Grant funding and why you need an Independent Accountant's Report

Russell Flynn ACA, explains the need for an Independent Accountant's Report if you're obtaining funding in the form of a grant. 

Have you received, or are you in the process of receiving a business grant to raise finance?

How aware are you of all the conditions that are attached to the grant?

Whether your grant is through a government backed association, or a private entity, they're likely to seek reassurance that the funding they are providing is being used in line with the terms on which the offer is made. It's common practice that as part of a grant funding offer, they will insist that you, as the applicant organisation, obtain a report from an independent accountant.

Often, but not always, the body supplying the funding will allow you to organise the appointment of an independent accountant, who likely should be a registered auditor, to undertake the examination. Any report produced by the accountant is then issued to you and also has to be read by the grant funding body in question.

In this blog post we explain everything you need to know if your business is seeking a grant and needs to then plan for an Independent Accountant's Report as part of the process. Read on to find our more about:

Usually the accountant must be a registered auditor to prepare an independent accountant’s report because assurance is being provided over the costs claimed. 

The frequency of grant claims is typically outlined in the terms and conditions specified in the grant offer letter, often determined by the total amount of funding provided in the grant.

What is the scope of work in an IAR? 

An IAR may require some, if not all, of the following information and records to be made available for audit testing:

• Labour
• Sub-contractor payments
• Travel and subsistence
• Overheads
• Capital usage

The first part of the IAR outlines the work that needs to be conducted by the accountant to verify your costs. This means your accountant will check that the costs in question, that have been claimed in the set period of time, are in accordance with the terms and conditions.

If your audit review identifies errors, these will be brought to your attention so that you can amend them as part of your claim submission process. This works whereby any adjustments are agreed with you and then disclosed in the second part of the report in order to make your submission.

The common errors when claiming costs that are grant funded? 

As eligible costs are required to meet certain criteria, it can be very easy to fall outside of the terms resulting in certain expenditure being disallowed.  

Here are some key questions to ask yourself before making a claim: 

• Are labour costs aligned with employment expenses?
• Are the working days/hours accurately calculated for the employee's daily or hourly rate?
• Have overheads been calculated as a proportion of labour costs, or using an alternative method?
• Have sub-contractor costs been claimed based on their allocated time to the project?
• Have the expenses associated with materials been accurately accounted for based on their utilisation in the project?
• Have capital expenditure costs (one-off expenses) been assessed in accordance with the asset's utilisation throughout the project, while also considering the asset's remaining value at the project's conclusion?
• Have expenses been accounted for excluding VAT?
• Have costs that are part of the preparation of the IAR been excluded from the claim? 
• Have all individual cost categories stayed within their allocated budgets to ensure that no category exceeds its financial limit?
• Have all costs been fully paid for the claim period?

How to choose an auditor - things to consider

You'll want to be certain that the auditor you choose is sufficiently qualified and therefore has the necessary skills to undertake these reports. When selecting a firm find out if they have undertaken claims for various grant bodies including:

• Innovate UK
• Horizon Europe
• BEIS
• Arts Council National Lottery Project Grants
  
• UK government grants
  

It's essential that the firm in question can meet the requirements of the grant offer letter by working in a flexible manner to meet the deadlines set by a grant body. Be sure to also query and assess how grant funding could impact on your ability to claim other reliefs and tax beaks such as Research and Development tax credits. Your accountant should be able to advise you on the likely most financially beneficial route for your business.  

At Wellers we have extensive experience of conducting these audits for our clients. We have done this for businesses, and organisations, across a range of sectors, and in particular those with a science and technology focus. Our relationship driven approach ensures you have a dedicated member of the team to advise on a claim, and any ad-hoc queries that may arise thereby helping you to resolve any potential errors and issues. 

The content of this post was created on 04/07/2024.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.