Grants Administration

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Type: 
Best Practice
Background: 

State and local governments often receive significant grants from other governments and organizations to support their programs and activities. Often, grants come with specialized requirements that can apply to the general operations of the grant, specific compliance rules, monitoring of other parties that may receive resources from the grants, and specialized reporting requirements. There are typically negative consequences for failing to meet these requirements. Further, grants may, either as a condition of the grant itself or politically, commit a government to financially maintain a program or asset after the expiration of the grant. Accordingly, a government should develop a grants policy that requires certain steps to be taken before applying for or accepting grants to maximize the benefits of grants while minimizing their risks.1

While it is important to have a grants policy, a government must also ensure that it does the appropriate administration of grants after their acceptance. Inappropriate administration can result in the failure to meet all requirements for grants that a government receives. In such cases the result can be a need to return some or all of the resources to the provider. Normally, a failure to meet all grant requirements is not intentional. Instead, the problem is often caused because all appropriate parties within the government are not aware of all the requirements or are not aware of the requirements at the appropriate time.

Recommendation: 

The Government Finance Officers Association (GFOA) recommends that governments establish processes to promote awareness throughout the government that grants normally come with significant requirements. Such processes should ensure that this awareness exists throughout the life of the grant and should address the following areas and include the following elements:

  1. To ensure the efficient administration and operation of grant programs the government should
    1. maintain a process to monitor for changes in grant terms and conditions that occur after the acceptance of a grant;
    2. establish a project plan with timelines and parties responsible for implementing the steps of the plan;
    3. provide initial training for new and unfamiliar programs and continuing training, in general, for the government (both for oversight agencies, such as finance, and department/program staff that directly administer the grants) and others involved with the grant program (e.g., subrecipients); and
    4. maintain a process to address specific personnel issues related to grants (e.g., whether salaries and/or benefits are eligible expenditures and if so, what are the related time-keeping requirements);
  2. To ensure the efficient financial management of grants a government should:
    1. develop appropriate cash management procedures for drawdown and receipt of funds as well as disbursement of funds;
    2. develop procedures to reconcile internal records with federal and state reports;
    3. maintain a process to ensure that costs charged to grants are allowable, necessary and reasonable, and properly allocable and that these determinations are consistently applied;
    4. determine whether indirect costs will be allocated to grant programs and if so maintain an appropriate process to make the allocation;
    5. maintain a process to track information about local matching funds including identification of the continuing source of such funds;
    6. integrate grants in the annual budget process;
    7. integrate grants in the government’s cash flows planning; and
    8. develop a contingency plan for funding services that will be continued even if the grant funds terminate.
  3. Governments should maintain proper systems to support grants that:
    1. ensure that systems will provide information to all involved parties to allow them to comply with both GAAP and grant requirements;
    2. identify and segregate costs as necessary for the grant (e.g., separate allowable and unallowable costs, separate direct costs from indirect costs, and separate administrative costs);
    3. develop systems and methods to account for and track capital items;
    4. include the capability to track information for non-cash grants; and
    5. develop a methodology to store and provide information electronically so that it is available to multiple users.
  4. Maintain proper internal controls that:
    1. document grant procedures;
    2. maintain internal controls over accounting, financial reporting, and program administration;
    3. maintain internal controls to identify and adhere to Federal and State compliance requirements, such as those relating to contracting;
    4. consider the level of program risk (e.g., high, medium, low) when establishing internal controls; and
    5. establish internal control procedures to ensure the reliability of information obtained from third parties (e.g., jobs, Buy America).
  5. Maintain processes for sub-recipient monitoring that:
    1. provide for programmatic monitoring including requirements for subrecipients to submit progress reports;
    2. provide for administrative monitoring including timely reporting and adherence to compliance requirements;
    3. provide for financial monitoring including understanding of and adherence to cost principles;
    4. establish periodic monitoring meetings;
    5. provide for the receipt, review, and appropriate follow-up of single audit reports, when applicable; and
    6. develop contacts with the state for fun
  6. Establish continuous communication that:
    1. develops a communication process with the sponsor/provider;
    2. develops a communication process with those that have oversight responsibility including, when applicable, the Federal Cognizant Agency;
    3. develops a communication process with external auditors;
    4. develops a communication process with auditors engaged for single audit purposes; and
    5. develops an interdisciplinary implementation task force within the government that meets regularly to discuss changes and how they should be implemented.
  7. Processes to meet various specialized reporting requirements that:
    1. maintain a comprehensive list of reporting requirements and a reminder system for meeting the reporting deadlines;
    2. develops the methodology for the preparation of specialized reports;
    3. develops an approval process for certifying specialized reporting; and
    4. develops a process to aggregate all of the information needed for the schedule of expenditures of federal awards.
  8. Ensure the completion of auditing requirements for grants that:
    1. develops an understanding of audit requirements unique to the grant including those in Generally Accepted Government Auditing Standards (GAGAS), Generally Accepted Auditing Standards (GAAS), and applicable Office of Management and Budget (OMB) circulars;
    2. develops an understanding of audit requirements that may be necessary for grant close-out; and
    3. ensures the completion of audit procedures relating to the information to be included in GAAP-basis financial statements.
Committee: 
Accounting, Auditing, and Financial Reporting
Notes: 
  1. See GFOA’s best practice on Establishing an Effective Grants Policy, 2013

 

This best practice was previously titled Administering Grants Effectively.

Approved by GFOA's Executive Board: 
May 2013
Applicable to Canadian Governments: