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Federal grant management: 8 key compliance areas for post-award success | Baker Tilly

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Federal grant management: 8 key compliance areas for post-award success

Dec. 4, 2023 · Authored by Miranda Wojciechowski

The past few years have seen a windfall of federal grant program written into recent legislation. In November 2021, the bipartisan Infrastructure Investment and Jobs Act (IIJA) was signed into law, resulting in a historic $1.2 trillion investment in hundreds of funding opportunities to improve our nation’s highway and bridges, transit systems, railroads, broadband networks, energy grids, drinking water and more. Nearly a year later, the Inflation Reduction Act (IRA) allocated more than $500 billion in new funding to grant programs, tax incentives and loan guarantees. With IIJA and IRA grant programs rolling out new selections for initial funding cycles every day, some public sector entities are receiving their first federal grant awards in organizational memory.

Post-award compliance with federal regulations and award conditions can be a convoluted and time-consuming process, but it’s one well worth navigating. Compliance begins with grant pursuit and can prove just as vital to your organization’s bottom line, avoiding costly legal mistakes, enabling you to keep current awards through project completion, and increasing your readiness for future funding opportunities. Regardless of program or agency, all proposals for federal grants undergo applicant risk assessments during evaluation, including review of financial stability, quality of management systems, history of past performance, audit reports and findings, and ability to effectively implement requirements. Building relationships with your program officers can also provide insights into future opportunities through greater transparency into the agency’s planned activities and priorities. A strong track record of managing federal grants can thus be a vital element of your pursuit strategy, opening the door to more funding down the road.

So, how can utilities, municipalities and tribes pursuing and receiving federal grant funding set themselves up for success with post-award management?

Fundamental compliance standards for federal awards

First, upon receiving an award, the project or grant managers should familiarize themselves with the administrative guidelines and requirements set for their particular federal award. Three documents that are essential reading for new federal recipients include: authorizing legislation, Notice of Funding Opportunity (NOFO) guidance and federal agency/program office procedures, grant agreement terms and conditions/award specifications based on risk and other factors.

Authorizing legislation

The authorizing legislation that allocated funding to the relevant federal grant program takes top priority in the complicated hierarchy of rules and regulations for their usage. The federal agency administering the program will pass down these stipulations through NOFO guidance released when soliciting applications; the legislation will determine the priorities for selection, eligible uses of funds and in certain cases, add legislatively specific guidelines for recipients. A good example of this is the Build America Buy America requirements for domestic procurement attached to all grants receiving money through the IIJA the past few years. Being familiar with the restrictions and priorities attached to IIJA or IRA funding can ensure your organization is prepared to receive awards from these grant programs.

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1. Internal controls

Internal controls are essential for preparing to successfully manage a federal award’s terms and conditions and comply with other federal regulations. The U.S. Government Accountability Office (GAO) provides the overall framework for designing, implementing and operating an effective internal control system in Standards for Internal Controls in the Federal Government (Green Book).

When evaluating readiness for federal grant oversight, look to build a culture of accountability with clear channels for oversight at every level. Identifying risks, particularly risk of fraud and financial mismanagement, is the first step toward implementing solutions and developing general controls through written policies and procedures. Establishing clear systems of communication between internal teams involved with grant management, project implementation and organizational finances also ensures all departments work seamlessly together to keep the grant on track and monitor its progress internally.

2. Procurement

Documenting procurement for federal grant projects, including policies by threshold, process and selection rationales, is another central pillar of compliance. Under federal regulations, recipients expending federal funds should evaluate potential contractors’ performance histories, integrity records and compliance with public policies and laws; they should also ensure all applicable terms and conditions for the money are included in resulting contracts. Due to broader national priorities, recipients should, as far as possible, ensure open and free competition in purchasing and make good faith efforts to contract with disadvantaged business enterprises whenever procuring construction, equipment, services or supplies.

Prior to receiving the funding, there are several steps you can take to evaluate readiness for federal standards of procurement. Have your internal point of contact for the grant familiarize themselves with the different thresholds of federal procurement and the required processes for each to determine which are applicable to the proposed budget. This can help ensure in advance that internal procurement processes and procedures align with federally mandated ones. Putting conflict of interest rules in place for staff during procurement, ensuring staff sign commitments to adhere to these rules annually, and setting up periodic internal reviews of procurement files to ensure compliance are all simple steps for accountability that will save your organization time and frustration down the road.

3. Cost allowability

Awareness of and adherence to cost allowability principles can prevent fraud and potential revocation of federal funding. According to the CFR, to be allowable under federal awards, costs must be:

Necessary and reasonable to carry out the award
Allocable to the award-funded activities
Not prohibited under state or local laws
Aligned with guidance from the Office of Management and Budget
Treated consistently and consistent with accepted accounting practices
Not used for cost sharing or matching requirements on other federal awards
Adequately documented

Apart from familiarizing key staff on the Code of Federal Regulations, a simple approach to ensuring allowability is keeping to the approved budget and getting prior approval from the program office on any proposed changes before expending the funds.

