Grant Auditing:

A Maze of Inconsistency, Gaps, and Duplication That Needs Overhauling

FGMSD-79-37: Published: Jun 15, 1979. Publicly Released: Jun 15, 1979.

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Federal grants will total about $85 billion in fiscal year (FY) 1979. The government relies on audit as the basic control to see that these funds are spent as Congress intended and to prevent unauthorized expenditures and loss of funds from fraud and abuse. The ideal in auditing grant programs is to have a single audit of a recipient that would be acceptable to all the funding organizations. Such audits would be made periodically when needed, and would ensure that the recipient is complying with the terms of the grants and that financial records and controls are adequate. Funding organizations would then be free to perform additional audits of economy and efficiency and program results.

This ideal is far from being achieved. In general, agencies audit only their own grants, and do not completely review grant recipients' financial controls or grant management practices. The auditors are unlikely to detect improper charges or transfers of funds and equipment to the grant. Moreover, the agencies do not audit many grants while repeatedly auditing other grants with minimal results. This approach costs time and money through gaps in coverage and duplication of effort. Through a review of the audit experience of 73 grant recipients during FY 1974 through 1977, it was found that 80 percent of the federal funds was not audited. Of the 73 recipients, only 56 were considered to have been audited, and 51 of these received audits which provided only partial or no insight into whether funds were properly spent. Only one recipient received a single comprehensive audit. The number of times a recipient was audited ranged from no audits to 50. The government needs to expand audit coverage of grant recipients through the use of coordinated single audits which would eliminate duplication and reduce auditing of many compliance items while providing a better look at the grantee's overall performance.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should amend the Intergovernmental Cooperation Act of 1968 to prescribe standard audit requirements applicable to all federal grants. The amendment should rescind existing laws for regularly scheduled audits of individual grants by particular organizations and allow federal agencies flexibility in judging audit need. The amendment should designate a responsible time interval within which grant recipients must be audited.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Director of the Office of Management and Budget (OMB) should: (1) designate cognizant federal agencies for making single audits of multifunded recipients, responsibility for auditing specific types of recipients, such as hospitals and colleges, could be divided among several agencies); (2) hold periodic meetings with grant administering agencies to insure complete and successful implementation of the cognizant approach; (3) direct cognizant agencies to use a standard audit guide such as the one developed by GAO, OMB, and the International Audit Forum, or a suitable replacement, in auditing multifunded recipients; (4) develop a nationwide system to identify federal funding that grant recipients may receive; and (5) stipulate that to be reimbursed with grant funds, nonfederal audits must follow federal audit guidelines. The heads of federal departments and agencies administering grants should establish procedures to ensure that grantees under their cognizance have required audits that include steps necessary to satisfy federal as well as their own needs. They should also assure that their auditors make maximum use of audits arranged by nonfederal agencies and only do whatever additional work may be necessary to see that grant funds are spent for the intended purpose and are otherwise safeguarded, and ensure continuous liaison with nonfederal audit staffs with common interest to minimize the amount of audit effort required and to learn of problem areas.

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