Grant Fraud Risk Guide - HTML

Lack of clarity on roles and responsibilities in relation to a grant scheme can increase the risk of fraud.

                            
• There should be appropriate committee/Board/Council involvement in key decisions around grant schemes.
                            
• A senior responsible officer/owner (SRO) should have oversightacross all stages of the grant process and be responsible for thedesign of the scheme.
                            
• The SRO should be appointed before design and developmentstage so they can carry out the role effectively.
                            
• The SRO should be at the appropriate grade for the grant scheme(scale, volume, nature etc.) and have the requisite capacity, capability,experience and delegated authority.
                            
• The SRO’s responsibilities should be clearly defined.
                        

There may be no clear structure or process for managing grant activity.

                            
• Organisations should have a framework covering risks, controls and assurance in relation to their grants activity.
                            
• Organisations should consider the use of data analytics in relation to grant activity, to proactively identify potential grant fraud.
                        

Those responsible for the various stages of the grant scheme may not have the appropriate skills, experience or fraud awareness.

                            
• All staff involved in grant administration should be appropriately trained and experienced.  This should include fraud awareness training.
                            
• Specialist support e.g. counter fraud, legal, financial etc., should be available as required to those administering grant schemes.
                            
• Staff involved in grant administration should be familiar with the concept of ‘professional scepticism’, which means being alive to the potential for fraud or error at all stages of the grant process and critically assessing any documentary evidence provided.
                        

The business case, or equivalent document, seeking to justify the grant funding has not been properly developed, leading to the risk of poor value for money and fraud.

                            
• The development of grant schemes should have appropriateexpert input (financial, legal, counter fraud etc.) to helpminimise fraud risks.
                            
• Eligibility and assessment criteria should be pre-determined.
                        

The business case for grant funding does not include proper consideration of risk and fraud.

                            
• A fraud risk assessment, proportionate to the size andnature of the grant scheme being developed, should bepart of the design and development stage.
                            
• For good practice in managing fraud risk, including fraud risk assessment,please see ‘Managing Fraud Risk in a Changing Environment’, NIAO, 2015.
                            
• The SRO is responsible for managing risks at each stage. This should include updating the business case and fraud risk assessment, where required, to address changing fraud risks.
                        

Those making the case for a grant scheme may have a vested interest.

                            
• Organisations should ensure that proper procedures around declarationand management of conflicts of interest are in place in relation to grant schemes.
                            
• For good practice in managing conflicts of interest, please see ‘Conflicts of Interest: a Good Practice Guide’, NIAO, 2015.
                        

Governance arrangements for the development of grant schemes may not be sufficiently robust, increasing the risk of fraud.

                            
• Design should include a robust governance framework covering roles and responsibilities, delegations, reporting structures and lines of accountability.
                            
• Assurance arrangements should include controls put in place by management, oversight of the management of the scheme, and independent assurance through the audit process.
                        

Consideration of fraud risk should be a factor when deciding between a direct award of grant and an open call/market engagement process.

                            
• There must be a clear and robust audit trail to support the proposed method of grant award.
                            
• Potential conflicts of interest must be properly managed.
                        

Lack of market engagement could mean that risks associated with the proposed grant funding are not properly identified.

                            
• Early market engagement will help to identify potential fraud riskswithin a proposed grant scheme.
                        

Early market engagement at business case stage could lead to bias or give a competitive advantage to some organisations.

                            
• Early market engagement must be fully transparent and aboutraising awareness of opportunities; it should not give anyorganisation a competitive edge.
                            
• There should be a clear and robust audit trail of market engagement.
                        

A weak assessment process which fails to address all risk indicators will increase the risk of fraud and loss.

                            
• Use a pre-qualification checklist to help identify possible fraud riskindicators in relation to grant applicants, and to ensure consistencyof the assessment process.  Once risks are identified they can bemitigated.
                            
• Key risk areas to consider include financial stability, controlenvironment, previous experience of managing grants, grant value,grant period etc.
                            
• All parties to the grant arrangement (grant awarding body, potentialgrant recipient and any other relevant third parties) should share informationon risks, including fraud risk, so that risks can be mitigated.
                            
• If the risk level is too high, take the decision not to fund.
                        

There is a risk that false information may have been provided in support of the grant application.

                            
• Due diligence checks should include background and eligibility of the grant applicant, independently verified where possible.
                            
• Due diligence checks must be carried out by those with the appropriate skills.  For complex or contentious grants, seek expert input, e.g. legal/financial.
                            
• The grant application form should include a statement that the information provided may be shared for the purpose of prevention and detection of crime, that misleading information will render the application invalid, and that all fraud will be reported to the police.
                        

Those assessing applications may have a conflict of interest.

