What We Often See in Grant Compliance Reviews

Ineligible Expenditure Claimed

Costs that fall outside the scope of the grant agreement are frequently identified during audits. Examples include:

• Capital expenditure where only revenue funding is permitted
• Unapproved overheads or indirect costs
• Staff costs not supported by time records or contracts

Insuficient Supporting Documentation

Auditors often find that claimed costs lack adequate evidence. Common gaps include:

• Missing or incomplete invoices
• No proof of payment
• Lack of procurement documentation (e.g. quotes, tenders)
• Absence of delivery evidence (e.g. reports, KPIs, photos)

Poor record-keeping for staff costs

Staff costs are often a significant portion of grant expenditure — and a frequent source of audit findings. Issues include:

• No timesheets for part-funded roles
• Inconsistent allocation of time across projects
• Contracts not specifying grant-related duties
• Fixed hourly rates calculated based on budget estimates and not updated to reflect actual payroll costs, leading to over- or under-claims

Unclear Allocation of Shared Costs

Where costs are shared across multiple projects or funding streams, auditors often find:

• No documented basis for allocation
• Arbitrary or inconsistent apportionment
• Lack of approval or justification

Weak oversight of downstream partners

Lead organisations are responsible for ensuring that sub-grantees or delivery partners comply with grant conditions. Common findings include:

• No formal agreements in place
• Ineligible spend by partners
• Partners not maintaining timesheets for staff costs
• Grant conditions not being passed down in partner contracts
• Lack of monitoring or reporting mechanisms

VAT claimed incorrectly

VAT is often a grey area in grant audits. Common issues include:

• VAT being claimed as part of eligible expenditure when it is recoverable
• No documentation to support VAT treatment
• Inconsistent VAT treatment across similar transactions

Excessive or non-compliant travel costs

Travel costs are frequently flagged, especially where:

• Business or premium economy flights are used when only economy is permitted
• Per diems or accommodation exceed funder limits
• For US-funded programmes, the Fly America Act is not followed and exceptions are not documented at the time of booking

Mismatch between financial records and grant reporting

Auditors frequently identify discrepancies between internal financial systems and grant reports, such as:

• Grant expenditure not reconciled to the general ledger
• Use of different coding or categorisation
• Reporting on a cash basis when records are accrual-based (or vice versa)

Undocumented budget changes

Budget reallocations or changes are sometimes discussed internally or with the funder but not formally documented or approved. This can result in:

• Expenditure outside approved categories
• Audit findings due to lack of written approval
• Misalignment with the original grant agreement

Incorrect treatment of holiday payouts and 13th month payments

Holiday payouts and 13th month payments are sometimes charged entirely to the month in which they are paid, rather than being apportioned over the period to which they relate. This can distort project costs and lead to audit findings.

Tip: Ensure such payments are allocated proportionally across the relevant period, and supported by documentation showing the basis of apportionment.

Failure to follow internal policies

Organisations are expected to follow the stricter of either their own internal policies or the grant agreement. Common findings include:

• Travel or procurement policies not being followed
• Internal approval thresholds being bypassed
• Inconsistencies between stated policies and actual practice

Tip: Ensure internal policies are consistently applied and aligned with funder expectations.

Costs outside the eligible project dates

Auditors often identify costs incurred before the project start date or after the end date, which are typically ineligible unless explicitly approved.

Tip: Review the grant agreement carefully and ensure all expenditure falls within the approved project period.

These issues can lead to qualified audit reports, funding clawbacks, or reputational risk.

Most findings in grant audits are avoidable with strong documentation, clear internal processes, and proactive oversight. At Menzies LLP, we help clients identify and address these risks before they become audit issues.

Note: While we use the term “grant audit” throughout, funders may require different types of assurance – including audits, assurance engagements, or agreed-upon procedures (AUPs). We tailor our approach to meet these specific requirements.