I was in LA over Labor Day weekend and, at a pool party, chatted with a semi-retired CPA who has been hired by a large nonprofit hospital to help with an audit of a federal grant. The audit is being performed under the Office of Management and Budget (OMB) Circular No. A-133. OMB publishes a variety of circulars covering all sorts of topics. Some, such as A-133, are of great importance to nonprofit and public agency grant recipients but are routinely ignored (to the great peril of the agencies).
In the case of the LA hospital I discussed over daiquiris*, the organization was so surprised and elated at getting the grant that they treated it like a Christmas present. In other words, even though the hospital is a multi-million dollar operation with a full-fledged accounting department, they completely failed to follow federal accounting rules in implementing the grant. They spent the money more or less without regard to terms of the RFP and did not follow A-133 requirements. When faced with the prospect of an unsmiling federal audit team and an unflattering story in the LA Times, they brought in a knowledgeable CPA to straighten out the mess.
The issue resonates with me because, in addition to writing more proposals than I care to think about, I’ve also had the thankless task of managing numerous grants. My favorite story about grant management concerns a large Department of Energy project for electric cars during the late 1970s that I wrote when I worked for the City of Lynwood. This long-forgotten program gave the city about $1 million to buy and operate ten electric vehicles, which proved to be slow and unreliable, making them perfect for a municipal fleet. We were unlucky enough to be selected for an audit and I got tagged to handle it. The auditor turned out to be from the Department of Defense, since the newly created Department of Energy was too fresh to have its own auditors. I settled the fellow down in a conference room with donuts, an essential tool for all audits, and he asked his first question: “What product do you produce in this facility?” Since we were at City Hall, I smiled and responded: “Promises.” The audit went downhill from there.
Based on that experience and many others, here are some basic tips on managing grants:
- If you don’t have a finance director familiar with grant accounting, find an outside accounting firm that is and hire them to set up your grant-related accounts and procedures.
- Make sure the person responsible for managing the grant has obtained, read and understands the relevant regulations, including OMB Circulars for federal grants.
- Spend the grant funds as quickly as you can, since funders don’t want the money back. If an agency fails to spend a grant and returns the funds, the funder will be very unlikely to award another grant.
- Make sure the funds are spent in accordance with the grant agreement. It is important that the agency can show “maintenance of effort,” meaning that whatever was being done before is not being reduced following grant receipt and that the agency is not supplanting existing funds with grant funds. For example, if the grant is for after school programming, it is not okay to use the grant to pay for current after school programming so that the District Superintendent can remodel her office. If an audit disallows expenditures, the agency will have to pay the money back, which is not an attractive prospect.
- Keep accurate records, including expenditures, personnel records, activities and in-kind support. That’s right, if you’ve included in-kind support as a match in the budget, you may have to prove that it was provided, so keeping track of volunteer hours, value of referral services provided, etc., is essential. Even innocent and detailed records can cause problems during an audit. For example, while serving as Development Manager for the City of Inglewood**, I had to handle an audit for an Economic Development Administration (EDA) grant. The grant involved demolition, which meant Davis-Bacon prevailing wage requirements for all persons paid through the grant. When the auditor began pulling expenditure records (for each expenditure, this means a check request, purchase order and cancelled check) for workers, it turned out that every demolition worker had the same address, which was a check cashing store. The contractor was apparently having the workers cash their checks and return a good portion of the so-called “prevailing wages” the workers were supposed to receive to the contractor. To avoid disallowance of costs, we had to chase down the contractor once we figured this out to get him to provide back pay to a whole bunch of suddenly very happy demolition workers.
The secret to grant management is to remember that everything related to a grant is likely public information, so don’t do anything you wouldn’t mind seeing on the front page of the local newspaper. As long as you think your grant-funded trip to Las Vegas will pass the smell test for having something to do with solving the challenges facing at-risk youth being funded by a Department of Education grant, I say, Viva Las Vegas!. Just keep in mind, that, when it comes to grants, what happens in Vegas may not stay in Vegas.
*I’m talking real Hemingway “Papa Doble” daiquiris, not the disgusting pre-made concoctions found in most bars.
** As Tupac said and as quoted previously, “Inglewood always up to no good.”