I recently conducted a training session for the National Grants Management Association. The focus of my session was the importance of internal controls and grantees (and grantors) responsibilities. While I know this topic is as glamorous and as exciting as it sounds, the Office of Management and Budget (OMB) has put these issues front and center on its agenda, especially within the context of the new Uniform Grant Guidance, or UGG.
Essentially, government funding requires effective stewardship by all involved. OMB’s focus is on streamlining and efficiency and how financials equate to program outcomes—all of which help show greater social impact. When there is increased transparency, there is greater understanding of how funds are spent. Don’t let the Government Accountability Office write a report about your department!
Internal Controls and Grantee Responsibilities
How will this process be managed from a federal level and how can you implement it? The following overview of UGG updates related to internal controls will help answer this question:
These fuel effective grant management which impacts your entire grant lifecycle.
The OMB has increased focus on performance measurements and transparency.
This often becomes the forgotten stepchild of postaward management.
As grant applicants, we all ensure effective stewardship of public funding by adhering to federal regulations, policies, and guidelines.
Our funders ensure that our organizations are able to serve as effective public stewards of federal funds.
Based on UGG § 200.303, we (as the nonfederal entities) must establish and maintain effective internal controls that provide reasonable assurances that we are managing federal funds in compliance with federal statutes, regulations, and the terms and conditions of our award documents. Our internal controls must be in compliance with the guidance published in Standards for Internal Control in the Federal Government issued by the Comptroller General of the United States or the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Reasons to Maintain Internal Controls
Listed below are the top reasons you should keep internal controls and awardee responsibilities on your agenda:
Auditors will be examining your financial records if you receive an A-133 audit or any government funding. Do you have a structured way of outlining your organization’s operational and financial processes, systems, and rules regarding accountability? If not, you need to develop these written procedures in order to be in compliance with the new Uniform Grant Guidance.
Since all federal funds are required to be tracked to ensure that the recipients (and subrecipients) are using funds in accordance with OMB guidance, outlining your process to safeguard these funds is of utmost importance. Do you have systems in place that make information readily available? If not, you need to develop one.
Although the physical documentation and mapping of operational systems and processes take time to complete and use multiple resources, the process can help identify ways to improve your operational efficiency and ultimately make an audit experience much more pleasant.
How are the financial management, operations, and performance measurement tasks taking place? Who is providing oversight of each task? Are different people responsible for different components of the process? These are considerations you should address to ensure accountability through the identification of separate roles and responsibilities before an audit.
Do you have internal controls in place? The use of internal controls is something that all organizations should be doing, even those without federal funds. This just makes good sense and is often looked upon as a best practice by all funders and auditors.
Creating and Implementing Internal Controls
The creation and implementation of internal controls can be difficult, especially in small organizations. Several of the most common challenges you may face are listed below with some possible solutions to mitigate them:
Resource Capacity (Personnel, Funding, Materials, Knowledge, Etc.)
Solution: Assign responsibilities for particular functions but do not load them onto one person’s plate. These include grant reporting, budget updates, procurement/vendor management, and evaluation measurement. Also, you should designate someone to be responsible for and oversee the leveraging of existing funding resources and materials through existing departments (i.e. finance, development, etc.).
Strategic Planning and Alignment with Organization’s Priorities
Solution: Conduct an annual strategic planning retreat/session with applicable stakeholders.
Solution: Ensure a consistent process is in place to promote changes in institutional knowledge and leadership.
Lack of Best Practices on UGG Implementation
Solution: The government is working on providing more information and recommended processes. The development of uniform regulations is an ongoing process. As the rules are finalized and implemented, they will be published in the UGG. Stay abreast of any updates through national industry leaders in the field.
Maintenance of Continuous Quality Improvement/evaluation Measurement
Solution: As stated in “Leadership Changes,” ensure a consistent process is in place to promote institutional knowledge and leadership priority changes.
Meeting Operational Goals While Changing the Way Business Is Conducted
Solution: This will become part of the organizational culture and promote efficiency with greater role clarification and task accountability.
The use of well-designed internal control policies and procedures protects your organization through risk avoidance strategies. In order to ensure their effectiveness, test these processes and procedures in action, and make any changes required. Also, ensure that management has information that is comprehensive for accounting, reporting, planning, and monitoring purposes and that you have trained applicable staff members.
The focus on internal controls and transparency is only going to increase over time—make sure you stay ahead of the fray!