As an organization receiving federal grants, you operate in a high-stakes environment where compliance is essential. Federal grant requirements, governed by regulations like the Uniform Guidance (2 CFR Part 200) and agency-specific rules, demand rigorous adherence to meet funding requirements, avoid penalties, and maintain eligibility for future awards. As a lawyer, I focus on the legal and programmatic essentials of compliance, helping you navigate grant agreements and regulatory expectations. At Pannier Law, PC, we guide clients through this complex landscape, helping your grant-funded programs thrive. Here's what you need to know about complying with federal grant requirements and how to stay on the right side of the law.

Why Compliance Matters

Federal grants come with strings attached, strict rules designed to protect taxpayer funds and ensure programs achieve their intended outcomes. Noncompliance can lead to severe consequences, including:

• Funding Clawbacks: Agencies can demand repayment of misspent funds, disrupting your operations.
• Suspension or Termination: Noncompliance may halt current funding or bar you from future grants.
• Legal Liability: Violations of laws like the False Claims Act can result in fines, damages, or criminal penalties.
• Reputational Harm: Compliance failures can damage your credibility with agencies and partners, limiting future opportunities.

A robust compliance program, tailored to your grant's requirements, mitigates these risks and demonstrates your commitment to stewardship. No matter what type of grant you're managing, understanding and meeting compliance obligations is critical to success.

Key Compliance Areas

Federal grant compliance spans multiple areas, each governed by the Uniform Guidance, agency-specific regulations, and your grant agreement. Below are essential legal and programmatic areas to prioritize, drawn from industry best practices and regulatory frameworks.

1. Understanding the Grant Agreement

The grant agreement, including the notice of award, contains key content and serves as your roadmap for compliance.

• Statement of Work: Defines the allowable activities, deliverables, and program goals. Deviating from the scope without approval risks noncompliance.
• Period of Performance: Specifies when funds can be spent and work performed. Expenditures outside this period may risk disallowance.
• Terms and Conditions: Includes agency-specific requirements, reporting deadlines, and restrictions on fund use.
• Flowdown Requirements: You may be required to ensure subrecipients comply with applicable terms, such as monitoring and reporting obligations.

Action Step: Review the grant agreement with legal counsel to identify all obligations. Ensure your team understands the scope, timelines, and restrictions before starting work.

2. Allowable Activities and Costs

Grants fund specific activities and costs, as defined by the Uniform Guidance and the grant agreement. Key considerations include:

• Allowable Activities: Activities must comport with the grant's purpose.
• Allowable Costs: Costs must be reasonable, allocable to the grant, and consistent with your organization's policies. Common allowable costs include personnel, equipment, and travel directly tied to the project.
• Unallowable Costs: Costs like lobbying, entertainment, or expenses outside the grant's scope are prohibited.

Action Step: Establish clear policies to distinguish allowable from unallowable activities and costs. Train personnel to ensure expenditures align with the grant's purpose.

3. Reporting and Documentation

Timely and accurate reporting is a cornerstone of compliance. Requirements vary by grant but typically include:

• Progress Reports: Detail program achievements, challenges, and milestones.
• Financial Reports: Track expenditures to ensure funds are spent as budgeted. Agencies may require Standard Form 425 (SF-425) or similar forms.
• Subrecipient Reports: If you manage subrecipients, collect and verify their reports to ensure compliance with flowdown requirements.
• Contemporaneous Records: Maintain detailed records of activities, costs, and outcomes to support reports and audits. This includes contracts, invoices, and timekeeping records.

Action Step: Create a reporting calendar to track deadlines. Consider using grant management software to streamline documentation and ensure records are audit-ready.

4. Subrecipient Monitoring

If you're a pass-through entity, you're responsible for subrecipient compliance. This includes:

• Pre-Award Assessment: Evaluate subrecipients' capacity to manage funds and meet requirements before awarding funds.
• Flowdown Clauses: Ensure subrecipient agreements include mandatory grant terms, such as reporting and audit obligations.
• Ongoing Oversight: Monitor subrecipients through site visits, report reviews, and audits to verify compliance.
• Corrective Actions: Promptly address subrecipient noncompliance, such as by requiring additional training or withholding funds.

Action Step: Develop a subrecipient monitoring plan with clear expectations and regular check-ins. Legal counsel can help draft agreements to enforce compliance.