4. Accounting for grant expenditures

Federal grant recipients should have an accounting system in place that meets federal accounting standards. These standards provide clear guidelines on how to track expenditure to ensure compliance, even while managing more than one federal grant simultaneously. The accounting system should identify the receipt and expenditures of funds separately by grant and ensure that expenditures are recorded by project component and budget category as shown in the approved budget for that grant. Internal controls should ensure expenditures on all grants do not exceed the approved totals and prevent overlap in use of federal funds and claimed cost shares between grants. When managing multiple grants at once, it is also essential that staff log their time by project to ensure salary expenditures do not overlap across federal grants and provided cost shares.

Accounting on federal grants is particularly important as recipients are required to submit regular financial reports to the program office documenting their expenditures to date. Setting up processes and procedures for compiling and submitting compliant reports that also accurately reflect your spending on each grant will help keep the project on track, prevent fraud and abuse of funds, and set your organization up for a successful single audit upon completion.

Regular communication between your grant finance and project management staff members should be established and maintained throughout the life of the award; these communications should include a clear process for approving expenditures for a grant budget internally prior to executing any purchase orders or contracts, as well performing monthly grant reconciliations to review expenditures and correct errors. If a grant functions on a reimbursement basis, it is also helpful to establish procedures for drawing down funds no more than three days in advance of invoice payments to ensure no excess of funds on hand.

5. Performance reporting and data collection

In addition to financial reporting, recipients will be responsible for performance reporting. Particularly for grant programs funded through new legislation, performance reporting requires more than updates on milestones achieved; federal agencies will often require data collection on evaluation or impact metrics to demonstrate how their funds are achieving the intended objectives of the program. Evaluation or impact metrics can be application-specific or program-specific by measuring what the funds are meant to achieve (i.e., technical – reduced outages; or community benefits – number of jobs created).

Part of award acceptance and set-up should be not only creating a schedule of reporting deadlines but creating a reliable system for regular data collection based on reporting questions and categories required by the award conditions. Recipients should also determine which staff will be responsible for writing, approving and submitting reports to the agency.

6. Monitoring subrecipients versus contractors

When implementing federal awards, recipients can work with subrecipients, contractors or both. However, recipients remain responsible, to different degrees, for monitoring these parties to ensure proper use of funds, reasonable progress toward promised milestones and compliance with applicable federal standards. Unlike contractors, who provide goods and services in alignment with their regular business, subrecipients are active partners and participants in the grant award. As such, subrecipients are subject to many of the same compliance requirements as recipients, and recipients are responsible for monitoring adherence to those requirements, much like federal agencies are responsible for monitoring them. Subrecipients should be required to submit regular progress and financial reports to the recipient on an agreed upon schedule, and additional oversight strategies such as site visits might also take place with set criteria for evaluation in place. Contractor progress and deliverables should also be routinely monitored by recipient project management to ensure the grant remains on track.

7. Property management

As with accounting systems, there are also clear federal standards in place for property management systems, when applicable to the federal grant in question. Recipients should have a property management system that maintains records of property including description, source, identification number, where the title vests, acquisition date, federal share of property cost, location and condition, acquisition cost and ultimate disposition information. Physical inventory and reconciliation of property holdings should take place at least once every two years. Recipients should also conduct a prior review of each proposed property acquisition to ensure the property is needed and the need cannot be met with property the organization already possesses. This will help with the grant close-out process, when many federal agencies require you report on property acquired through the grant funds.

8. Single audits and record retention

Finally, currently recipients that receive more than $750,000 in federal funds during a single year are required to undergo a single audit to review their compliance. Having many of the internal controls, including written policies and procedures, discussed above will set you up for a successful audit and resulting audit findings. However, record retention is also vital for ensuring a smooth review process, whether by your auditor or by the program office if an issue arises. These records should include:

Grant documents, such as notice of award, approved grant application documents (e.g., budget, work plans), program office communications
Grant reports, including internal monitoring and submitted financial and programmatic reports, for each period
Procurement records, including competitive RFPs, received bids, conflict of interest statements, selection rationales and executed contracts
Expenditure records, including contracts, invoices, receipts, drawdown records, cancelled checks and internal grant reconciliations
Time and attendance records and payroll registers
Fringe benefit rate and federally approved indirect cost rate documentation
Travel authorization forms
Inventory records
Subaward documents including subaward application, award notice, reports and monitoring findings
Audits, audit findings and documentation of actions to address any findings

All records should be retained for, at minimum, three years after the close out of a federal award. If there’s an ongoing audit or litigation, make sure to keep this documentation on hand until it is resolved. Creating checklists and filing systems for project and grant management staff will prevent any gaps in your records and clearly document your track record successfully meeting compliance standards.