United States

Lack of formal grant-management policies and procedures can cost you


Grant management is a high-risk area that is often overlooked when an organization creates or updates a formal policies and procedures manual. Even if your grant funding is relatively small, noncompliance with federal requirements could mean owing hundreds of thousands of dollars back to the awarding grant agency. Formal documentation of your policies and procedures in this area is critical in avoiding such penalties and maintaining a successful grant management program.

Policies and procedures overview
When thinking about formally documented policies and procedures, it is easy to fall into the trap or thinking “other things take priority” or “there isn’t enough time right now.” However, policies and procedures are not just a “how-to” guide for processing transactions within your organization. When properly utilized, policies and procedures can protect against potential fraud, and serve as a safety net in times of transition.

Policies and procedures can fill many roles, from assisting a new employee in learning how to perform their job duties, to helping a new chief financial officer learn the procedures that are currently functioning in their department. Most organizations have in place policies and procedures that relate to the major accounting processes: procurement, payroll, capital assets, etc. However, the existing policies can be outdated or misunderstood, and so are not utilized correctly. Many organizations lack the most important component for their policies and procedures--documentation regarding that the internal controls are in place.

A good policies and procedures manual should not only include the flow of information for each area; it should also address the internal controls that are put in place to prevent and detect errors or potential fraud. For instance, the review process should be designed to verify the accuracy of the information being processed, as well as the specific reviews and controls in place to address protection from potential fraud.

As an example, in the payroll process, there should be segregation of duties preventing the person processing payroll from entering information into the master pay tables. In some organizations, this segregation can be hard to achieve due to limited staffing. When primary controls are not possible, implementing a good system of compensating controls is essential. Compensating controls act as a backup to help organizations identify errors or fraud later in the process. They are not as strong as primary controls, but they often help reduce the vulnerabilities related to segregation of duties issues, including the risk of errors, omissions, irregularities and deficiencies in the transaction process, and there may be procedures already in place.

Grant management and compliance
Even as many organizations are increasing their federal funding each year; most do not have a formal grant management policy. Furthermore, many have no policies and procedures in place to ensure compliance with the Office of Management and Budget (OMB) Circular A-133. Even if your grant funding is relatively small, noncompliance with federal requirements could mean owing hundreds of thousands of dollars back to the awarding grant agency.
What types of policies and procedures should be included in a grant management policy? The kinds most frequently recommended by the OMB include:

  • Procedures to identify federal grants
  • Application process for new grants
  • Determining compliance requirements applicable to the grant
  • Requesting cash advances on grants
  • Monitoring of cash management activities
  • Repayment of excess interest earnings when required
  • Preparation of invoices submitted for reimbursement from the granting agency
  • Eligibility determination requirements
  • Matching, cost sharing and level of effort processes
  • Procurement policies, including suspension and debarment and ethical conduct
  • Responsibility for preparing required reports (financial and performance)
  • Subrecipient monitoring, including communication of federal award requirements

How to begin
At first, it may seem overwhelming as you begin to develop or update your policies and procedures manual, as you may realize that there are a number of items above that impact your organization. However, your staff may be following many acceptable grant management processes that simply have not been documented. As you develop or update your manual, start with the employees that are performing the functions within the grant department. Request that these employees document the policies and procedures they follow while completing their job responsibilities, then assess whether management’s idea of the process is what is actually being utilized.

The above assessment is a good start to determining if changes in the current process need to be implemented or if additional controls need to be added. As part of the manual, make sure that processes include the required documents needed by the employee(s) to complete their job duties, as well as the assignment of responsibility for tasks and actions, including compensating controls.

The benefit of developing or updating policies and procedures now is that a number of public organizations have published their approved grant policies online. These policies are a great base for your organization, as they can be tailored as needed to meet your needs. Also, there are a number of professionals, including McGladrey, that have the expertise to assist in developing these policies.

In short, policies and procedures manuals that address internal control are crucial, as they help to limit potential risk affecting your organization. They represent specific guidelines for employees to follow when completing their responsibilities and also help to create safeguards, which protect your organization from error and potential fraud.

For further information on developing policies and procedures, contact jill.linden@mcgladrey.com.