Common Uniform Guidance Audit Findings & How to Avoid Them

Key Takeaways

• Failure to verify vendor suspension or debarment status on SAM.gov before awarding contracts is one of the most for frequent Uniform Guidance audit findings.
• Grant recipients must retain all financial records and supporting documentation for a minimum of three years from the date the final expenditure report is submitted.
• Organizations that rely on approved indirect cost rates without calculating their actual rates risk overbilling federal grants and triggering questioned costs.
• Drawing federal funds based on monthly estimates rather than actual incurred costs creates excess cash on hand, which is considered non-compliant under the Uniform Guidance.
• Federal grant recipients must maintain an accounting system that segregates direct and indirect costs, tracks expenses by award, and supports accurate financial reporting.
• Late filing of the audit report is easily preventable by engaging an auditor well before the September 30 deadline.
• An audit finding is an identified instance of non-compliance during a Uniform Guidance audit. Findings fall into three levels of severity: control deficiencies, significant deficiencies, and material weakness.
• While control deficiencies may only warrant a discussion with management, both significant deficiencies and material weaknesses must be formally reported along with the compliance audit report.

When a reportable finding occurs, management must submit a corrective action plan explaining the cause of the issue and the steps they will take to remediate it. The government agency will review the appropriateness of the corrective action plan and may follow up to confirm that the plan has been implemented. For more severe findings, especially those with questioned costs, the organization may be required to return the federal funds.

Below, we will discuss the most common audit findings we discovered during our 2025 season and how to address them before they become an issue.

To see if your organization requires a Uniform Guidance audit in the first place, read our article on understanding Uniform Guidance audit requirements. And should you discover your organization does require a Single Audit, build strong internal controls to get through it successfully.

Vendor Review for Suspension or Debarment

Federal requirements prohibit grant recipients from contracting with vendors who have been suspended or debarred from doing business with the federal government. Recipients are required to verify that vendors used for government-funded grants have not been suspended or debarred by searching the System for Award Management (SAM.gov), which maintains the Excluded Parties List, before entering a contract with a vendor.

Failure to perform this simple step is one of the most common findings we have encountered in recent years, as many companies are unaware of the requirement. We recommend establishing a process for the review of vendor suspension or debarment prior to entering vendor contracts and retaining documentation of review as proof that the process has been completed.

Documentation of Direct Costs

Financial records, supporting documents, statistical records, and any other materials pertinent to a federal award must be retained for a minimum of three years from the date the final expenditure report is submitted. Recipients should retain invoices or agreements supporting a direct expenditure along with documentation showing that the appropriate individual reviewed and approved the expense for allowability and proper allocation to the grant. Proper retention of documentation does more than satisfy regulatory requirements; it demonstrates that internal controls over authorization and approval of grant expenditures are both present and functioning as intended.

We frequently observe that startups lack documented policies and procedures for documenting and retaining invoice approvals. We recommend establishing formal written policies and procedures that include a process for reviewing, approving, and documenting grant-funded expenditures. The procedures should clearly demonstrate that the expense is both allowable and allocable to the grant. We recommend that the documentation be retained in a centralized repository and maintained for a minimum of three years.

Allocation of Indirect Expenses

To comply with the Uniform Guidance, fringe benefits and indirect costs must be fairly assigned to federal awards and other activities. This means that these costs should reflect the benefits received by employees whose salaries are charged to these federal awards and activities. They should be classified as direct or indirect costs based on the accounting practices used by the non-federal entity.

In practice, we often see companies rely solely on the approved indirect rates stated in the Notice of Award instead of calculating their actual indirect rates based on incurred costs. When a company’s actual rate is lower than the approved rate, it can result in the grant being overbilled.

We recommend calculating the company’s actual indirect rates on a regular basis and comparing them to the approved rates to help the amounts billed to the grant reflect actual cost incurred, maintaining compliance and preventing potential repayment.

Excess Draws of Federal Funds

Recipients requesting reimbursement under a cost-reimbursement award should include costs that have been paid and/or costs that will be paid within 30 days of submitting the reimbursement request. This requirement checks that federal agencies are not advancing funds beyond what is necessary, and that recipients are not unintentionally holding excess federal cash.

We often see federal funds drawn based on monthly estimates rather than on actual incurred costs. Although using estimates may feel operationally efficient, it creates a compliance risk because it can lead to drawing more federal funds than the organization is entitled to at that point in time. This results in excess cash on hand, which is considered non‑compliant and may trigger repayment, increased monitoring, or additional audit scrutiny.

We recommend that companies implement a policy for drawing down grant funds on a reimbursement basis that makes sure grant funds are drawn down in proportion to actual allowable costs incurred.

Inadequate Accounting Systems

Federal regulation states that grant recipients must maintain an acceptable accounting system that leads to accurate, timely, and compliant financial reporting. The system must segregate direct and indirect costs, accumulate costs by contract, and allocate indirect costs logically and consistently. It must also support reliable billing, reconcile subsidiary ledgers to the general ledger, and include internal controls such as timekeeping, labor distribution, and management reviews. Failure to meet these standards may result in system disapproval, payment withholdings, and audit findings.

After receiving a federal grant, we recommend checking that you are using a compliant accounting system. Accounting systems commonly used by startups, such as QuickBooks, are typically compliant but may require additional steps in tracking expenses, like designating an expense to a specific class or customer name for proper internal tracking.

Late Submission of the Audit Report

The final most common finding we encounter is late filing of the audit report. This can be avoided by engaging an auditor early, so that the audit is performed and finalized prior to the September 30 deadline.

For more detail on what the federal government expects from grant recipients, especially subrecipients, please see What to Do After Receiving Federal Funding – Subrecipients.