Grants provide a vital and significant income stream for many UK charities, supporting basic running costs, funding salaries and providing those charities with the opportunity to test new projects. Some funders – including government departments, institutional donors and the National Lottery – will require reassurance that their money was put to good use. Indeed, being able to demonstrate this is often the key to unlocking future funding.

This is where a grant audit comes in, yet for many charities, it’s a daunting prospect.

It needn’t be. In our experience, most audit findings aren’t the result of serious financial issues or poor governance. More often, they arise from practical challenges such as incomplete records, unclear processes or a misunderstanding of the specific conditions attached to a grant – as a result, many of these issues are entirely preventable.

By putting the right systems in place from the outset, charities can reduce risk, improve compliance and make the audit process considerably smoother. Indeed, grant compliance starts before the first pound is spent, not when the audit begins.

Here are five findings that commonly arise – and how they can often be avoided.

1. Expenditure that falls outside the grant conditions

Every grant comes with its own terms and conditions, setting out what funding can be used for, how budgets should be allocated and what supporting documentation will be needed. Taking the time to fully understand the agreement from the outset – and ensuring your organisation can comply with its requirements in practice – is vital, yet it remains overlooked too often.

From eligible expenditure and reporting deadlines to procurement requirements and the evidence needed to support claims, funders will often set out their expectations, and problems arise not because organisations deliberately disregard these conditions, but because they haven’t been fully understood or embedded into day-to-day project management.

While projects naturally evolve over time, it’s important to ensure that any changes remain within the scope of the original agreement or are formally approved by the funder. Regularly reviewing expenditure against the grant conditions – rather than waiting until reporting deadlines approach – can help identify potential issues early and allow discussions with the funder where changes may need to be agreed.

2. Weak monitoring throughout the life of the grant

Grant monitoring should be an ongoing process, not something that’s revisited only when it’s time to complete the final report.

Where financial monitoring, project delivery and reporting operate in isolation, small issues can develop unnoticed until the audit begins. This can lead to inconsistencies between financial records, project activity and the outcomes reported to the funder.

Bringing finance and operational teams together to review progress throughout the project helps ensure that budgets, outputs and reporting remain aligned.

3. Inadequate evidence to support expenditure

Another recurring finding is an inability to demonstrate how grant funding has been spent. This might include missing invoices, insufficient records to support staff costs or an incomplete audit trail between expenditure and grant claims.

Even where spending is entirely legitimate, auditors need to see appropriate evidence that it meets the grant’s requirements.

The simplest way to avoid this is to establish a clear filing system from the beginning of the project, ensuring that supporting documentation is retained and can be easily linked to expenditure charged against the grant. Many accounting systems now allow supporting invoices and documents to be attached to transactions for ease of filing. Reports to donors should always be reconciled to accounting ledgers and filed to provide a full audit trail.

4. Procurement processes that aren’t properly evidenced

Many funders expect charities to demonstrate that grant money has been spent fairly, transparently and in accordance with their procurement policies. However, auditors often encounter situations where quotations haven’t been retained, procurement procedures haven’t been followed consistently or the rationale for supplier selection hasn’t been documented.

Good procurement isn’t simply about achieving the lowest price. It’s about demonstrating value for money, transparency and appropriate decision-making. Keeping a clear record of procurement decisions can provide valuable assurance during an audit.

5. Inconsistent record keeping over the life of the grant

Staff changes, long-running projects and competing priorities can all make it difficult to locate key documents months or even years after a grant has been awarded.

Missing approvals, incomplete grant files or an inability to locate important correspondence can all create unnecessary challenges during an audit, even where the project has been delivered successfully.

Maintaining organised and consistent records throughout the life of a grant not only supports compliance but also reduces the administrative burden when reporting to funders or preparing for audit.

Building compliance into everyday project management

Grant audits shouldn’t be viewed simply as a test of financial compliance. Instead, they provide an opportunity to demonstrate strong governance, effective project management and responsible stewardship of funding.

Many audit findings are avoidable with clear processes, regular monitoring and good record keeping. By building these into day-to-day project management from the outset, charities can spend less time reconstructing evidence at the end of a project and more time focusing on delivering positive outcomes for the people and communities they support.

If your charity would like support reviewing grant compliance processes or preparing for a forthcoming grant audit, Sayer Vincent’s specialist team can help: