Organizations, agencies and businesses that receive federal grants have certain responsibilities. According to Grants.gov, these include accounting for costs and justifying expenditures to show that grant fraud has not taken place.
Grant fraud, in its broadest definition, is theft. However, a number of actions may fall under this umbrella.
Conflict of interest
The U.S. Department of Justice explains that grant funds are for the best interests of the program, not the agency or the individuals. An action such as hiring a family member to run a grant-funded program or provide consulting services or using grant funds to purchase goods and services for the agency could come under investigation for fraud.
Failing to properly support
The DOJ notes that when a recipient fails to properly support grant usage with documentation, the government considers this “lying.” Common fraudulent activities in this category include redirection of funds in ways that were not in the grant agreement and providing false or misleading information in the application. If recipients do not track and account for contracts, matching funds, program income, personnel costs or other revenue sources, they may put themselves at risk for a fraud investigation.
Without proper internal controls, theft is almost inevitable, and this is why it is such a common issue among grant funding recipients. One of the most frequent weaknesses that leads to theft is the lack of the separation of duties. Many recipients get into trouble by writing checks to employees for reimbursements of expenses without oversight of the actual expenses. Using debit cards, gift cards and credit cards without putting proper controls in place can also get a recipient into trouble.
Grant fraud could result in both criminal and civil prosecution, so it is essential to take investigations and allegations seriously.