Securing an Innovate UK or Horizon Europe award can transform a research budget, but it also imposes rigorous accountability. Explaining grant audits begins with the simple fact that public money demands evidence: every pound must be shown to have advanced the approved project, and nothing else. Yet many growing science and technology businesses arrive at audit week underprepared. The consequences range from delayed cashflow to, in extreme cases, repayment of funds.
This article sets out what a grant audit is, when it is mandatory and how to meet the standards expected by funders. We draw on recent statistics to show why the audit bar is steadily rising. Business research-and-development (R&D) spending reached £50bn in 2023 – a 2.9% increase on the previous year (ONS, 2024) – and UK Research and Innovation (UKRI) invested over £9.1bn across the research base in 2023/24 (UKRI, 2025). With ever-larger sums at stake, funders now police eligibility with forensic care. The good news is that a well-organised audit file, built steadily during the project, removes stress and protects the grant. Our aim is to give existing clients and prospective readers a concise, authoritative guide, backed by the practical experience of the audit team at Richardsons.
What is a grant audit?
A grant audit (sometimes termed an independent accountant’s report or IAR) is an assurance engagement performed by a registered auditor to confirm that grant claims comply with the terms of the offer letter. The auditor tests:
- expenditure eligibility against cost guidance
- evidence that costs have been incurred and defrayed
- allocation of overheads and labour time
- adherence to procurement rules and subsidy control.
Unlike a statutory company audit, the scope is defined by the grant agreement, not by company law. The output – an accountant’s report or certificate – is submitted to the funder alongside the claim, unlocking the next tranche of money.
Who needs a grant audit and when?
Audit triggers vary by scheme. Current UKRI guidance states that for Horizon Europe Guarantee grants an IAR is required once total funding claimed exceeds £100,000; above £500,000 the report is needed at quarter four (Q4) and at the final claim; and for grants over £2m it is required every quarter (UKRI, 2025). Innovate UK follows the same thresholds for most programmes and may impose stricter checks for capital-intensive projects.
Funders usually inform applicants of the requirement in the offer letter, but late clarifications are not uncommon. We therefore recommend that finance teams assume an audit will be necessary once cumulative claims approach £100,000 and plan documentation accordingly.
Funders’ expectations: Meeting the audit criteria
Auditors do not sample at random. They work directly from the grant conditions, so understanding those conditions is half the battle. The most common expectations include the following.
- Eligible cost categories: Only items listed in the cost guidance can be claimed. Fringe benefits, marketing and general administration are routinely disallowed.
- Defrayment: Payments must have left the bank account before inclusion in the claim. Signed invoices alone are insufficient.
- Time-sheet discipline: Staff costs rely on contemporaneous records, signed by the employee and line manager.
- Procurement thresholds: Purchases above the de minimis level require evidence of three quotes or formal tender.
- Asset registers: Capital items part-funded by the grant need an asset tag and depreciation schedule.
Failure to align with these points is the main cause of clawback.
Key documents and records: Your preparation toolkit
A robust audit file contains four core sections. Maintain them throughout the project rather than waiting for Q4.
- Grant offer letter: Include the signed agreement and any approved variations.
- Cost guidance and eligibility rules: Keep the latest PDF in the file for easy reference.
- Claim reconciliations: Provide a spreadsheet that maps each claim line to ledger entries, bank payments and supporting invoices.
- Evidence folders: Structure sub-folders by category – labour, subcontractors, equipment, travel – and name each file with date, supplier and amount.
Cloud bookkeeping packages facilitate real-time record-keeping, but do not rely on them alone. Download copies of invoices and statements as funders may freeze access to software during the audit window.
Avoiding common pitfalls
Our science and technology clients typically trip over three recurring issues.
- Insufficient time records: Retrospective time-sheet completion undermines credibility and leads to pro-rata disallowances.
- Late subcontractor approvals: Engaging specialists before Innovate UK signs off the subcontract can invalidate the cost.
- Currency exchange errors: Claims must convert foreign spend at the rates stipulated by the grant; using headline XE rates risks rejection.
A pre-submission review by an experienced audit team can identify these issues early. Our grant audit specialists provide such reviews within fixed-fee engagements.
A grant audit checklist
Use this concise list as a final sense check before inviting the auditor.
- Grant agreement: Confirm the signed version and any amendments are on file.
- Claim schedule: Ensure totals match the ledger and bank statements.
- Evidence of defrayment: On bank statements, highlight payments equal to each invoice in the claim.
- Staff costs: On timesheets, verify signatures, project codes and hours reconciled to payroll.
- Overheads: On your calculation file, show methodology and link to nominal codes.
- Subcontractor files: Signed contracts, quotes and evidence of work completed.
- Asset register: Tag number, purchase invoice and depreciation calculation.
- Foreign currency spend: Conversion worksheet using the funder-mandated rates.
- Management sign-off: Director approval recorded before submission.
Tick every box and the audit will run smoothly.
Ready for your next grant audit?
Grant funding remains a powerful catalyst for innovation, but it comes with obligations that cannot be ignored. By understanding the thresholds, building a disciplined evidence trail and following the checklist above, businesses place themselves in the strongest position to draw down funds quickly and without challenge. Our audit team combines traditional attention to detail with the modern tools essential for fast-growing technology ventures.
If you would like us to review your project or act as your independent accountant, please contact our specialists today to have grant audits explained. We will ensure your grant audits journey ends with a clean report and uninterrupted cashflow.
