Federal Grant & Contract News For Nonprofits - May 2015

On March 31, the National Science Foundation (NSF) Office of Inspector General (IG) issued an audit report in which it questioned approximately $1.8 million in costs charged by the University of California at Berkeley to NSF grants totaling $379 million from 2010 to 2012. The NSF IG's report is one of several recent reminders that Federal nonprofit grantees need to prepare for audits of their grants, and that those audits often can entail a lengthy process, particularly where large dollar amounts are involved. This month's newsletter continues our focus on various compliance issues with a discussion of how to prepare for, engage in, and appeal multi-year audits. While long-term audits can be an arduous and frustrating process, nonprofit grantees should consider taking the following actions before, during, and after IG audits to minimize the IG's recommended disallowance and recover improperly disallowed funds.

Prepare for the Audit Before It Begins

The most important work in reducing the aggravation of an audit occurs well before an auditor starts opening up books—during the performance of the grant award.

Create an Audit Trail for Decisions Made During Performance. Grant conditions and regulations (such as 2 C.F.R. § 200.400(d)'s requirement to provide adequate documentation of the reasonableness and necessity of all costs incurred under the grant) set forth a nonprofit's responsibilities when it comes to the creation and maintenance of records that give contemporaneous explanation for the nonprofit's decisions throughout performance. Such documentary evidence includes various iterations of required policies and procedures that can demonstrate to an auditor that the nonprofit worked diligently throughout the life of the grant to safeguard and expend grant funds in accordance with all applicable requirements. Having clear, contemporaneous documentation of the circumstances prevailing at the time the decision was made can help to mitigate the effects of an auditor's after-the-fact second-guessing of grantee actions. Establish Filing Systems and Document Retention Policies That Ensure Adequate Documentation Is Readily Available. As required by 2 C.F.R. § 200.333, nonprofit grantees should establish consistent, comprehensive filing systems and document retention policies that set the ground rules for grant administrative personnel on what are relevant documents that should be saved, where and how these documents will be stored, and how long...

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