                            
• Assessors should be asked to complete conflict of interest declaration forms and disclose any conflict tothe SRO.
                            
• Organisations should have a conflicts of interest policy in placeand should maintain, and regularly update, a register of interests.
                            
• The assessment process should be monitored to ensure consistency.
                        

Grant may be awarded without sufficient due diligence in relation to the recipient. The ethical standards of the recipient may not match those expected by the funding organisation.

                            
• There should be a robust grants approval process, which includeschecks on the recipient’s financial status and ethical standards.
                            
• There should be appropriate committee/Board/Councilinvolvement in decisions to award grant funding.
                        

The conditions for grant award may be unclear, increasing the risk of fraud.

                            
• An appropriate grant agreement should be in place which includes:performance monitoring arrangements; performance measures; intendedoutcomes; a definition of eligible expenditure; what happens in the event of fraud; assurance arrangements; events of default and associated clawbackarrangements; defined start and end dates; and a named point of contact.
                            
• Consider using a template for grant agreements which has had legal, financial and counter fraud input, to ensure all key areas are covered.
                            
• The grant agreement should include clawback arrangements, so that funding used for ineligible or fraudulent purposes can be recovered.
                            
• The grant agreement should be signed before any monies are paid out.
                        

A grant may be awarded despite recognition of additional risk factors.

                            
• Put in place additional controls for grant awards which are deemed riskier, such as increased monitoring, additional support and greater internal audit involvement.
                            
• Consider including bespoke pre-conditions which must be met before release of funding.
                            
• The fraud risk assessment for the grant, and the mitigating controls, should be reviewed throughout the life of the grant to ensure they remain relevant and appropriate.
                            
• Seek assurance that staff and Board members within grant recipients have had fraud risk awareness training and are aware of good practice in grant management.
                        

The grant recipient may have received funding for the same purpose from another source (duplicate funding).

                            
• Grant recipients should be asked to declare that award of thegrant will not result in duplicate funding.
                            
• Establish communication channels with other grant funders tohelp reduce the risk of duplicate funding.
                            
• Explore the use of data sharing/data matching to detect multiplegrant applications and awards.
                            
• In relation to grants to the NI voluntary and community sector, the                               Government Funders’ Database, available on the Department for Communities website, may help to identify possible duplicate funding.
                            
• Ensure that you update the Government Funders’ Database when administering grants to the voluntary and community sector, to ensure it is as complete as possible.
                            
• Consider registering to receive updates from the Government Funders’ Database (see link above) so you are fully informed about other potential funders.
                        

Payment of all grant funding up front increases risk.

                            
• Grants should be paid in arrears or in instalments, with appropriate supporting documentation provided to justify payments.
                            
• Ensure that the terms and conditions of grant include robust clawback arrangements.
                        

The grant may not be used for the intended purpose.

                            
• Grant recipients should be required to keep a full audit trail of allgrant expenditure, with original supporting documentation, whichshould be available for review by the grant awarding authority.
                            
• Grant recipients should be required to demonstrate that they                           have an appropriate system of internal controls/assurance in place to ensure the proper administration of grant funding, recognising that ‘trust’ is not an internal control.
                            
• Grant agreements should include provisions regarding what happenswhen fraud is identified, including when to involve the police.
                            
• Grant recipients should be required to report immediately to the fundingorganisation any actual or suspected fraud or irregularities in relation to the grant awarded.
                            
• Funding organisations should immediately report any actual, suspected or attempted grant frauds to the Comptroller and Auditor General for Northern Ireland (C&AG) or the Local Government Auditor as appropriate (via their sponsor department, in the case of arm’s length bodies).  
                            
• Fraud is a crime and should be reported to the police in accordance with the funding organisation’s fraud response plan.
                        

Grant may be claimed for, or spent on, personal expenses or ineligible expenditure, contrary to the terms of the grant.

                            
• Financial monitoring should identify any ineligible or fraudulent expenditure, and clawback arrangements should be in place to ensure any such monies are recovered.
                            
• Ensure that the grant agreement includes provision of a clear route for both the funding organisation and the recipient to raise any concerns about possible fraud or irregularity.
                        

Grant expenditure may be subject to weak/no controls.

                            
• There should be an appropriate, proportionate control frameworkin place for managing the grant. It should be made clear to thegrant recipient that professional standards are expected in theadministration of the grant.
                            
• Controls should include:
                        

                            
• verification of expenditure through original supporting documentation;
                            
• periodic financial reports to the grant awarding body;
                            
• retention of appropriate records;
                            
• documented procedures;
                            
• separation of duties;
                            
• appropriate authorisation of expenditure; and
                            
• identification of a responsible person within the funded body to sign off accounts and provide the necessary assurances.
                        

                            
• Grant recipients should immediately notify the grant awarding body if they find or suspect any fraudulent activity.
                        

