Grants play a crucial role in the funding structure and budget of nearly every nonprofit organization. They serve as a lifeline, providing financial support and resources that are essential for not only the establishment but also the growth and sustainability of these organizations. Whether a nonprofit is just starting, seeking initial grants to kickstart its initiatives, or a well-established entity with an impressive track record of securing long-term grants from federal programs and private donors, the availability of grants is what enables them to continue their mission and make a positive impact on their communities. With grants, many nonprofits could meet their operational and programmatic needs, hindering their ability to effectively address pressing social issues and provide essential services to those in need. Thus, grants are not merely a component of nonprofit funding; they are a lifeline that empowers organizations to create meaningful change and work towards a better future.
Nonprofit organizations place great importance on effective grant management. They often handle multiple grants from various sources, each with unique reporting requirements. To achieve optimal results and maximize their impact, nonprofits must manage the grant management process efficiently and effectively. Nonprofits can strengthen their capacity to fulfill their missions and create a positive impact in the communities they serve by diligently tracking and monitoring grant progress, ensuring compliance with reporting obligations and implementing robust financial accountability systems. Non-profit organizations can enhance their grant management procedures and significantly impact the world with careful planning, strong financial management, and a dedication to accountability.
Nonprofit leaders and their fundraising teams grapple with a myriad of thought-provoking questions, including:
- Do we have a comprehensive grasp of each funder’s grant requirements? How can we guarantee adherence?
- Are we equipped with the necessary mechanisms to monitor the grant process and effectively allocate funds?
- Who among our team should be entrusted with managing grant awards?
- How can we ensure the optimal utilization of these funds by our organization?
- Does our accounting system possess the capability to efficiently and effectively handle the management of these awards?
- Can our accounting system generate reports that effectively demonstrate to our funders the utilization of grant funds?
Effective grant management encompasses the entire lifecycle of a grant, from pre-award planning to funding close-out and final reporting. Nonprofits can enhance their oversight of the grant process by incorporating the following considerations into their planning, management, and accounting for grants and contributions.
Building the Dream Team:
Effective nonprofit organizations understand the importance of establishing a dedicated and collaborative team to oversee their grant management efforts. This team, comprised of individuals with diverse expertise, collectively comprehends the nonprofit’s overarching priorities and requirements. By pooling their knowledge and skills, they ensure a comprehensive approach to grant management that mitigates the risk of non-compliance and safeguards current and future funding for the organization and its programs. A team, rather than relying on a sole individual, allows for a more robust and thorough grant management process, ensuring that all aspects are properly addressed and maximizing the organization’s chances of success.
A proficient grant management team comprises highly skilled individuals with a profound grasp of the nonprofit’s mission and operating budget. They possess not only a deep understanding but also an unwavering appreciation for the specific areas of focus and grant budgets of various grantmakers. This comprehensive knowledge extends to encompassing the terms and conditions associated with received grants, including any accompanying restrictions that may be in place.
Furthermore, the team is well-versed in the control processes and procedures necessary for effective grant management. They possess a keen understanding of the correct coding of transactions to ensure accuracy and completeness in grant reporting. Their meticulous attention to detail ensures that every aspect of grant management is handled precisely and efficiently, leaving no room for error.
The grant management team usually consists of the following positions:
- Senior management and a representative from the finance committee or board of directors – They are responsible for establishing the grant pursuit agenda and aligning it with the nonprofit’s needs. Additionally, they review monthly or quarterly financial reports to assess the funds received, how they were utilized, and their alignment with the program budget.
- Representatives from the development office – They bring a comprehensive understanding of the grant’s essence and ensure adherence to grant reporting obligations. The nonprofit’s grant writer may also be part of the team, contributing insights on new grant opportunities and providing in-depth information about potential funders, grant prerequisites, and application deadlines.
- Program and project managers are responsible for overseeing the utilization of funds at the program level. Their role includes ensuring compliance with reporting deadlines, financial requirements, and other grant requirements.
- Accounting and finance representative – Determines the purpose of the grant, examines the grant budget, and assesses how the funding can be utilized. Ensures adherence to grant reporting obligations and provides comprehensive reports to the management and the board regarding the status of grant funding.
Streamlining the Grant Management Process:
Regular meetings of the grant management team are crucial for monitoring the progress and ensuring accountability of all grants. These meetings serve as a platform for team members to discuss the status of ongoing projects, address any challenges or concerns, and collaborate on potential solutions. To facilitate an effective grant management process, various tools can be utilized, such as a grant tracking system equipped with a calendar that includes reminders and deadlines for each grant. This system should be easily accessible to every team member and consistently updated to incorporate any amendments to the initial terms and conditions of existing grants. Additionally, regular communication channels should be established to keep all stakeholders informed about the progress, challenges, and successes of the grant projects. By having detailed discussions, utilizing effective tools, and maintaining open lines of communication, the grant management team can ensure that grants are managed efficiently and effectively, maximizing the impact of funding and achieving the desired outcomes.
The accounting staff of the nonprofit organization must possess extensive knowledge, capabilities, and training in coding grant-related expenditures. It is crucial to supplement their accounting system software to ensure proper recording and reporting of grant management, enabling accurate tracking of revenue and expenses in accordance with the grant budget. Additionally, the accounting system should have the capability to generate budget-to-actual variance reports, allowing for effective monitoring of differences between budgeted and actual amounts for both revenue and expenses. Nonprofit accounting teams should prioritize logically designed charts of accounts and ensure that organizational and grant budgets are properly integrated into the accounting software.
