A Beginner’s Guide to Administering Grant Funding

Nonprofit organizations provide critical services to a community’s most vulnerable members. They offer mental health services to veterans, housing support to low-income families, medical care to underserved communities and more. If a community has a need, chances are a nonprofit helps fulfill it.

These organizations often rely on a variety of grants to fund this essential work. Without that funding they could disappear, leaving behind critical service vacuums and a population struggling to fill the void.

Responsibly administering grant funding helps these organizations effectively manage the funds they rely on to serve their communities. And mistakes can be costly.

Even a relatively small error in administering grant funding—for example, misattributing a couple thousand dollars—could revoke millions of dollars of grant funding.

In this article, we’ll explore common mistakes and best practices surrounding administering grant funding for nonprofit organizations. By the time you’re done reading, our hope is that you understand all the basics you need to know to keep your important work on the right track.

What Is A Grant?

A grant refers to money, goods or services provided by a funding organization (such as a government program) to a recipient organization (in this case, a nonprofit).

Organizations that expense over $750,000 in federal-sourced funds are typically subject to annual single audits. This is a process in which an independent auditor reviews the organization’s documentation, processes and internal controls to ensure compliance with OMB Uniform Guidance. This guidance has recently been updated; for year-ends after 10/01/2024, the threshold to trigger a single audit is increasing to $1 million. Some states, including Florida, have their own State Single Audit Act and Compliance Supplement. Currently, Florida requires organizations to obtain a single audit if they expend over $750,000 in state funds in a fiscal year.

Suppose an auditor or grant monitor finds that the organization is not in compliance. In that case, they will need to put a corrective action plan (CAP) in place to avoid losing their funding eligibility. In more severe cases, the organization’s grant funding could be revoked entirely.

Organizations can avoid this scenario by adopting detailed record keeping, maintaining strong internal controls and adhering to best practices.

Common Mistakes and Best Practices in Administering Grant Funding

When administering grant funding, mistakes can be costly not just for the organization itself but also for the community it serves. An awareness of common errors, and the best practices to avoid them, is essential for anyone in a leadership or administrative role.

This section will highlight some of the most common mistakes and how to avoid them.

Lack of Familiarity with Grant Requirements

Organizations receiving grant funding—especially federal or state government grants—are subject to various reporting and funding management obligations. In addition to federal and state regulations, individual grants often carry their own specific compliance requirements.

These grant requirements could inform an organization’s financial reporting, fund usage, and cost allocation. All these factors have to be managed in line with the compliance requirements of each individual grant the organization receives.

For example, a Florida-based nonprofit must contend with federal reporting and Florida-specific requirements in addition to other obligations associated with individual grants. With so many commitments to balance, it is essential that nonprofit leaders stay up to date with each set of requirements. This can help ensure the organization avoids compliance issues and remains eligible for future funding.

Best Practices: Thoroughly Review Grant Agreements and Compliance Obligations

To avoid problems, nonprofit leaders should familiarize themselves with all of their grant agreements and compliance obligations. They should also establish internal control systems that help them stay aligned with those obligations.

Start by reviewing all grant agreements and their requirements, including specific obligations unique to each grant. It may also be helpful to study the OMB Compliance Supplement, which auditors use to evaluate federal grant programs and recipients.

Next, establish internal control systems such as financial reporting procedures and documentation guidelines or segregation of duties measures. These help you comply with these requirements more effectively.

Finally, establish open lines of communication with grantors to address questions or concerns and clarify conflicting guidance or ambiguity.

Ineffective Internal Controls

Internal control systems are the processes, checks and balances that help an organization stay compliant by preventing or finding and correcting issues in a timely manner. For nonprofits, they ensure grant funding is administered, managed and recorded correctly as stipulated in the grant agreement and according to federal or state regulations.

For example, an organization may require signature approval for all cost assignments to make sure they’re associated with the correct activities. Or they might maintain a strict file backup and maintenance system to avoid lost records.

If internal controls are ineffective, inconsistent or don’t exist, the nonprofit could commit errors that threaten their grant funding or leave them susceptible to fraud.

Internal controls are also a significant factor in the single audit process, so failing to set them up could result in costly audit findings.

Best Practices: Establish Rigorous Internal Controls Aligned with the COSO Framework

Establishing rigorous internal controls strengthens an organization’s governance and risk management while helping it remain compliant. The Committee of Sponsoring Organizations (COSO) Framework can help organizations evaluate their current internal controls or build effective ones.

In particular, nonprofit organizations should establish:

• Transparent spending rules, including guidelines and documented approval procedures
• Segregation of duties to reduce the risk of errors, fraud or misuse of resources
• Checks and monitoring to reconcile financial records, identify problems and resolve reporting issues early
• Regular assessments to measure the effectiveness of internal controls and align them with organizational changes

With internal controls in place, nonprofits can improve transparency, prevent errors and identify and resolve issues early.

