Grant and Donor Fund Verification
Funders attach conditions and then want evidence the money went where it was supposed to. A general purpose audit rarely answers that, because the question is not whether the financial statements are fairly stated but whether each rand was spent on something the agreement permitted. We verify expenditure against the funding agreement itself rather than against a template, and report factual findings on what we find.
1
Read
The agreement itself
2
Map
Conditions to testing
3
Test
Eligibility per item
4
Reconcile
Fund by fund
5
Report
In the funder format
How We Verify
01
Reading the Funding Agreement
We start with the agreement, not the ledger. Eligible cost categories, procurement obligations, co funding requirements and reporting deadlines all sit in the contract, and each generates a testable condition.
- Every condition extracted and listed
- Eligible and ineligible cost categories identified
- Procurement and co funding obligations noted
- Reporting format and deadline requirements confirmed
02
Mapping Conditions to Procedures
Each condition becomes a procedure. Where the funder prescribes a report format or specific terms of reference, we work to theirs rather than substituting our own, because a report in the wrong format gets returned.
- Testing programme built from the agreement conditions
- Funder prescribed terms of reference applied where they exist
- Sample sizes appropriate to fund size and risk
- Areas of heightened eligibility risk prioritised
03
Eligibility Testing
We test expenditure against the permitted categories, which is where most findings arise. Costs that are perfectly legitimate for the organisation may still be ineligible under a specific grant.
- Expenditure agreed to supporting documentation
- Each item tested against eligible cost categories
- Procurement compliance where the agreement requires it
- Allocation of shared and overhead costs reviewed
04
Fund Reconciliation
Grant funds must be traceable separately even where they sit in a common bank account. We reconcile receipts, expenditure and the closing position, including any unspent balance subject to return.
- Receipts reconciled to the funding schedule
- Expenditure reconciled to the general ledger
- Interest earned on grant funds identified
- Unspent balances and repayment obligations quantified
05
Reporting
In the funder format, with findings expressed in the terms the agreement uses. Where expenditure is ineligible, we quantify it plainly, because a report that obscures a problem damages the relationship more than the finding does.
- Report in the funder prescribed format
- Ineligible expenditure quantified per category
- Conditions not complied with, listed explicitly
- Management response included where the funder allows
What You Receive
- Schedule of conditions extracted from the funding agreement
- Testing programme mapped to each condition
- Eligibility testing results with ineligible expenditure quantified
- Fund reconciliation including unspent balances and interest
- Report in the funder prescribed format
- Findings with management response where permitted
Indicative Timeline
A single verification engagement typically takes one to three weeks depending on transaction volume and how well grant expenditure was tracked separately during the year. Funder deadlines usually drive the schedule.
- Agreement review and condition mapping: two to four days
- Eligibility testing: one to two weeks
- Fund reconciliation: two to three days
- Reporting in the funder format: within a week
What Funders Typically Require
Requirements vary by funder, and reading the agreement is the only reliable way to establish them.
Eligible Costs
Testing that expenditure falls within the permitted categories, the most common source of findings.
Procurement
Whether the funder procurement rules were followed, which frequently differ from your own policy.
Separate Accounting
Whether grant funds were tracked separately and can be traced through the accounting records.
Co Funding
Whether the matching contribution was made and can be evidenced, not merely committed.
Asset Register
Whether assets bought with grant funds are recorded and, in some agreements, ownership on completion.
Unspent Funds
The closing balance, interest earned, and whether either must be returned to the funder.
Frequently Asked Questions
Why not just use our annual audit report?
Because it answers a different question. An annual audit opines on whether the financial statements are fairly stated. A funder wants to know whether their money was spent on eligible items in accordance with their agreement, which the annual audit does not test.
What is the most common finding?
Ineligible expenditure, usually because a cost that is entirely legitimate for the organisation was not permitted under that specific grant. Salary allocations and overhead apportionment are frequent sources.
Do we need to keep grant funds in a separate bank account?
Only if the agreement says so, and many do. Where it does not, the funds must still be separately identifiable in the accounting records. Tracking them only at year end is where the difficulty starts.
What happens if you find ineligible expenditure?
We quantify and report it. The consequence is between you and the funder and commonly involves repayment of the affected amount. Disclosing it plainly protects the relationship better than a report that obscures it and is discovered later.
Can you verify several grants at once?
Yes, and it is usually more efficient since much of the underlying testing overlaps. Each grant still needs its own report against its own agreement, because the conditions and formats differ.
What if the funder prescribes their own report format?
We use theirs. Funder terms of reference override our standard approach, and a report in the wrong format simply gets returned, which costs everybody time.
Related Services
This sits inside our Audit and Assurance practice. Related work: Agreed Upon Procedures where a funder wants verification rather than an opinion, and Financial and Management Accounting for grant accounting during the year.
