Annex 2: financial control framework
Framework for the financial control of third party grants
1. For the purposes of this guidance, the branch initially responsible for controlling the budget allocation is termed the sponsor branch, the organisation to which responsibility is devolved is termed the funding body and the third party, to which the funds are ultimately paid, is termed the final beneficiary.
Sponsor branch responsibilities
2. The sponsor branch is responsible for ensuring that effective controls are in place over the disbursement of funds. Sponsor branches should, as appropriate:
- ensure that the funding body has access to relevant guidance, such as the Scottish Procurement Policy Handbook and the Scottish Public Finance Manual.
- provide guidance to funding bodies on appraisal criteria and procedures for the award of funding to final beneficiaries;
- put in place measurable targets consistent with overall Scottish Government objectives and against which the performance of the funding body can be assessed;
- require the funding body to submit periodic reports providing details of funds to final beneficiaries;
- require the funding body to submit appropriately detailed reports of monitoring and evaluations, and, if required, its annual reports and accounts (including assurance taken from other independent sources); and
- evaluate the achievement of funding objectives and policy implementation (see also paragraph 4 below in relation to site visits).
3. The funding body should have in place systems which provide for effective monitoring of the use of funds by final beneficiaries. In certain circumstances, there may be a need for the sponsor branch to carry out visits to a sample of final beneficiaries to confirm the effectiveness of monitoring being carried out by the funding body and to ensure final beneficiaries are complying with funding terms and conditions.
Funding body responsibilities
4. If the funding is of an ongoing nature, such as an annual grant scheme, it may be appropriate for the funding body to develop standard documentation (application forms, terms and conditions of funding, and grant requisition forms) for use by final beneficiaries and the sponsor branch may wish to offer input to their development. Other controls which should be considered include:
- the documentation of selection/prioritisation criteria for award of funding;
- ensuring measurable performance targets are set and are consistent with the sponsor branch's aims and objectives;
- carrying out effective monitoring, including scrutiny of operational and financial performance/progress reports and undertaking monitoring visits;
- undertaking post-project appraisals to evaluate the success of the funded work;
- action to be taken when shortfalls in performance are identified;
- reappraisal of projects where there have been significant changes;
- the need for novel/contentious projects to be submitted to the sponsor branch for approval; and
- the development of procedural guidance documenting the funding and monitoring process.
5. If a new funding body is being set up to disburse funds on behalf of the Scottish Government, its financial control framework should be set out in a formal document agreed with the sponsor branch. The transfer of resources to the funding body might need to reflect the timing of payments made to final beneficiaries to avoid the unnecessary build-up of funds.
6. Arrangements for the award of funding to final beneficiaries should also be formalised by the funding body in a grant conditions document. Much of this will depend on the nature and scale of the funding, but issues which the funding body should consider include:
- the need for annual reports and accounts from final beneficiaries;
- whether there is a need for grant expenditure to be independently certified by accountants/auditors;
- whether the final beneficiary is required to seek matching funding;
- whether the final beneficiary should be required to demonstrate evidence of need for funding and what criteria should be applied to assess this;
- the need to include appropriate clawback provisions;
- whether any restrictions are to be applied to the type of activity eligible for funding (for example whether capital assets may be purchased);
- whether there needs to be a condition where ownership of assets reverts to Scottish Ministers in the event of bankruptcy, etc;
- maintaining appropriate controls over capital assets purchased with funding, including the creation of an assets register, undertaking verification checks and agreeing procedures for utilising the proceeds from the disposal of assets;
- value for money and propriety issues such as competitive tendering;
- declaring conflicts of interest;
- reporting suspicions of fraud and irregularity;
- the application of procurement legislation such as OJEC advertising; and
- the arrangements for carrying forward funds from one financial year to another.
7. Formal offers of funding should be conditional on the acceptance of formal terms and conditions of grant such as the achievement of agreed targets, a requirement to demonstrate that funds have been spent on authorised activities and any clawback provisions. Terms and conditions should also provide for the funding body's general rights of access to review the activities of final grant beneficiaries. Consideration should also be given to establishing similar access rights for members of the sponsor branch, any other nominated representatives of Scottish Ministers and the Auditor General for Scotland.
Additional sources of guidance
8. Detailed guidance on financial control issues is contained in the Scottish Public Finance Manual, particularly the sections relating to Accountability, Grant and Grant in Aid, and Procurement. In addition, guidance on procurement issues is available in the Scottish Procurement and Commercial Directorate web pages.
Page reviewed: March 2019