Most funding agreements and contracts will specify the form of reports required. The Guidance for funders published in May 2006 states that the requirements should be proportionate to the amount of funding and the size of organisation being funded. In addition, it says that funders should try to use the existing information already prepared by the recipient e.g. audited financial statements and reports to its board, rather than creating additional requirements. Despite this, many central government departments will require a separate audit of their grant, which will incur additional costs. Small charities and voluntary organisations that are below the statutory audit threshold may require an audit to comply with grant funding terms. This particularly applies to funding by local authorities, where they often apply an audit requirement for all grants over £2,000. However, the Audit Commission, which is responsible for auditing local authorities, states in its guidance:

“Arrangements for certification by authorities and auditors are needed to provide the grant-paying body with assurance as to the use of grant monies. However, the level of assurance sought by grant-paying bodies needs to be appropriate and should be determined following a thorough assessment of the assurance required in relation to a particular scheme. Often auditor certification is required simply because the grant-paying body has used a standard set of terms and conditions that says claims have to be certified by an auditor. However, closer examination often reveals that the grant-paying body’s own monitoring arrangements and other reporting requirements adequately evidence the use of grant monies without the need for auditor certification.”

As a consequence, it is appropriate to ask at an early stage whether an audit is really necessary. It depends on the terms of the funding.