Top 10 Grant Audit Issues
We are often asked what kind of issues and errors we encounter when conducting grant audits. We’ve compiled our top 10 of those we encounter most often:
10 – Unsubstantiated indirect costs: Most funders will allow a beneficiary to claim a contribution to their indirect or operating costs. Frequently, indirect costs must be based actual costs, rather than a simple flat rate contribution. Indirect cost calculations must be based on actual costs incurred, fairly and equitably apportioned to project activities.
9 – Tangible fixed assets (equipment) not depreciated in accordance with funder guidelines: Most funders impose regulations on whether large pieces of equipment can be claimed, and if they can, the proportion of depreciation which is eligible. Ensure that you are familiar with your funder’s guidance on these complex costs.
8 – Costs claimed not foreseen within the application form or budget: More stringent funders will only pay claims based on costs and activities that are forseen within the approved application form or budget. These funders tend to allow budgets to be changed via an approval process as the project progresses. It is therefore key to take advantage of re-budgeting opportunities to ensure that all costs incurred for the delivery of the project can be recovered.
7 – Reckless or excessive costs claimed: A key test as a grant auditor is whether the cost incurred and claimed is an appropriate use of grant (and therefore often public) funding. In fact, some European funders stipulate that an auditor must test for “reckless or excessive” expenditure. Beneficiaries should consider whether their claims contain expenditure which might be deemed as an inappropriate use of grant funds. For example, multiple project meetings and associated dinners with excessive amounts of expensive food and beverages.
6 – Costs incurred outside the eligible project dates: Remember that most funders won’t allow you to claim costs in preparing for the launch of your project. Many stipulate the exact dates in which costs can be incurred and claimed. We often encounter costs claimed that relate to activities outside the eligible project start and end dates.
5 – Unsubstantiated direct costs: Sometimes we come across costs claimed that can’t be reconciled to supporting documentation. Sometimes receipts may be missing or lost, or invoices have been misplaced. Ensure that all costs claimed can be reconciled back to their supporting documentation.
4 – Personnel costs charged do not correlate to time records: Some more stringent funders require authorised time records to be kept for employees working on the project. These time records must agree to the costs claimed for the employee as they represent the only confirmation available that the employee was engaged on the project and the amount charged is accurate and relates wholly to the delivery of the project.
3 – Ineligible VAT and taxes claimed: Some funders stipulate that VAT and government taxes are ineligible, regardless of whether they are recoverable from HMRC. Be sure to read the terms and conditions of your contract carefully to ensure only eligible costs are claimed.
2 – Beneficiary not following their own policies: Many funders state that beneficiaries should follow their own procurement, expenses and accounting policies. If expenditure is incurred without following the applicable policies, the funder will regard the costs as ineligible. For example, if a staff member travels first class as part of a project trip, this must be allowable in both the funder’s terms and conditions and the beneficiary’s own internal travel policy.
1 – Relevance to project unclear: The most frequent issue we encounter is that expenditure has been claimed without any clear link to the delivery of the project. Ensure that a clear link to the project can be established based on the documentation retained. If the link is not obvious, add a note to the documentation which states why the expenditure was relevant.