Grant Accounting Practices Under Scrutiny

The assumption may be that the longer the history of receiving grants and the bigger the organization, the better the grant accounting system.  While that could be true, it isn’t necessarily so.  Just read about Yale University.  June 2006 found Yale receiving not accolades, but subpoenas seeking documents related to the management of research grants.

The subpoenas from the U.S. Department of Health and Human Services (DHHS), the Department of Defense, and the National Science Foundation pertained to documents related to allocation of research expenses, level of effort on grants by faculty, and a myriad of other activities related to grant accounting and administration.  The subpoenas follow findings by the Office of Inspector General (OIG) of DHHS on accounting deficiencies, including the transfer of expenditures from one grant to another.

Yale’s experience is not an isolated event.  On a daily basis the OIG and other audit agencies of the federal government findings reveal that accounting, financial, and administrative control of grant funds fail to meet the standards established by granting agencies and programs.  Further, the grant recipients often lack knowledge of the requirements specified in the grant award or contract documents.

Grant Dollars – Fiduciary Responsibility

Grant funds are an important funding source for technology companies.  These funds are frequently the only source for “high risk” research and product development.  Due to the nature of projects funded and and the fact that these are taxpayer dollars, the government places requirements on all recipients to manage funds, provide financial oversight, and ensure the funds are properly expended.  These requirements may vary in some aspects depending upon the type of recipient (Yale versus a small for-profit start-up for instance), but the expected results are the same – fiduciary responsibility and due care with use of dollars.

Prudent Use

It is tempting to say “spend grant dollars as you would your own”, but that isn’t quite accurate unless of course you behave according to the definition of a “prudent business person”.  The use of taxpayer dollars (grant funds) is subject to what is reasonable, what is allowable under regulation, policy, and agreement, and what is allocable (can be shared based upon benefit derived).  A business owner may need a new car to get to and from work as well as to go out and prospect for sales.  The standard of a “prudent business person” may not see the need for the new car to be a Porsche.

Grant Management – Financial and Administrative Aspects

The underlying tenet of grant management is administrative and financial control of funds to ensure that expenditures are made to advance the program/project to achieve a specified outcome.  Tracking funds by program, project, activity, and use is one aspect of grant accounting.  The tracking requires adequate recordkeeping and documentation to support transactions recorded and reported.

Too often systems, controls, and procedures which support accounting and management policies become lax overtime.  The mechanisms such as internal audit and review, annual financial (external) audits, and recordkeeping fall victim to inexperience, inadequate knowledge of requirements, and/or “on-the-job” training.  They also may succumb to perceptions that “we mean well” and “it is too burdensome”.  The responsibility remains, regardless of how long we have been a recipient or whether we have one dollar or one million dollars.

Our systems and our tools will, of course, vary, depending upon the size of our organization and the resources we have available.  The results we must achieve – safeguarding and monitoring the assets, cash, and other resources and reporting our results – remain our responsibilities to understand, to execute, and to maintain.

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