Grant audit essentials: Understanding the process and why they matter

by | Jan 29, 2025

Securing a grant can be a positive step forward for charities, start-ups, and established businesses alike. Grants help organisations stay funded, drive research, support community projects, or boost expansion efforts. However, once a grant is awarded, there is an expectation that the money will be used properly. This is where a grant audit comes in. It offers assurance to funders that everything has been done according to the conditions of the grant, helping maintain trust and a positive reputation.

The government continues to offer various grants to support innovation and economic growth. These grants cover fields such as research and development, community projects, and business infrastructure. As more organisations apply, the requirement to demonstrate accurate financial management through a grant audit remains a central part of the process. Below, we explain what a grant audit involves, why it matters for compliance and accountability, and how we can support organisations through each step.

What is a grant audit?

A grant audit is an independent examination of how an organisation has managed and spent its grant funding. The auditor checks whether the funds have been used in line with the conditions set by the grant provider, often a government body, charity, or private funder. This process typically involves:

  • Reviewing financial statements and accounting records
  • Checking supporting documents (e.g., receipts, invoices, and contracts)
  • Confirming that any outputs or objectives (e.g., creating jobs or conducting specific research) have been met
  • Comparing spending against the original budget or funding agreement

During a grant audit, an auditor ensures the organisation’s processes for tracking, recording, and reporting financial data meet the funder’s requirements. They verify that every expense is backed up by the right documentation and that the grant has not been misused or redirected elsewhere.

Why a grant audit matters

  1. It demonstrates accountability
    Grant providers often invest substantial sums of money in an organisation’s project or programme. According to the National Audit Office, the government distributes billions of pounds annually through grant schemes. With that level of financial support, funders want reassurance that the money is being spent as intended. A grant audit shows a clear trail of evidence for how funding was used, giving providers confidence that they have partnered with an organisation that respects and adheres to the terms.
  2. It builds trust and reputation
    A successful audit can significantly boost your standing among donors, investors, and partners. When you show that you managed past funding effectively, future funding applications are strengthened. This can open doors to additional support or partnerships. Organisations that handle grants transparently often find it easier to approach new funders, as they have a proven record of proper financial stewardship.
  3. It encourages better financial management
    The audit process sets a clear standard for financial record-keeping. Knowing that an external party will review records tends to motivate teams to keep thorough documentation and follow consistent accounting procedures. Even if you never have any issues, the mindset of being ‘audit ready’ can lead to improved day-to-day management of all finances, not just grant funds.
  4. It helps detect potential problems early
    Poor accounting systems, incomplete records, or misaligning grant conditions can lead to serious problems. An audit highlights areas that need attention so these can be resolved before they escalate. This is especially important for organisations that rely on multiple grants or sources of income. Promptly addressing issues preserves relationships with funders and avoids any risk of having to return money.

Key steps in the process

  1. Review the grant agreement
    Before the audit, re-check the fine points of your grant agreement. Make sure you understand all eligible and ineligible costs, as well as any reporting deadlines.

    • Tip: The government provides detailed information about grant agreements and funding rules on GOV.UK. Refer to these when clarifying what is acceptable under specific funding programmes.
  2. Maintain good records
    Keep well-organised financial records. This includes invoices, receipts, timesheets (if staff costs are covered), and bank statements. If your funding spans across the tax year, ensure you can clearly separate costs from previous or future grant periods, especially if your organisation receives multiple grants.
  3. Track expenses regularly
    Regular expense tracking helps you stay on top of grant spending. Set up a process for logging expenses soon after they happen, rather than leaving everything until the end of the year. This approach will make the audit smoother, as you’ll avoid last-minute document searches.
  4. Prepare for fieldwork
    The auditor may want to visit your premises or conduct remote checks to verify your records. They might interview key staff members, such as project managers or finance officers, to understand internal controls. They will also examine how you track hours, overheads, and specific items in the grant agreement.
  5. Await the audit report
    After fieldwork, the auditor compiles a report summarising their findings. Any recommendations or requirements for further clarification are clearly stated. Take time to review these findings and act if changes are needed.

How we support organisations

We offer a thorough and supportive approach to the grant audit process. Our team has helped clients from different sectors manage funding checks, highlighting best practices and assisting with any improvements. We tailor our work to your organisation’s size and sector, ensuring our approach is practical and clear.

  • We guide you on record-keeping requirements: We share advice on setting up systems that are easy for your staff to maintain. This includes digital bookkeeping solutions that reduce admin time.
  • We provide a transparent audit: Our audits are carried out to international standards, and we keep you informed of progress from start to finish.
  • We highlight possible risks: If we find gaps or issues during our checks, we let you know so they can be resolved without causing problems later.

You can find more details on our grant audit services or browse other support options on our main Cottons Group website to see how else we can help.

Staying compliant

Laws and regulations evolve, and grant conditions can change over time. While the audit requirements may vary between private funders and government bodies, your fundamental responsibility to account for each pound spent remains the same. If you are a company registered with Companies House, stay on top of your annual returns and filings. This consistency helps build a positive profile and can streamline audits further.

Some grants, especially those offered by government departments, may require more rigorous financial checks. This is often linked to the size of the grant or the project’s impact. As the tax year continues, we expect more grants to focus on innovation, sustainability, and economic recovery. If you are exploring new funding, consider the possibility of an audit and plan your accounting processes accordingly.

The bottom line

A grant audit is an important process that helps keep organisations accountable to those who invest in their work. It confirms that funds are being spent properly and that important records are up to date. It also strengthens your organisation’s credibility, allowing you to move forward with confidence when applying for new funding.

If you have a grant audit on the horizon or want advice on making your organisation audit-ready, get in touch. We are happy to guide you through each step, helping you manage your finances responsibly and build trust with your funders.

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