Part 1: Why Written Policies and Procedures Matter
The Most Common Federal Grant Audit Finding and How to Avoid It
Federal grants play a vital role in advancing public service, driving innovation, and supporting communities across the United States. Agencies and organizations that receive federal funding bear a critical responsibility: managing taxpayer dollars with integrity, transparency, and accountability. Yet despite the high stakes, one finding continues to dominate audit reports and monitoring reviews across federal grant programs—the lack of written policies and procedures required by 2 CFR 200 (the Uniform Guidance).
This issue, though seemingly straightforward, has significant implications. Understanding why it occurs, what risks it creates, and how to address it proactively is essential for any organization seeking to safeguard its funding and achieve compliance.
What Does 2 CFR 200 Require?
The Uniform Guidance, formally known as 2 CFR 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, establishes a government-wide framework for managing federal awards. It sets standards to ensure consistency, accountability, and transparency in how federal funds are spent.
A cornerstone of the Uniform Guidance is the requirement that recipients maintain written policies and procedures covering key areas of grant management, such as:
- Procurement standards
- Travel policies
- Financial management systems
- Internal controls
- Subrecipient monitoring
- Cost allowability
- Record retention
These written policies are not optional—they serve as the documented foundation that demonstrates compliance. Without them, organizations have no evidence that their staff are following federal rules consistently.
Why This Is the Most Common Finding
Despite the clarity of the requirement, many organizations fall short. Audit and monitoring teams consistently cite lack of written policies and procedures as the most common compliance deficiency. Why?
Several recurring reasons emerge:
- Assumption of Sufficiency – Some organizations believe informal practices or legacy policies are “good enough,” not realizing that Uniform Guidance requires formal documentation.
- Resource Constraints – Smaller organizations, in particular, may lack the time, expertise, or staff to develop and maintain comprehensive policies.
- Misinterpretation of Requirements – Organizations may confuse organizational policies with federal requirements, assuming that general HR or finance manuals cover what’s needed.
- Failure to Update – Policies that were once compliant may become outdated as the Uniform Guidance evolves, or as the organization changes its internal processes.
- Staff Turnover – Institutional knowledge often leaves with personnel, especially when policies are undocumented. This makes organizations vulnerable to findings during audits.
The Risks of Noncompliance
The absence of written policies and procedures may seem like a paperwork issue, but the risks are very real and far-reaching:
- Financial Consequences – Noncompliance can lead to questioned costs, repayment of funds, or suspension of current and future awards. This directly impacts an organization’s financial stability.
- Operational Disruption – When policies are unclear or inconsistent, staff spend unnecessary time seeking guidance, duplicating efforts, or making mistakes that slow program delivery.
- Audit Findings and Corrective Actions – Repeated findings can tarnish an organization’s reputation and result in increased federal oversight, including additional reporting requirements or site visits.
- Loss of Trust – Funders, stakeholders, and the public expect federal dollars to be managed responsibly. Failure to demonstrate compliance can erode confidence and damage relationships.
- Legal and Ethical Exposure – In extreme cases, lack of compliance may be perceived as negligence or even fraud. This can lead to investigations, legal action, and lasting reputational harm.
