Grant Audit

Grant Audit

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General
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Created By Admin Last Updated Sat, 03-Oct-2020

In many ways not-for-profit organizations are no different from for-profit or commercial organizations. Their objectives and activities may be different but the day to day operations would more or less involve common activities like receipt and processing cash, tracking revenue and expenses, managing personnel, and financial reporting to stakeholders. Errors, misappropriations, frauds can happen in any organization and the extent of its impact is more if it affects those key processes that contribute to the accomplishment of the organizational objectives.

Funders expect not-for-profit organizations to justify the request for funding and its capability to use it in an effective fashion. The grant proposal should be able to bring out how the applicant’s research has determined, and demonstrate, that the project being presented is central to the funder’s agenda. Strong proposals offer compelling solutions to be carried out by competent, solvent applicants.

Also, if grants are not utilized as per decided terms or periodic reports are not sent, the funder will not make any further disbursements. It thus becomes essential for the internal auditor to review the proposals and management of grant and contribution programs.

Moreover, since the Foreign Contribution (Regulation) Act, 2010 (FCRA, 2010) is national security legislation; associations are required to exercise extreme care and caution in dealing with foreign contribution from the time of its receipt to its final utilization. As the Chartered Accountants audit the accounts of the associations and certify the accounts before submission to the Government, they are required to provide proper guidance to the association who is either applying for grant of prior permission/ registration or who have been granted prior permission/registration under FCRA, 2010.

ICAI has issued a Technical Guide on Internal Audit of NPOs. Internal auditors need to pay special attention to the accounting practices of an NPO. Accordingly, he has to first gain an understanding of the process and then go into details for auditing the management of grant. Steps are as below:

First Step: Details of Grants

The Internal auditor should obtain:

(i) A list of all grants procured by the organization, including the amount of grant, time frame for fund usage, and the specific program, service or project the money has been designated for. Get copies of any specific financial arrangements or contracts required by the grant-making organization.

(ii) Documentation on entity’s goals and its strategy to achieve them. The entity would have a plan on amount of money required and use of the money along with detailed procedures for executing the plan.

Second Step: Service Provision and Outcomes

A well-documented service provision and outcomes should have the following details:

(i) The mission statement and listing of all the services the organization provides to the community under the umbrella of the mission. Major Areas of Internal Audit Significance

(ii) Documentation of the scope of those services, i.e., how large is the service area? Is the organization state, county or citywide? List the population the organization serves; is it a specific population, such as individuals with disabilities, homeless or battered women, or children?

(iii) Documentation of outcomes, or how the NPO’s services positively affect the population it serves, number of people affected and length of time individuals utilize the services of the NPO.

Third Step: Information on Project

Obtain knowledge of the policy history, the program results desired, critical success factors, risks, known weaknesses, as well as matters specific to the program under review. At the core of internal auditing, grants and contributions is the determination of whether financial management and control is adequate. There should be clear evidence for the following:

(i) Support for appropriate decision-making at all levels;

(ii) Availability of timely, relevant and reliable management information, both financial and non-financial;

(iii) Management of risk;

(iv) Efficient, effective and economical use of resources;

(v) Accountability for the use of resources;

(vi) A compliance with authorities and safeguarding of assets; and

(vii) Monitoring and reporting of actual results.

In short, auditing grants and contribution programs amounts to the determination of an appropriate level of due diligence in the management of funds.

Fourth Step: Project Management and Implementation

(i) Has the management reviewed the program design to ensure that it provided for effective control?

(ii) Are the results expected from the program clear, measurable, directly related to objectives?

(iii) Do the eligibility and assessment criteria, and any associated direction, directly address and contribute to these expected results?

(iv) Does the program design address relevant risks?

(v) Is there a centre of expertise/central review group for grants and contributions in the organization to assist program management?

(vi) Are responsibilities well defined – in particular, those of people who are not program staff but are involved in funding decisions?

(vii) Do available resources (human, physical, financial and other) match the workload for the program?

(viii)Are responsibilities among staff supportive and clear?

(ix) Does staff have the time and means to enforce the rules and carry out their responsibilities?

(x) Does staff have information, tools and essential resources to do their jobs well?

(xi) Does staff know how to assess an application under the program, and how to monitor a project with due diligence?

Fifth Step: Project Reporting

(i) Are actual project results measured and rolled-up?

(ii) Is there on-going program information on achievement of expected results?

(iii) Are there compliance audits/reviews of projects?