Sub-grants recurring top-10 Audit Issues

 

Top 10 of audit related issues:

10 – Indirect costs not adequately supported: Most funders permit beneficiaries to charge a portion of indirect/overhead costs. However, this is often expected to be calculated from actual expenditure, not merely applied as a flat-rate. Any indirect cost allocation should reflect costs genuinely incurred and be reasonable, fair, and consistently apportioned to project activities.

9 – Capital items (equipment) not depreciated per funder rules: Many funders set specific requirements on whether high-value equipment is chargeable at all and, if so, what depreciation method and eligible percentage can be claimed. Make sure you understand and apply the funder’s guidance, as these items are typically treated as complex and closely scrutinized costs.

8 – Costs claimed not foreseen within the application form or budget: More stringent funders will only pay claims based on costs and activities that are forseen within the approved application form or budget. These funders tend to allow budgets to be changed via an approval process as the project progresses. It is therefore key to take advantage of re-budgeting opportunities to ensure that all costs incurred for the delivery of the project can be recovered.

7 – Imprudent or disproportionate expenditure claimed: A core audit consideration is whether costs claimed represent an appropriate and justified use of grant funding (often public money). Certain European funders explicitly require auditors to assess “reckless or excessive” spending. Beneficiaries should review claims for items that could be perceived as unnecessary or extravagant—for instance, repeated meetings with high-end dinners and unusually costly food and beverages.

6 – Expenditure incurred outside the eligible project period: Most funders do not allow costs incurred during pre-start preparation unless expressly authorized. Eligibility is usually tied to specific start and end dates, and we often see claims that relate to activities falling before the start date or after the end date. Verify timing carefully before including costs in a claim.

5 – Direct costs not sufficiently evidenced: Claims sometimes include amounts that cannot be traced back to adequate supporting documentation—e.g., missing receipts, lost invoices, or incomplete records. Ensure every claimed cost is fully traceable to appropriate, retained evidence and can be reconciled without gaps.

4 – Staff costs inconsistent with timekeeping records: Some funders require formal, approved timesheets/time records for personnel charged to the project. These records must support and align with payroll charges, as they may be the primary evidence that the employee worked on the project and that the proportion charged is accurate and attributable to project delivery.

3 – Non-eligible VAT/taxes included in claims: Certain funders treat VAT and other statutory taxes as ineligible, irrespective of whether they are recoverable from the tax authority. Review grant terms and conditions closely to ensure only allowable tax components are charged.

2 – Beneficiary not applying its own internal policies: Many funders require beneficiaries to follow their own procurement, expense, and accounting procedures. Where spending occurs outside those procedures, funders may deem it ineligible. Example: first-class travel may be disallowed unless it is permitted both by the funder’s rules and by the beneficiary’s internal travel policy.

1 – Unclear connection to project objectives/delivery: The most common issue is expenditure claimed without a demonstrable linkage to project implementation. Maintain documentation that clearly shows how the cost supports delivery. If the rationale is not self-evident, add a brief written justification to the file explaining the project relevance.