Inadequate monitoring arrangements increase the risk of fraud.

                            
• There should be clear arrangements in place for regular performance monitoring, e.g. site visits, periodic financial reports, statements of grant usage by category etc.
                            
• Those responsible for monitoring should be appropriately trained to recognise grant fraud risk indicators, e.g. false or amended supporting documentation (invoices, bank statements, timesheets etc.).
                            
• Those responsible for monitoring grants must ensure that sufficient and appropriate original supporting documentation is provided.
                        

Unused grant may have been retained by the body and used for improper purposes, contrary to the grant agreement.

                            
• The annual or end of grant review should determine whether there has been any underspend of grant and, if so, confirm that it hasbeen returned to the grant paying body.
                            
• Clawback arrangements should be enforced to recover any inappropriate or fraudulent expenditure.
                            
• Fraud is a crime and any grant frauds identified as part of the review process should be reported to the police in accordance withthe funding organisation’s fraud response plan.
                            
• Funding organisations should immediately report any actual, suspected or attempted grant frauds to the C&AG or the Local Government Auditor as appropriate (via their sponsor department, in the case of arm’s length bodies).
                        

1. General

1.1 We have clear responsibilities, processes and procedures in place for managing grants.

1.2 All those involved in administering grant schemes receive annual fraud awareness training and are familiar with the concept of professional scepticism.

1.3 We ensure that those involved in administering grants, at any stage, have declared any potential conflicts of interest.  Any conflicts are appropriately managed.

2. Design and Development

2.1 Our development of grant schemes includes input from an appropriate range of experts, e.g. financial, legal, counter fraud etc.

2.2 We complete a proportionate fraud risk assessment as part of the development of each grant scheme, and keep it under review.

3. Market Engagement

3.1 We engage appropriately, and in a timely manner, with the relevant market when developing a grant scheme, to help ensure that potential fraud risks are identified at an early stage.

4. Application Assessment

4.1 We use a pre-qualification checklist to help identify fraud risk indicators in relation to grant applicants.

4.2 We have a range of checks in place to establish that the grant applicant is bona fide, financially sound and has appropriate ethical standards, e.g. web searches, checks with relevant regulators, review of key documentation etc.

4.3 Our grant application forms include appropriate wording about the consequences of fraudulent applications, as a deterrent.

5. Award of Grant

5.1 We have an appropriate grants approval process in place.

5.2 We ensure appropriate committee/Board/Council involvement in decisions to award grant funding.

5.3 We use a robust grant agreement template for all grant awards.  The template can be tailored to suit the nature and magnitude of the grant.

5.4 We ensure that the grant agreement is signed by the relevant parties before any grant monies are paid out.

5.5 Our grant agreement is clear about outcomes, what is (and is not) eligible expenditure, and what should happen in the event of fraud.

5.6 Our grant agreement includes robust clawback arrangements so that funding used for ineligible or fraudulent purposes can be recovered.

5.7 Our grant agreement requires staff and Board members of recipient organisations to have fraud awareness training.

5.8 As part of our grant award process, we ask grant recipients to declare that the award will not result in duplicate funding.

5.9 We review the Government Funders’ Database as appropriate, to identify possible duplicate funding, and we update the database in relation to any grant we award.

5.10 We have arrangements in place to communicate with other grant funders, to reduce the risk of duplicate funding.

5.11 We pay our grants in arrears or in instalments to reduce risks.

6. Performance Monitoring

6.1 We require grant recipients to keep a full audit trail of all grant expenditure, which should be available for review.  Original supporting documentation should include invoices, receipts, bank statements etc.

6.2 Those responsible for monitoring are appropriately trained to recognise grant fraud risk indicators, e.g. false or amended supporting documentation.

6.3 We require grant recipients to have a documented system of internal controls, so that grant funding is properly administered, and to ensure those controls are operating.

6.4 We provide a reporting route for those wishing to raise concerns about possible fraud or irregularity in relation to grants.

6.5 We have clear arrangements in place for regular performance monitoring, including (as appropriate) site visits, periodic financial reports, statements of grant usage by category etc.

6.6 Where financial monitoring identifies any ineligible or fraudulent expenditure, we activate clawback arrangements to recover the funding.

6.7 We immediately report any actual, suspected or attempted grant frauds to the C&AG or the Local Government Auditor as appropriate (via our sponsor department).

6.8 We recognise that grant fraud is a crime which should be reported to the police in accordance with our fraud response plan.

6.9 We challenge instances where a funded organisation seeks an addition to the agreed level of funding, to ensure there is a valid reason for the request.

7. Review and Evaluation

7.1 We complete an end of grant review and financial reconciliation.  We ensure that any underspend of grant is returned and not retained fraudulently by the grant recipient.