Memorandum M-25-13, which temporarily halted the disbursement of federal funds, has been rescinded and its directives that the U.S. District Court of Rhode Island barred from implementation are pending appeal. Many now believe that moving forward, current and future federal grants will be reviewed with a fine-tooth comb.
When grant recipients are awarded federal funds, it is their responsibility to understand the grant’s goals and objectives. The grant recipients must also be good stewards of their award because these funds are subject to oversight, audit, and certain regulations. This means grant recipients must:
- Use grant dollars for their intended purpose.
- Have proper documentation for all costs.
- Be able to justify all expenditures as allowable.1
Understanding the various components of grant compliance is crucial for effective management and prevention of waste and fraud.
What Is Grant Fraud?
There are three general categories that auditors and investigators from the Office of Inspector General (OIG) use to describe “grant fraud”: conflicts of interest, materially false statements, and theft.
Conflicts of interest can occur when:
- A grant recipient purchases goods or services from a vendor that the grant recipient has a financial interest in, such as investments or equity shares.
- A grant recipient hires a relative as a new employee or to supply grant-funded products and services as the recipient’s chosen vendor.
Materially false statements can occur during the application process and/or during implementation of the grant program. Examples of this include:
- Failing to maintain adequate supporting documentation regarding how the funds were used.
- Not providing matching contributions, when applicable.
- Purposefully distorting elements of expenses.
- Making false statements to attempt to charge unallowable expenses to the federal grant.
Theft, one of the most common forms of grant fraud, can include anything from using credit cards designated solely for grant-funded purchases for personal use to inflating the price of legitimate services.2
Grant Fraud Indicators
In addition to these overarching types of grant fraud, there are also grant fraud indicators (“red flags”) that—when identified—can help prevent, deter, and detect fraud and other misuses of funds. While this is not an exhaustive list, here are examples of various forms of grant fraud:
- Falsifying a project’s status to continue receiving government funds.
- Billing more than one grant or contract for the same work.
- Misrepresenting information in a grant application.
- Inflating the costs of true work conducted.
- Charging personal expenses as business expenses against the grant.3
Consequences of Grant Fraud
Upon receipt of a grant award, awarding agencies often require grant recipients to provide certifications that they will abide by relevant regulations and implement certain policies, procedures, and practices. If an awarding agency determines that grant recipients were not compliant, they could be subject to termination of current and/or future funding, suspension and debarment of individuals or entities that committed fraud, and implementation of guardrails on future awards.4
How to Help Mitigate Grant Fraud & Waste
As a grant recipient, you can take steps to help safeguard your organization’s finances from fraud:
- Establish an adequate and effective system of accounting, internal controls, records control, and records retention.
- Implement an internal compliance and ethics program that encourages the recognition and reporting of fraud, waste, or abuse.
- Report suspected fraud to the inspector general of the government agency that distributed the federal grant funds.5
How Forvis Mazars Can Help
At Forvis Mazars, we understand the challenges of creating and maintaining grants management processes that are compliant with funding regulations. Our Grants Management Services team is here to help you create, broaden, or improve your process. If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.
- 1“Grant Fraud Responsibilities,” grants.gov, 2025.
- 2“Reducing Grant Fraud Risk: A Framework for Grant Training,” oig.justice.gov, March 2012.
- 3“U.S. Department of State Office of Inspector General Investigations – Fraud Indicators,” stateoig.gov, 2025.
- 4“Financial Fraud Enforcement Task Force: Recovery Act, Procurement, and Grant Fraud Working Group,” oig.justice.gov, March 2012.
- 5“Grant Fraud Responsibilities,” grants.gov, 2025.