Inadequate Record Keeping

Insufficient record-keeping practices in a nonprofit can lead to audit findings. Severe enough findings could disrupt funding, threaten the nonprofit’s mission and ultimately harm the community due to loss of services.

Unfortunately, record keeping can be burdensome if an organization lacks the technological infrastructure to manage it. For example, many nonprofits in rural areas rely on paper files and human processes for records management, often resulting in the loss of essential files.

But technology doesn’t always solve the problem. For example, if an organization has poor internal controls surrounding technology (like a lax password policy or a lack of backups), digital files may be corrupted or lost, making it difficult (if not impossible) to proceed with an audit.

Best Practice: Implement Secure Electronic Backups and Document Retention Policies

Electronic backups can safeguard against loss or corruption for nonprofits with access to technological record-keeping tools. With regular, automated backups, if the organization suffers a data loss, its crucial files may be restored—reducing the risk of audit findings due to missing records.

If an organization does not have access to an electronic solution, strict organization and document retention policies can help them stay compliant and make vital records more accessible.

Whatever format they’re stored in, detailed records make it easier to track and verify financial information, which can help ensure a seamless audit.

Commingling Grant Funding

When grant funds are combined with one another or general revenue, tracking how funding is used becomes challenging. This can threaten the nonprofit’s ability to report effectively in compliance with grant requirements and makes the single audit process more difficult for all involved.

Nonprofits may inadvertently comingle their grant funding for a variety of reasons, such as:

• Cash flow issues
• Similar or overlapping projects
• Insufficient accounting systems
• Inadequate financial controls
• Emergencies
• Administrative oversights

Regardless, grant funding must be accounted for separately to demonstrate fiscal responsibility and remain grant eligible.

Best Practice: Adopt Accounting Software and Processes to Segregate Funds

The right accounting software—i.e., one that can track different funding sources separately—can make nonprofits’ financial reporting process more accessible and help them stay compliant.

With that said, accounting software is not a one-size-fits-all solution. For some small nonprofits, a more entry-level solution like QuickBooks may be sufficient, while larger organizations might need a more sophisticated platform. This solution should also integrate well with the organization’s financial management processes to streamline reporting and avoid errors.

Not Recording Policies and Procedures

Without clear guidelines in writing, nonprofit organizations risk noncompliance with grant obligations.

For example, imagine an organization’s grant manager moving to a new role. Without process or policy documentation, the replacement may struggle to manage the grant portfolio consistently. This could lead to discrepancies in financial reporting and potential audit findings.

A lack of documented policies and procedures could also make training and onboarding more challenging, increase operational inefficiency and degrade institutional knowledge.

Best Practice: Create and Maintain Documented Policies and Procedures

Documenting financial policies and procedures helps to promote consistency and compliance in grant administration. These policies should be comprehensive and cover critical areas such as financial management, procurement, and reporting.

Provide detailed and regular training on these policies for staff to ensure they are enacted and upheld.

Finally, policies should be reviewed and updated regularly to reflect regulations or organizational changes.

Lax Procurement Standards

Nonprofit organizations receiving federal awards are subject to procurement standards outlining how organizations may enter vendor agreements.

Procurement refers to the acquisition of goods or services through a vendor contract (as opposed to an individual, informal purchase).

These standards are outlined in the Code of Federal Regulations, Title 2, Subpart D and include certain thresholds:

• Micro-purchases up to $50,000 may typically be conducted without soliciting quotes or bids.
• Small purchases between $50,000 and $250,000 may use simplified acquisition, meaning they can request quotes without a formal bid process.
• Formal purchases over $250,000 must use a bidding process that includes an RFP, sealed bids and fair bid selection.

Additionally, some states and individual grants may impose specific guidelines around procurement.

Failing to uphold these standards jeopardizes fair purchasing practices (for example, showing bias toward certain vendors) and could result in loss of grant funding.

Best Practice: Establish Strict Procurement Procedures

To stay compliant with sometimes-conflicting procurement standards, create a formal procurement procedure for your organization that aligns with the most conservative one. It should include:

• Guidelines for vendor selection
• Required documentation and approvals
• Due diligence (such as reviewing audit results)
• Purchasing thresholds and competitive bidding processes

Establishing and documenting these processes makes the procurement process more seamless, helps establish audit trails and promotes competitive purchasing practices.

Navigating Administering Grant Funding with James Moore

In many ways, grant funding is the lifeblood of a nonprofit, ensuring that the organization has the resources to provide critical services to the people it serves. Administering that funding properly helps the nonprofit stay healthy and active, continuing to grow, help people, and build their community.

James Moore’s experienced nonprofit CPAs can help you navigate the complexities of grant administration and financial reporting. Whether you need nonprofit outsourced accounting, personalized consulting, or specialized training programs for your team, James Moore is here to help.

To find out how James Moore can help you help your community, contact an advisor today.

 

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