Rules For Micro Purchases With Federal Grants

June 23, 2016       Henry Flood      

One of the benefits touted by the drafters of the Super Circular (2 CFR 200) is the ability of organizations to easily make micro purchases with grant funding. A micro purchase is valued from $1 to $3,000, and recipients of federal direct and pass-through funding make thousands of these micro purchases every year.

The Super Circular offers recipients flexibility in micro purchasing along with paperwork relief. Competition is not explicitly required as long as the price paid is reasonable and as long as organizations rotate purchases among possible vendors. These low-documentation purchases can be validated with as little as a purchase ticket or charge card receipt. Who wants to bid out pencils and paper?

Micro purchasing is fast and flexible, but also fraught with compliance danger. The two biggest dangers with low-documentation purchasing are loss of internal control and improper cost charging.

Regardless of the funding source, every organization must have a system of internal controls in which policies and procedures, along with proactive humans, ensure that every purchase is somehow authorized, allowable, and properly charged to eligible sources of funding. If your organization’s internal control environment is weak or insufficient to control how and when micro purchases take place, bad outcomes are guaranteed.

The very flexibility inherent in micro purchasing makes rogue purchasing a possibility. Charge cards in the wrong hands can be a nightmare for your organization. Calamities such as diversion of products purchased or fraud and abuse can occur. And even when charge card authority is used properly for a valid purchase, documentation risks abound such as loss of receipts and insufficient information about what was purchased.

Every cost you pay with grant funds must be allowable, reasonable, necessary, not prohibited by law or policy, and charged only to eligible sources of funding (see 2 CFR 200.403-407). Honest mistakes and malfeasance concerning cost eligibility will almost certainly lead to non-compliance, audit findings, and potential claims for recovery by funding sources.

As you work to benefit from the flexibility that micro purchasing has to offer, be sure that finance and program personnel collaborate to ensure compliance with your organization’s system of internal controls and with funding source requirements.

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Henry Flood is senior adviser for grant administration with The Grantsmanship Center in Los Angeles, Calif.