Key points:
- Grant funding can create unexpected audit and reporting obligations if requirements are not clearly understood at the outset.
- The biggest audit risks often start when grant contracts are signed, not when acquittals are due.
- Vague or impractical acquittal requirements can lead to delays, extra cost, and audit complications.
- Involving your auditor early can help identify issues before funding begins and make the acquittal process smoother.
For many not‑for‑profits (NFPs), grant funding is vital. It supports day‑to‑day operations and enables organisations to continue delivering services into the future. Having worked closely with NFPs for many years as an audit partner, I’ve seen the same issue arise repeatedly, and often too late in the process:
Do organisations receiving grant funding really understand their audit and assurance reporting requirements? And do they appreciate how early funding decisions can ultimately affect what an auditor is able to sign off on?
Grant contracts have audit consequences
Management teams who negotiate the funding agreements are often working under time pressures, with their main focus usually on operational outcomes, milestones, and reporting deadlines. While legal review may be required and finance teams may be consulted along the way, what’s often overlooked is how those contract terms will later be audited.
That gap only becomes apparent much later, sometimes not until the acquittal or audit certificate is due. By then, organisations discover that the funding body expects an auditor to express an opinion on requirements that are:
- Not clearly defined;
- Not aligned to how costs are tracked internally;
- Not supported by documentation created at the time; or
- Not practically auditable in the form provided.
Many funding bodies rely on audited acquittals to assess compliance and future funding eligibility, which makes this particularly important for NFPs.
And this is where the challenge arises. Auditors can only provide an opinion on what can be supported with evidence. No amount of goodwill, mission alignment, or historical funding success can substitute for clear, auditable criteria and evidence.
Not all acquittals are created equal
One of the most common misconceptions I see is the assumption that all grant acquittals are essentially the same. In reality, acquittal requirements vary significantly from contract to contract, and frequently depend on:
- The funding body (government, statutory authority, philanthropy);
- The size and risk profile of the grant;
- Whether the acquittal is financial only, or performance‑based; and
- Whether the auditor is being asked to provide reasonable assurance, limited assurance, or a factual findings report.
Some acquittals simply require management certification whilst others require an independent auditor to express an opinion that the grant funds were spent in accordance with the funding agreement. Although this may appear straightforward, it frequently proves to be more complex.
When the grant agreement itself isn’t clear and precise in areas such as eligible expenditure, costs allocation or the timings of fund recognition; the auditor is left having to interpret intent, which is not ideal for any party involved.
The risk of defining audit scope after the fact
Another common assumption is that the auditor can “work it out” once the grant period has ended. By that point, a few things may have already happened:
- Systems may not have been set up to separately track grant income and expenditure;
- Budgets used in the acquittal may not reconcile cleanly to the general ledger; and
- Evidence may rely on explanations after the fact, rather than records created at the time.
From an audit standpoint, this increases risk, and often leads to further audit procedures, delays, additional costs, or in some cases, modified opinions.
These consequences do not stem from the organisation making operational mistakes, but rather from a lack of understanding or early consideration of audit requirements.
The importance of early auditor involvement
There’s sometimes hesitation about involving the auditor too early, based on the belief that independence rules don’t allow for meaningful discussion. In reality, early engagement (before contracts are signed or systems are finalised) can be one of the most effective ways to manage audit risk.
Auditors cannot design your systems or negotiate your contracts. However, they can play a valuable role early on by highlighting clauses that may be difficult to audit and flagging reporting or acquittal language that is unclear or open to interpretation. They can also explain the type of evidence typically required to support an audit opinion and help align internal reporting with external assurance requirements.
This kind of collaboration does not compromise independence. Rather, it supports better outcomes from an audit and operational perspective.
What to consider before funding begins
So a question I would ask of boards, executives, and finance leaders across the NFP sector:
If your auditor had to sign an opinion on this grant tomorrow, would you be confident they have everything they need to do so?
If the answer is “I’m not sure” or “we’ll deal with that later,” then you might be putting your organisation at risk.
Grant funding brings opportunity, but it also brings accountability. Understanding what that means from an audit standpoint and having early auditor involvement can make the difference between a smooth acquittal and a stressful, costly or time-consuming one.
And in a sector where trust, transparency, and future funding really matter, it is a conversation worth having early.