5. Changes and Prior Approvals

Significant changes to a federal grant require prior approval from the awarding agency, typically through a Grant Adjustment Notice (GAN), which is a formal request to modify programmatic, administrative, or financial aspects of the grant. A GAN addresses various changes, including:

• Scope or Activity Changes: Revising the project's purpose, methodologies, or objectives.
• Budget Modifications: Reallocating funds between budget categories (e.g., moving funds from equipment to salaries) or adding new categories.
• Timeline Extensions: Requesting a no-cost extension to extend the period of performance or expenditure deadline.
• Personnel Updates: Changing key staff or the project director, substantially reducing their effort, or updating the official's signing authority or contact information.
• Specific Cost Approvals: Requesting permission for costs like travel or equipment that was not originally budgeted.
• Organizational Changes: Updating the grantee's name, mailing address, or other administrative details.

Recipients must promptly notify the agency of changes or events necessitating a GAN and provide a clear rationale (along with supporting documents). The awarding agency will evaluate the GAN, assessing the request to ensure the proposed change aligns with the grant's purpose and complies with regulations. If approved, the GAN becomes a permanent part of the grant file, updating the official record.

Action Step: Establish a process to identify changes requiring a GAN, such as scope shifts or changes in key staff, and provide timely notice when warranted.

6. Monitoring and Oversight

Ongoing monitoring ensures compliance throughout the grant lifecycle. This involves:

• Internal Controls: Implement policies to segregate duties, limit access to grant funds, and review expenditures regularly.
• Programmatic Monitoring: Track progress against goals, using metrics like participation rates or outcomes (e.g., improved literacy scores).
• Risk Assessments: Identify high-risk areas, such as complex projects or subrecipient relationships, and prioritize oversight accordingly.

Action Step: Conduct regular reviews of program and financial data. Engage legal counsel to assess internal controls and mitigate risks.

7. Audits and Closeout

Federal grants are subject to audits to verify compliance. Key audit areas include allowable costs, reporting accuracy, and subrecipient oversight. At closeout, you must:

• Submit final progress and financial reports when due (per agency rules).
• Retain records for at least three years (or longer if specified).
• Return unspent funds or resolve disallowed costs.

Action Step: Prepare for audits by maintaining organized records. Use closeout checklists to ensure all requirements are met.

Special Considerations

• Agency-Specific Requirements: While the Uniform Guidance provides a baseline, agencies may impose additional rules, such as requiring compliance with FAR Part 31 regarding cost principles. Review your grant agreement for unique terms.
• Subcontractor and Vendor Compliance: Prime recipients are responsible for subcontractors and vendors. Ensure contracts include flowdown clauses and regularly perform reviews to verify compliance with grant terms, such as allowable costs and reporting.
• Whistleblower Protections: Encourage reporting of noncompliance through confidential channels. Anti-retaliation policies strengthen compliance and reduce legal risks.

Best Practices for Compliance

Best practices for federal grant compliance include the following:

• Engage Legal Counsel Early: An attorney experienced with federal grants can interpret grant agreements, draft subrecipient contracts, and guide compliance efforts.
• Build a Compliance Program: Develop policies, training, and internal controls tailored to your grant. Even small organizations benefit from basic programs with clear reporting channels.
• Train Staff Regularly: Conduct annual training on grant requirements, allowable activities, and reporting to keep staff informed and engaged.
• Monitor Subrecipients: Regular audits and site visits ensure subrecipients meet obligations, protecting your organization from liability.
• Documentation and Record Keeping: Maintain contemporaneous records of activities, costs, and communications to support audits and demonstrate compliance.

Take Action Now

Federal grant compliance can be challenging, but prioritizing a robust approach to compliance can prevent costly missteps. Pannier Law, PC is here to help.

For assistance with Grants and Grant Compliance Programs contact Pannier Law, P.C. at (310) 971-5093 or visit www.pannierlaw.com.

Disclaimer: * This article is provided for information purposes only. It does not constitute legal advice. It is not intended to form an attorney-client relationship. Any legal advice should be sought from an attorney. Consult a qualified attorney for advice specific to your situation. *

About the Author: William Pannier is the founder of Pannier Law, with over 20 years' experience as a Government Contracts attorney.