Managing Grant Finances

Grant Finances during the life cycle of a grant

11/1/20236 min read

Many nonprofit organizations rely on grants as a significant source of program support. Grants provide essential funding that enables organizations to implement projects, expand their reach, and make a positive impact on their target communities. However despite their importance, grants come with inherent risks that nonprofits must navigate carefully to ensure continued funding and program success. Failing to meet grant requirements or lacking effective communication can result in the loss of funding, jeopardizing the organization’s ability to fulfill its mission.

This article delves into the various methods that can assist nonprofit organizations in effectively managing their grant finances throughout the different phases of the grant life cycle.

The proposal and budget stage

Preparing a grant budget and aligning it with your chart of accounts is indeed a critical aspect of efficient financial management. It's essential to ensure that the budget categories in your grant budget are aligned with the accounts in your chart of accounts. This alignment facilitates easy tracking and reporting of expenses against the budget. If your chart of accounts doesn't match the budget categories, you may need to make modifications or adjustments.

Some grant budgets may require more detailed itemizations than what your accounting system can capture. In such cases, consider adding sub-accounts or cost centers within your chart of accounts to capture this level of detail. This can help you avoid the need for manual data manipulation and make reporting more accurate.

If you are soliciting program-specific funding, it's important to have appropriate cost centers set up in your chart of accounts to track expenses specific to those programs. This segregation of funds is often a requirement for program-restricted grants. Setting up these cost centers in advance ensures you are well-prepared to manage and report on the funds when you receive a grant award.

Grant budgeting should be closely aligned with the funding needs of the project or program for which you are seeking a grant. Before creating a grant budget, conduct a comprehensive needs assessment to identify the specific needs and costs associated with your project or program. Clearly distinguish between direct costs (those directly attributable to the project) and indirect costs (overhead or administrative expenses). Many grantors will want to see a breakdown of both types of costs. Provide a detailed budget narrative or justification that explains how each budget item aligns with the project's goals and needs. This narrative should clarify how you arrived at the budget figures and why each expense is necessary for achieving the project's objectives. Consider the long-term sustainability of your project. Your budget should address not only the costs associated with initial implementation but also ongoing operating and maintenance expenses, if applicable.

Grant budgeting should not only be in line with the funding needs of a project but also with the organization's capacity to avoid over-commitment. Overcommitting resources or taking on more than your organization can realistically manage can lead to operational challenges and hinder the successful execution of the project.

Setting up a well-organized workflow system for managing grant documents and correspondence is also crucial for efficient grant management. By implementing a systematic approach to managing grant documents and correspondence from the beginning, you'll not only save time but also reduce the risk of misplacing or losing critical information. A well-organized workflow system ensures that all relevant stakeholders can access and contribute to the grant management process effectively.

Grant Agreement Stage

Reading and understanding a grant agreement thoroughly before signing it is an essential step in the grant management process. Treat the grant agreement as you would any other contract, and ensure that you are comfortable with its terms and conditions.

Carefully read and review every section of the grant agreement. Pay attention to all terms and conditions, including but not limited to:

  • Assignment of duties and responsibilities: Understand the roles and responsibilities of both your organization and the grantor. Ensure that you can fulfill these obligations.

  • Reporting and compliance requirements: Understand the reporting and compliance obligations, including deadlines, reporting formats, and any specific performance metrics.

  • Budget and financial terms: Review the budget-related terms, including the approved budget, allowable expenses, and reimbursement procedures.

  • Termination and amendment clauses: Familiarize yourself with the conditions under which the agreement can be terminated or amended. Ensure that these clauses are fair and reasonable.

  • Intellectual property and confidentiality: Be clear about any intellectual property rights, confidentiality requirements, and data-sharing provisions.

Make sure you understand any restrictions on the grant and how you will recognize the revenue. Follow FASB ASU 2018-08 for revenue recognition. This specific ASU addresses clarifications and improvements related to the recognition and measurement of revenue. Ensure that your accounting practices align with the requirements of this standard. It is advisable to seek professional help if needed.

Establish a clear and systematic process for every financial operation related to a grant to ensure efficiency, compliance, and transparency. These may include budgeting, expense tracking, revenue recognition, financial reporting, and compliance monitoring. Document each operation in detail. Implement strong internal controls to prevent financial irregularities and errors. Establish checks and balances, segregation of duties, and authorization protocols to maintain financial integrity.

Grant Operation Period

Coordinating the efforts of multiple departments and staff members to successfully deliver grant outcomes is a complex but crucial task. Setting up clear reporting deadlines and ensuring that everyone understands their responsibilities and how to track time and expenses is vital. Start by creating a clear timeline that outlines the major deliverables and milestones for the grant-funded project. Work backward from the date when items need to be submitted to the grantor. Include all key deadlines, such as progress reports, financial reports, and any other required documentation. Assign responsibilities to each department and staff member based on their roles in the grant project. Ensure that everyone knows what is expected of them and when their contributions are due.

Implement a system for tracking time and expenses related to the grant. Ensure that staff members know how to categorize their time and expenses, including which grant-specific accounts or codes to use. Emphasize the importance of accurate time tracking and expense reporting for maximizing cost recovery. Ensure that staff members understand the relevance of their contributions to the organization's financial sustainability. Establish a clear process for reviewing and approving expenses related to the grant. Assign responsibility for expense approval to designated individuals, and set up a workflow for expense submissions and reviews.

Grant Conclusion Stage

Effective grant reporting is essential for maintaining a positive relationship with grantors, demonstrating accountability, and securing future funding. Ensure that you thoroughly understand and adhere to the grantor's reporting guidelines. These guidelines may specify the format, content, and frequency of reports. Non-compliance can result in funding delays or penalties. Pay close attention to reporting deadlines. Missing deadlines can harm your organization's credibility and jeopardize future funding opportunities. Establish internal deadlines well in advance of the grantor's due date to allow time for review and submission. Many grants require both narrative and financial reports. The narrative report should provide a detailed account of project progress, outcomes, and challenges. The financial report should include an accurate summary of grant-related expenses and income. Clearly demonstrate how the grant funds were used to achieve the project's objectives. Provide quantifiable data and metrics to illustrate the impact of the grant on the targeted beneficiaries or community. Include a budget vs. actual analysis to compare planned expenditures with actual expenses. Address any significant variances and explain the reasons behind them. Provide a detailed breakdown of grant-related financial transactions. Show how grant funds were allocated among different project components and expense categories.

Document retention for grants is crucial for compliance, transparency, and accountability. Properly managing and retaining grant-related documents ensures that your organization can demonstrate how grant funds were used and adhere to reporting requirements. Develop a document retention policy for your organization that outlines the procedures for storing and managing grant-related documents. This policy should align with your organization's broader document retention practices. Maintain detailed retention logs or indexes for grant documents. These logs should record information about the document, including the category, date, retention period, and location. Control access to grant-related documents to maintain confidentiality and data security. Only authorized individuals should have access to sensitive financial information.