The 2019 NEA Audit and You—Beware July Costs

From Carol White, Associate Director of Operations –

Thanks again to all the TN Arts Commission grantees who provided accounting documentation upon request from the National Endowment for the Arts Inspector General this winter.  The Audit report is now available. Tennessee passed the audit with limited findings and no funds to be returned. However, one finding needs every grantee’s attention because it could mean disallowed costs in the future for your organization. Going forward, the Commission will be especially carefully scrutinizing any payments made in July to make sure they were not for any services performed in June or before, ie outside the grant period.

Finding: Costs for Services Outside the Grant Period. Could it happen to you? One grantee reported $5000 for employee salary paid July 1, 2016, and another grantee reported $2,637 in payroll costs dated July 14, 2017. More detailed support showed the payroll periods were partly in June, so costs were disallowed. Another grantee requested reimbursement of script licensing fees. Based on the contract, the auditor questioned $8,770 of $13,490 because it was for licenses that covered productions outside the grant period, ie before July 1. Another grantee reported a $450 payment to an artist dated July 13, 2018. When NEA reviewed the artist contract, it was obvious that all but $50 of the work was to be done before July 1. 

The Commission currently bases its reimbursement payments on the grantee report of Itemized Expenditures, including check numbers, dates, payees, and amounts. Based on risk and cost-benefit assessment, the Commission does not routinely ask for copies of employment or professional services contracts, copies of invoices, checks and bank statements for every expenditure. Grantees are required to maintain all of those financial records on file and be able to produce them upon request. A few states do request all that info from every grantee. The NEA audit was a good test. If your organization was not included in the federal audit sample for testing, would you have been able to produce as well as those who were tested?  

Proof of Services – Harder than it should have been. One grantee paid an arts class instructor for a series of classes but had trouble coming up with proof that the classes had been offered. We won through in the end, but it was painful. Save third party documentation that proves service delivery. Essays in the grant final report may not be enough.

Crediting NEA. If your contract includes federal money, the NEA logo should be on your website and your printed materials. Our sample passed but check yourself.

In this time of pandemic hardship when every penny counts, no organization can stand to have questioned costs because of insufficient documentation. An audit is a time to reflect and recommit to those effective internal controls that a critical part of any nonprofit’s success. If at any time you have questions about state or federal requirements, please reach out to your program director at the Commission. An ounce of prevention is always worth a pound of cure.