Businesses which seek grant funding should view that funding as “seed” funding.  Seed funding enables them to begin planting a crop which can be harvested later.  Businesses also need to be aware that all seed funding needs fertile ground.  Fertile ground equates to sound business and financial capability.

When businesses use grant funding as their “seed” round, then they need to understand the underlying requirements for business structure, systems, and financial controls.  These “normal” business elements are expected to be in place for grant recipients (and contractors) whether they are the primary recipient or a subrecipient.

The scope of requirements and the expectation of management and financial controls vary only in degree.  Underlying all government awards – grant or contracts – are the following areas of compliance:

  • Recordkeeping
  • Timekeeping
  • Financial systems and controls
  • Management oversight
  • Reporting
  • Performance monitoring

Additional agency and award requirements may be imposed over and above those items listed above.  These requirements may include who may receive subawards and how that will be monitored,  intellectual property and tangible asset ownership, allowable costs, and many others.  Also, grants and awards may be the trigger event which requires your business to comply with other regulations – Department of Labor and financial reporting.  Keep in mind that receipt of government funding may be the starting point for your business achieving significant growth, a pre-cursor to commercial success, or to building your business.

Businesses engaged in proof of concept and commercialization efforts need to pay careful attention to the elements of the awards.  Significant investment in the business infrastructure may be necessary if there are significant gaps between current operations and the requirements of your awards.

How do you know if you now have or may be facing requirements  you haven’t met?  How do you determine the potential risks and financial impacts which may result from non-compliance and the potential for adverse audit results?

Here are some areas to review to evaluate existing operations and financial systems:

  • Procurement practices
  • Travel expenditures
  • Asset tracking and controls
  • Cost methods and allocations
  • Program income
  • Time-keeping
  • Recordkeeping

If any of the above items is an area in which  you are unsure of  your business practices, it may be wise to invest in resources to assist you in a review of accounting, operational, and compliance assessments based upon your specific business needs. These are the areas where most businesses fail the audits.  If you aren’t prepared, or you aren’t sure where your business stands in meeting requirements, then it is time to find out what the requirements are for your organization and if you have met them.

To begin the process of identifying the requirements, start with creating a summary of each grant or contract your organization has.  Identify the items spelled out in the agreement/contract and those which are “incorporated by reference” (referred to by number and legislative act, guidelines, etc.).

After you have the individual requirements listed for each award, then create a matrix of all of the requirements and see where they overlap and where they differ.  This will give you an idea of the scope and depth of the requirements you must address.

Once you have a consolidated picture of the compliance requirements, it is time to understand the “details” of each requirement.  What results are you expected to have and demonstrate to the awarding agencies and auditors?

If your organization isn’t equipped to answer the compliance and business management systems issues raised by this review, or if you don’t have the capacity to do the review internally, then invest in getting the work done with external experts.  Compliance isn’t optional.  Failure to comply is at best expensive; at worst it leads to jail time and loss of your personal and business assets.

Keep in mind that the longer you wait to get in compliance, the deeper the hole and the more costly the project.  Also, remember that full compliance is achieved through policies, procedures, and transactional integrity.  Full compliance requires that your organization understand what is expected, how to achieve the result, and how to do business under the rules.

Copyright ©2005 Lea A. Strickland, F.O.C.U.S. Resource, Inc.

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