Grant money can open up programs for the community every nonprofit dreams about. However, as nice as it is to obtain federal funding, there are stringent reporting standards that must be adhered by in order to maintain good financial standing with the awarding agency. In order to properly monitor the nonprofit’s use of funds, a grant audit will be performed.
A grant audit’s purpose is to assess and evaluate the organization’s performance and compliance with federal requirements. When a grant is awarded, a program manager is assigned to the organization as a primary contact. The program manager regularly monitors progress and evaluates documents pertaining to the grant money and programs.
Depending on the grant, some programs have strict monitoring guidelines. In addition to routine contact with a program manager, a program officer performs the audit. He will actually visit the site of the organization and thoroughly evaluate documentation.
The program officers work for the federal agency that awarded the grant money. They use government auditing standards (GAS). When a grant recipient receives $500,000 or more, it must adhere to the rules in the GAS book, also know as the Yellow Book for it’s yellow cover. The nonprofit’s financial statements are of interest but also how the organization is following the laws and regulations.
The audit performed is in accordance to GAS and the generally accepted auditing standards (GAAS). Three circulars outline specific rules for the use of federal funding- OMB Circular A-133, OMB Circular A-122, and 2 CFR 215.
If the nonprofit receives less than $500,000 in grants in a year, the federal agency awarding the grant will review the records along with the General Accounting Office (GAO).