Securing Effective Internal Controls for Optimal Performance:
From an accounting standpoint, successful grant management relies on a robust set of internal controls that establish clear responsibilities, mitigate potential risks, and outline comprehensive reporting obligations. These controls, meticulously designed and diligently implemented, provide a reasonable level of assurance that organizations can effectively and efficiently achieve their operational goals, ensuring accountability and safeguarding the proper utilization of grant funds. By adhering to these rigorous control measures, organizations can instill confidence in stakeholders and foster a culture of transparency and compliance.
To ensure the effective management of grants and contracts, it is crucial to implement a range of key activities. These activities are aimed at establishing a comprehensive set of internal controls, which play a vital role in ensuring transparency, accountability, and compliance, including:
- Create comprehensive controls for each stage of an award to mitigate risks and identify vulnerabilities. Establish a grant accounting manual and ensure operational accounting practices align with documented procedures.
- Establish clear divisions of responsibilities among individuals involved in preparing, reviewing, confirming, negotiating, and approving grants.
- Incorporate provisions regarding conflicts of interest into the grant administration policy and establish procedures for mitigating such conflicts when identified.
- Establish comprehensive policies and procedures encompassing gift acceptance, document retention, indirect cost and overhead allocation, budget development and spending plans, revenue recognition, and cash management, among other crucial areas.
- Enhance the documentation of policies and procedures related to federal awards, encompassing aspects such as sub-awards and sub-recipient monitoring, personnel changes, time and effort reporting, and procurement.
- Regularly prepare and review reconciliations between development records and finance and accounting records. Also, ensure that grant financial reports align with the corresponding accounting records.
Financial Reporting for Grants and Contributions:
When accounting for grants and donor contributions, nonprofit grant management programs should adhere to specific principles to strengthen the nonprofit financial management.
- Recognition of Donation Commitments: Nonprofit organizations should only recognize commitments to donate if they are unconditional. An unconditional commitment to donate should be recorded upon receipt, supported by substantial evidence of the commitment being made or received. Conditional commitments to donate are not recognized.
- Recognizing contributions: Revenue recognition for contributions is based on the period in which they are received, taking into account whether the transaction aligns with the nonprofit organization’s core activities. Typically, the donor and recipient record contributions at the time of the gift.
- Conditional contributions: Revenue is recognized when the conditions of the contribution are met. If the award does not have any conditions, the nonprofit should assess whether there are any donor-imposed restrictions on how the contribution can be used and recognized, as well as the time period over which it should be recognized (refer to ASC958-605).
Navigating Donor-imposed Restrictions:
- Nonprofit organizations should differentiate between contributions received with donor-imposed restrictions and those without. This distinction is crucial for accurate financial reporting. By doing so, nonprofits can effectively communicate the nature of their funding sources and ensure transparency in their financial statements.
- Donor-imposed conditions present several barriers that need to be addressed. These conditions may include a right of return for the contributor, allowing them to take back the transferred assets, or a right of release for the donor, freeing them from their obligation to transfer the asset. It is important to navigate these conditions carefully while preserving the original intent of the agreement.
- When a nonprofit organization receives assets with conditions, those assets are initially recorded as refundable advances. The classification as a refundable advance remains until all the requirements are substantially fulfilled or waived by the donor.
- When evaluating the presence of a condition in a donor agreement, the probability assessment of a nonprofit’s ability to fulfill that requirement holds no relevance. It is reasonable to assume that a contribution with specifications that are not explicitly unconditional should be considered conditional.
Managing Exchange Transactions:
Numerous nonprofit organizations, driven by their mission to create social impact, often engage in seeking federal grants and contracts with governmental entities. These agreements are viewed as transactions based on mutual exchange, benefiting both parties. However, nonprofit entities must evaluate the specific details and context of each grant agreement meticulously. By doing so, they can determine whether it should be classified as an exchange transaction, where goods or services are provided in return for funding, or as a contribution, where funding is provided without a direct exchange. This careful evaluation ensures accurate categorization and upholds the integrity of their financial reporting, enabling transparency and accountability in their operations.
Exchange transactions, also known as asset transfers, involve the transfer of assets between two parties where both parties receive and surrender equal value. These transactions are of significant importance in accounting and financial reporting. To ensure accurate and compliant reporting, it is crucial to account for exchange transactions following the guidelines set forth by ASC 606 or other applicable standards.
However, it is important to note that if the recipient does not receive equal value in the transaction, it should be accounted for as a contribution under ASC 958-605. This distinction highlights the importance of properly assessing the value exchanged and recognizing the appropriate accounting treatment based on the specific circumstances of each transaction. By adhering to these guidelines, organizations can maintain transparency and integrity in their financial reporting practices.
Effective grant management involves comprehensive policies and procedures, accurate recognition of contributions and exchange transactions, and careful evaluation of donor-imposed conditions. By following these principles, nonprofit organizations can ensure transparent financial reporting and maintain the trust of their donors and stakeholders. It is highly important to continuously review and update these processes to adapt to changing regulations and best practices in grant management. Nonprofit organizations must prioritize regular review and updating of their grant management policies and procedures. This ensures compliance with applicable standards and maintains the trust of stakeholders. By doing so, they can thrive in achieving their mission and creating a positive impact on society. Effective grant management is key to their success.
Whether you’re a startup organization or a leading corporation, CommunityForce provides fully customizable, all-in-one online grant management solutions to maximize your efficiency, simplify complex processes, and improve collaboration so you can focus on increasing your impact. We’ve helped organizations streamline their entire process no matter the size and scope of their giving.