If you receive grant funding, or you’re exploring it as an option for enhancing your business’s growth, you should also be aware of the compliance requirements that surround it.
Unlike loans, grants do not need to be repaid, making them an attractive option for funding research, community projects, and business expansions.
But, to keep compliant and ensure your funding is utilised in the right way, you may need to participate in grant assurance arrangements and/or funding audits.
At Scholes CA, the team and I often offer assurance services to our clients when the grantor stipulates that some form of external assurance is necessary.
The importance of grants for your business
Grant funding can be a game-changer.
It empowers organisations to chase goals that would be out of reach without financial support.
There are various types of grants available, some of which you’ll be able to capitalise on and some of which you won’t, including:
- Government grants: These are offered by local, regional, or national government bodies and often come with stringent compliance requirements.
- Foundation grants: Private foundations provide funding for specific causes, such as education, health, or the arts.
- Corporate grants: Businesses may offer grants as part of their corporate social responsibility (CSR) initiatives.
- Research grants: Typically awarded to academic institutions or researchers to support scientific studies and innovations.
If you run a non-profit, this funding can be the lifeline that keeps essential community services running, rather than facing the threat of closure due to lack of funds.
The importance of assurance engagements
Organisations usually need grant assurance because their funders require it, especially for larger grants.
This is common practice for things like R&D projects funded by Innovate UK and Scottish Enterprise, involving both for-profit and not-for-profit companies.
The grant assurance process, from your accountant’s perspective, involves reviewing a complete list of the organisation's expenditures and verifying a sample of these costs against source documents, such as invoices, payroll reports, and bank statements.
This process ensures that the costs you’ve claimed are genuine, paid, and relevant to the project.
The primary benefit of grant assurance is compliance, which is necessary for the funder to release the grant.
For smaller grants, assurance might only be required for the final claim but, for larger grants, it may be needed for every claim.
For grantors, they also provide assurance that their funds are achieving the intended impact and are not being misused.
For grantees (you), they can highlight areas for improvement in financial management and compliance, thereby enhancing your credibility and increasing your chances of securing future funding.
The expertise of an accountant experienced in assurance engagements ensures that grantees are well-prepared and can navigate the complexities of future audits efficiently too.
Many funding bodies, including Innovate UK and Scottish Enterprise, require accountants to be registered auditors before they can provide an independent accountant's report on funded projects.
(Scholes CA meets this requirement).
How to navigate an assurance engagements successfully
Navigating an assurance engagement (and audit) can be daunting, but with the right preparation and support, it can become a manageable and even beneficial process.
Here’s some practical advice, based on our years of experience in this matter, to help you successfully manage an assurance engagement.
Firstly, I’d like to point out that preparation is key to a successful assurance report. Here’s what you can do to get ready:
- Review your financial records: Ensure they are accurate and complete. This helps avoid discrepancies during the process and shows assessor that your financial management is thorough and reliable.
- Document properly: Ensure that all necessary paperwork is organised, easily accessible, and up to date. This includes grant agreements, expenditure receipts, and financial reports.
- Conduct internal reviews: Identify and address potential issues before the assurance engagement begins. This proactive approach can help you resolve problems early and present a cleaner set of records to auditors.
When the assurance engagement is underway, your actions can significantly influence its success.
You’ll need to:
- Communicate effectively: Facilitate smooth interactions by being responsive and cooperative.
- Provide documentation promptly: Be prepared to supply any necessary documentation and explanations to the auditors promptly. This keeps the process on track and demonstrates your readiness and transparency.
- Address queries quickly: This shows your commitment to addressing any issues and helps resolve them effectively.
After the assurance engagement, you should take steps to address findings and improve future compliance whilst looking in-depth at your current practices and operations.
You should:
- Address findings promptly: Act on any findings or recommendations made in the report without delay. This may involve correcting discrepancies, enhancing documentation, or improving financial practices.
- Implement changes: Use the feedback to implement changes that enhance your future compliance and financial management. This could include refining processes, strengthening internal controls, or providing additional training for your team.
- Prepare for future audits: Continuously refine your processes and controls to be better prepared for subsequent assurance engagements and/or audits. Regularly update your documentation and review your financial practices to ensure ongoing compliance and effective management of funds.
In all of the assurance engagements we’ve performed, those that tend to work best are the ones monitored and guided by an experienced accountant.
They’ll be able to give you tailored compliance advice, guide you through the grant application process and eventually, if you’re successful, perform an assurance engagement for you.
In short, we highly recommend you maintain connections with an accountant throughout any grant-related processes.
