Federal Grant And Contract News For Nonprofits – March 2015

The implementation of the Super Circular retained an important access-to-records requirement that gives the various federal agency Inspectors General (IG) access to "documents, papers, or other records of the non-federal entity which are pertinent to the federal award, in order to make audits, examinations, excerpts, and transcripts." 2 C.F.R. § 200.336(a). Under the record retention standards, all "[f]inancial records, supporting documents, statistical records, and all other non-federal entity records pertinent to a federal award must be retained for a period of three years from the date of submission of the final expenditure report or, for federal awards that are renewed quarterly or annually, from the date of the submission of the quarterly or annual financial report, respectively, as reported to the federal awarding agency or pass-through entity in the case of a subrecipient." Id. § 200.333.

The IG generally uses this right to review whether a particular grant program was compliant with both federal law and the terms of the grant agreement, as well as whether a particular expenditure created a risk of fraud, waste, and abuse. The IG then makes recommendations to the agency in the form of a public report about whether to allow or disallow certain costs. In recent years, the IG offices have expanded their budgets and increased their activity—an action that mirrors the recent uptick in enforcement actions under the Obama administration. With the implementation of the Super Circular standards, some of which remain ambiguous, nonprofits should expect grant funds to come under greater IG scrutiny for years to come. Accordingly, nonprofits should be mindful of the following when handling current or future IG inquiries.

Understand the role of each player.

The IG is not the programmatic personnel for the federal agency. In fact, the IG is reviewing both the nonprofit's and the agency's conduct for a given grant or program. The function of the IG is to act as a check on the entire agency discretionary spending process. Two important facts result from these divergent responsibilities:

The IG may have a different interpretation of the regulatory requirements than the agency. Because the IG operates independently, it is common for IGs and agencies to take differing views of contract and regulatory requirements, and the importance of those requirements. For this reason, it is important for nonprofit grantees to document their interaction with the...