4 Layers of Federal Grant Compliance

An audit is defined as the evaluation of an audit subject against given criteria. And the federal government gives and gives and gives when it comes to auditing federal grants. 🙂

An audit of federal grants is often a “Single Audit”. If an entity expends more than $750,000 in federal grant funds in a year, they must undergo a ‘Single Audit’. And the Single Audit’s name is misleading because the Single Audit has not just one single audit but two interrelated audits– a financial statement audit and a compliance audit.

What is the audit criteria for the Single Audit?

The audit criteria for the financial statement audit component of the Single Audit is generally accepted accounting principles.

The audit criteria for the federal grant compliance portion of the Single Audit has at least four layers.

See how generous the federal government is?

1. Cross-cutting administrative rules– give grantees generic rules on how to manage a federal grant, including status reporting requirements and closing down a program. The admin rules are part of the Uniform Guidance (explained below) – sections C & D.
2. Cross-cutting cost principles– tell grantees what they can and can’t spend their money on. For instance, martinis are not allowed, but payroll usually is. The cost principles are part of the Uniform Guidance (explained below) – section E.
3. Program regulations– apply to the specific program. Is it a grant to help homeless children or build a highway? Specific regulations apply. The program regulations are usually (but not always) listed in the compliance supplement to the Uniform Guidance which is revised annually by the federal grantors.
4. Grant terms and conditions– inside the grant contract itself, the grantor may list specific compliance requirements.

What is the Uniform Guidance?

As described in its title “The Uniform Administrative Rules, Cost Principles and Audit Requirements for Federal Awards” also known as the Uniform Guidance, includes two of the four criteria listed above – the Administrative Rules and the Cost Principles.

The Uniform Guidance is very detailed and clocks in at over 100 pages!

It was written by the federal grant community to guide the federal grantors, the grantees, and the auditors of those grants.

Which federal grant compliance requirements are supreme?

The grant terms and conditions in the grant contract (#4 in our compliance hierarchy above) can override any of the other criteria. The grant terms and conditions may allow the grantee to do something that is not allowed in the program regulations, and the program regulations may specifically allow something that the cross-cutting cost principles and administrative rules prohibit.

For example, the Cost Principles in the Uniform Guidance expressly prohibit using federal money to buy alcohol. But, I know of one grantee who studied the effects of alcohol on driving. The cost of the alcohol was expressly allowed in the compliance supplement and grant agreement and, therefore, overrode the cost principles in the Uniform Guidance.

So, the requirements in the Uniform Guidance is a baseline of expectations. If the grantor is silent in the compliance supplement or the grant contract about an issue, then the cross cutting admin rules and cost principles in the Uniform Guidance apply.

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