senior Manager, Krystal Cabrera, CPA, and Supervisor Keili Gonzalez outlined how local government finance departments can navigate the complexities of grant reporting from A-Z.

In case you missed it – as grant funding becomes a vital part of many organizations’ financial strategies, understanding how to manage and prepare grants for audit is critical.

No matter if you’re new to this or simply need a quick reminder, you’re welcome to bookmark this post, save the link, or print out for quick reference. Get insight into the key steps involved in preparing grants for audit and best practices for staying compliant.

Key Areas of Focus for Grant Preparation

When preparing for an audit, it’s important to ensure all the necessary documentation and schedules are in order. These include:

• Federal Grants Schedule: A detailed list of all federal grants, including relevant project codes and any drawdowns or deferred revenues.
• Non-Federal Grants Schedule: Ensure these are separated from federal grants, as they will be reviewed differently.
• Access to Grant Agreements: Keep all signed agreements organized and accessible.
• Reimbursement Requests & Supporting Documentation: This includes any requests for funds and the paperwork supporting those requests.
• Financial Reports: Ensure that financial statements accurately reflect the activity of each grant and are submitted in a timely manner.
• Reports on Completed External Audits: Any audits previously conducted should be available for review.

A sample PBC (Prepared by Client) List can be particularly helpful for organizing what auditors will request. This can include schedules, transaction listings, and supporting documentation for each grant.

Best Practices for Grant Management

To ensure the audit process goes smoothly, adhere to the following best practices:

1. Reconcile More Than Once a Year: Don’t wait until the year-end to reconcile grant activities. Regular reconciliations ensure that errors are caught early.
2. Maintain Clear Records for Each Grant: This includes ensuring you have separate files for each grant, along with relevant documentation.
3. Track Funds or Accounts Separately: Create a tracking system for each fund. Some common ones are for CDBG, ARPA, or HOME funds, .
4. Get Regular Updates from Grant Administrators: Timely communication with grant administrators ensures that you’re aware of any changes in funding or requirements.
5. Establish a Clear Process for Grant Reconciliation & Closing: This includes creating a detailed grants schedule or template to track all relevant information.
6. Complete a Grants Schedule: Ensure all information about federal and non-federal grants is neatly compiled into schedules that tie back to the general ledger.

Preparing for the Audit

When planning for your audit fieldwork, here’s what they’ll be looking at:

1. Grant Review: Auditors will ensure all grant activity is accounted for, often by reviewing general ledger funds, project codes, and meeting minutes.
2. Tying Grant Activity to the General Ledger: Auditors will check that each grant activity matches your general ledger, especially in areas like deferred revenue or advanced funding.
3. Compliance Review: Auditors will test compliance with cash management and the period of performance, focusing on current-year activity, grant agreements, and requirements.

What Information Will Be Reviewed?

• New or Completed Grants: Auditors will assess both new grants and those that have been completed.
• Deferred Activity: They’ll ensure that any deferred revenue or other financial activities have been properly recorded.
• Grant Contracts and Amendments: Be prepared to provide access to contracts and amendments for all grants.
• Audit Reports: If any previous audits have been completed, auditors will review those reports for potential findings.
• Material Grant Activity Testing: Auditors will focus their testing on material grant activities to ensure compliance and accuracy.

Common Issues During Audits

Some of the most common issues encountered during grant audits include:

• Misclassification of Grants: Ensure grants are correctly classified as federal or non-federal.
• Granting Agency Information: Make sure assistance listing numbers are identified  for each federal grant.
• Subrecipient Monitoring: Be prepared to demonstrate that you have properly monitored any subrecipients, and current activity.
• Timely and Accurate Reporting: Submission of required reports and tying out with financial records.
• Indirect Costs: Ensure that your indirect cost allocation plans are up to date and that costs are allocated properly.
• Allowable Costs: Be aware of how direct time is tracked vs. percentage tracking for grant work.
• Timely Invoice Billing: Delays in grant reconciliation can result in inaccurate billing or reporting.

Next Steps: The Single Audit and Uniform Guidance Updates

If your organization is subject to a Single Audit, here’s what you need to know:

• Major Program Determination: Auditors will review which grants qualify as major programs.
• Compliance Supplement: Be familiar with the 2024 Compliance Supplement, which outlines new federal requirements for grants.
• 2024 Uniform Guidance Updates: Starting October 1, 2024, these new rules come into effect. Highlights include:
  • Single Audit Threshold Increase: Now $1,000,000, up from $750,000.
  • Single Audit Extension: An option to extend beyond the standard nine-month submission period.
  • Indirect Cost Rate: The de minimis indirect cost rate has increased from 10% to 15%.
  • Equipment and Organizational Costs: New thresholds and reporting requirements.
  • Subawards: Increased threshold for subawards, from $25,000 to $50,000.
  • Internal Controls and Cybersecurity: New requirements around safeguarding information.
  • Whistleblower Protections: Organizations must inform employees about their whistleblower rights and protections.

For a more detailed breakdown of the 2024 Uniform Guidance updates, refer to our previous post here.

Conclusion

By following these best practices and preparing thoroughly, your organization can ensure that the grant audit process is smooth and successful. If you want more information and complete SEFA checklist check out ‘Grants from A-Z: The Complete SEFA Checklist’.