Misappropriation of Funds: How to Avoid it.

  • April 3, 2020

In the case of both federal and private funding, there are specific guidelines that determine uses that are appropriate and those that are not. Accepting a funder’s capital is like entering into a contract. Once the money is accepted it is the responsibility of the awardee to learn policies and protocols as they relate to appropriate, allowable spending. Ignorance of the policy is no excuse for breaking it. When an awardee uses funds for an unallowable purchase it is an example of misappropriation of funds and in the case of federal funding like SBIR, it can be a federal offense.

Grant fraud typically occurs when award recipients attempt to deceive the government about their spending of award money. Such behavior amounts to “lying, cheating and stealing,” according to the Department of Justice.


Fraudulent behavior takes many forms including:

  • Bribery
  • False Claims
  • Embezzlement
  • Theft
  • Plagiarism
  • Misappropriation of funds

Misappropriation of Grant Professional Service Fees

Misappropriation occurs when awardees falsify the scope of work that has been completed or the results/data, publish results that were already found during a previous round of funding from another source, or use the award money for activities outside of the proposal or worse, for personal expenditures unrelated to the project.

What many do not know is that misappropriation can also be committed during the application process. Asking your grant professional to be paid contingent on award of the grant and out of those grant dollars is a form of misappropriation of grant dollars.

§200.458   Pre-award costs. Pre-award costs are those incurred prior to the effective date of the Federal award directly pursuant to the negotiation and in anticipation of the Federal award where such costs are necessary for efficient and timely performance of the scope of work. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the Federal award and only with the written approval of the Federal awarding agency.

Office of Management and Budget Uniform Guidance (2014)

Grant professionals who agree to this form of payment are putting their clients at serious risk. Grant professionals should know better, but many clients are unaware that this practice is both illegal and unethical.

While most awardees would never intentionally commit a felony, it is possible for an awardee to accidentally misappropriate funds if they are not aware of the restrictions. This is why it is so important to read the fine print and know what obligations and responsibilities accepting the money entails. This is also why it is absolutely essential to hire a qualified and ethical consultant who is aware of the restrictions and would never put their clients at risk. If ever in doubt, contact your granting agency with any questions you may have. It never hurts to double-check policies before taking action.

We work hard to NOT put our clients at risk and you should think twice about any “professional” that would. Contingency payments can be tempting because clients see it as a way to pay later for services rendered now.

Blunt Truth: If you can not afford a professional consultant’s costs upfront, you are probably not ready for grant funding. It is better to wait on that funding opportunity until you can afford to hire a professional OR find a way to pay for that consultant’s fee upfront.

Learn About Pre-Award Costs

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We assist our clients in locating, applying for, and evaluating the outcomes of non-dilutive grant funding. We believe non-dilutive funding is a crucial tool for mitigating investment risks, and we are dedicated to guiding our clients through the entire process—from identifying the most suitable opportunities to submitting and managing grant applications.