Deciphering State and Federal Grant Compliance Regulations and How to Avoid Funding Clawback

Written by GrantWorks, Inc. Updated on Jun. 16, 2023

When Superstorm Sandy hit the Northeastern United States in 2012, the result was billions of dollars in damage to nearly 350,000 homes and the death of 72 people. Some of the victims received government grants for the disaster, only to have the government seek a clawback for grant funds that were considered improperly utilized or improperly administered.

According to the New Jersey Organizing Project, homeowners were expected to repay $30,643 on average, but 90% reported not being able to pay this money back.

The learning lesson here is that government grants aren’t just free funds, but complicated agreements with strings attached. Clawbacks, or clawback provisions, are provisions that require money that’s already been paid out by the grantor to be returned to the grantee due to the failure to meet some sort of requirement tied to that money.

Typically, clawbacks include a penalty that makes them different from refunds or repayments. The metrics that may trigger a clawback provision could include timely completion, milestones, notifications, reporting requirements, local materials sourcing, and more. The failure to meet one or more of these provisions can lead to a required repayment. Along with being forced to repay funds, a clawback could result in negative press, or worst-case, lose future funding opportunities.

Even when we have the best of intentions, it’s important to comply with the grantors’ requirements to prevent funding clawbacks and utilize a solid grant management and compliance program.

What Is Grant Compliance?

Grant compliance is following the standards set by the government or oversight committees. Including program rules and requirements, documentation of program processes, progress, impact, and data reporting. Achieving compliance is essential to maintaining a funding stream and sets a standard for future funding by demonstrating an ability to fulfill requirements and achieve impacts.

The burden of grant compliance can be eased by understanding the requirements for your grants and devoting time and resources to compliance.

Common Grant Types with Compliance Regulations

  • Pass-Through Grants: These are federal grants that pass through local government entities. The government pass-through grants are not directly administered through the federal government, but they’re subject to federal, and possibly state, compliance requirements.
  • Programs with minor applicants: These grants have minors as applicants and are subject to the Family Educational Rights and Privacy Act (FERPA). FERPA is a federal law that protects the privacy of information about students. Grants dispersed by the U.S. Department of Education or award funds to minors must be FERPA-compliant.
  • Programs managed by financial institutions: These programs need documentation and reporting data compliant with the Community Reinvestment Act (CRA). The CRA ensures equitable lending.
  • Programs managed by nonprofit hospitals: These programs require compliance with the Affordable Care Act and maintain the hospital’s tax-exempt status.

Learn the Requirements for Your Grant

Effective grant compliance begins with an in-depth understanding of its requirements. Some grants have multiple sets of requirements and rules, including 2 CFR Part 200, the Uniform Administrative Requirements, Cost Principles, and Audit Requirement for Federal Awards (Uniform Guidance or UG). State statutes and regulations or the specific terms and conditions may also be relevant.

A grant compliance program should have a strong internal control structure to ensure these requirements are understood and met. The UG directs organizations to create and maintain effective internal controls over awards, but there should be judgment in determining appropriate and cost-effective procedures for the situation.

Documenting Policies and Procedures

Proper policies and procedures – with written documentation – are key to effective grant management. Internally, they offer clarity and instruction. Externally, they show potential funding agencies that you have a compliance program in place.

The UG requires the following documentation:

  • Written procedures for payment requirements of 2 CFR §200.305.
  • Written procedures for determining the allowability of costs in accordance with Subpart E – Cost Principles.
  • Procurement procedures that reflect the applicable state, local, and tribal laws and regulations, provided that they conform to applicable federal law standards identified in 2 CFR §200.317 – 326.
  • Standards of conduct for conflicts of interest and the staff engaged in the selection, award, and administration of contracts as required by 2 CFR §200.318 (c).

These only include the procedures that must be in writing, but you should have written policies and procedures for other compliance areas.

Know Your Risks and Avoid Common Pitfalls

The primary risks associated with grants and ineffective grant management include:

  • Misuse of grant funds
  • Failing to achieve objectives
  • Misrepresentation of grant results
  • Violating laws, regulations, or grant conditions
  • Loss of future funding
  • Reputational damage from grant misuse

As part of your planning and grant compliance procedures, keep these risks in mind and make sure you address them through your organization’s grant management process. You should identify any weaknesses in your own grant processes and take proactive measures for remediation.

Grant Management and Compliance with GrantWorks

Grant compliance can be a challenge, but the upfront effort is worth avoiding funding clawbacks. Avoid the risks with grant management and compliance from GrantWorks. Contact us today to learn more!