How to Build a Compliant Grant Management System

Every year, nonprofits lose critical funding because of overlooked compliance issues. A missed reporting deadline, vague internal controls or incomplete documentation can trigger audit findings, repayment demands or even permanent loss of funding. Many organizations fall short simply because they lack a strong grant management foundation.

We understand the stakes. Compliance is protection for your mission, your programs and your people. A grant management system should help you track every dollar, report every outcome and stay audit-ready without pulling focus from your cause.

Let’s walk through five essential areas to help nonprofit leaders build a system that is not only compliant but built for long-term sustainability.

Start with Strong Governance and Internal Controls

The backbone of any grant management system is good governance, and that begins with leadership. Your board of directors and executive team aren’t just figureheads. They shape the organization’s culture of accountability and should be fully involved in setting policies that support ethical and compliant grant oversight.

Clear roles and responsibilities are a must. From your executive director to your program managers, everyone should understand who approves spending, who tracks outcomes and who is responsible for reporting. Written policies should outline procedures for conflict of interest, procurement, budget approvals and cost allocation.

Internal controls are equally essential. These controls reduce the risk of errors and fraud by creating checkpoints within your financial processes. Best practices include:

• Segregating duties across finance and program teams
• Limiting access to financial systems based on job function
• Using approval workflows for purchases and reimbursements
• Reviewing grant-specific transactions monthly for accuracy

The COSO Internal Control Framework is a respected guide in this area and a useful reference when evaluating or designing your control environment.

Boards should conduct periodic internal audits or assessments, especially when managing federal or multi-source funding. An annual review of your governance documents and policies can also help identify gaps before they become compliance risks.

Strong governance and internal controls ensure your mission survives scrutiny and your impact continues to grow with integrity.

Meeting Regulatory Compliance Requirements

A nonprofit’s credibility can hinge on its ability to comply with the regulations that govern grant funding. Federal awards, in particular, come with a detailed rulebook — known as Uniform Guidance (2 CFR Part 200) — that outlines how to manage funds, document spending and report results. State and private grantors often adopt similar standards, making it essential to embed compliance into daily operations.

Uniform Guidance touches on many areas, including how to classify allowable costs, differentiate between direct and indirect costs, procure goods and services and monitor subrecipients. One of the most common issues we encounter is the use of outdated or informal procedures that don’t align with these expectations. To avoid risk, organizations should take time to update and formalize their grant-related policies.

A few compliance priorities include:

• Written procurement policies that follow competitive bidding thresholds
• Consistent documentation for staff time and effort tied to specific funding sources
• Subrecipient monitoring protocols with site visits and financial oversight
• A cost allocation plan that fairly distributes shared expenses across programs using approved methods

While some teams rely on good intentions and institutional memory, auditors look for documentation. This is why every policy and transaction needs a paper trail. Training is just as important. Finance staff, program leads and administrators must understand the specific rules that apply to each grant.

Annual refreshers help reinforce expectations and highlight any updates to regulatory requirements. Creating a compliance calendar that tracks deadlines, reporting obligations and review periods can give everyone on your team the clarity they need to stay ahead.

Financial Management and Award Tracking

A grant award is a promise of accountability. To meet that promise, your nonprofit must track every dollar and tie it to the outcomes your grantors expect. This begins with a fund accounting system that separates restricted grants from general revenue and shows exactly how funds are used.

Every grant should have its own cost center or project code in your accounting software. This allows you to report on that award’s spending in real time and reconcile your records accurately. Your chart of accounts should also include program-specific categories that reflect the budget lines submitted to each grantor.

Monthly reviews are essential. By comparing actual expenditures to the approved budget, your finance team can catch overspending or underspending early. Any major variance should have supporting documentation that justifies the change. This level of review not only protects your organization but also builds trust with your funders.

Indirect costs require equal care. If you use a negotiated indirect cost rate or the default 15% de minimis rate, make sure your application is consistent. Some organizations apply the correct rate but fail to disclose it clearly, which can create confusion or even put reimbursements at risk.

When a grant is paid on a reimbursement basis, cash flow planning becomes even more important. You may need to front costs before receiving funds, which makes timely invoicing and complete documentation critical. Delays in reimbursement requests can create unnecessary strain on your operating reserves.

All financial activity should be documented with audit readiness in mind. Your processes should align with the standards published in the GAO’s Yellow Book, a framework used by many auditors for evaluating grant-funded entities. Keeping your systems clean and consistent makes audits smoother and preserves your organization’s reputation.

Monitoring and Performance Tracking That Works

Winning a grant is not the finish line but rather the starting point of a process that requires continuous attention to program outcomes and spending accuracy. Monitoring ensures you’re delivering on your commitments and your funding is being used appropriately. Performance tracking proves that your programs are effective and grant dollars are making a measurable impact.

The first step is to tie program goals directly to your grant agreement. Each outcome should be supported by metrics that are realistic, quantifiable and easy to track. For example, if your grant funds a job placement program, you should track the number of individuals placed into full-time employment, the length of time until placement and the long-term success rate of those placements.

Internal monitoring also plays a critical role. Program managers should conduct regular reviews of project milestones and compare them to timelines established in the grant. Finance staff should monitor expense reports and ensure that costs are coded correctly and align with the grant’s purpose.

Site visits, client interviews and feedback surveys can help verify that services are being delivered as intended. These activities not only provide data for reporting but also strengthen relationships with funders and stakeholders.

Technology can simplify these efforts. Dashboards and grant management software allow teams to visualize progress and identify issues early. Many systems also include alerts to remind staff of reporting deadlines or budget thresholds.

For organizations that need help implementing tracking systems or identifying key metrics, our Nonprofit Advisory Services team offers practical tools and guidance. We work alongside you to build a performance framework that reflects your mission and meets funder expectations.

Audit-Ready Grant Reporting

Being audit-ready requires having systems in place that produce clean, consistent documentation all year long. Funders, especially federal agencies, expect nonprofits to produce detailed records that tie financial activity directly to program results. That level of transparency requires planning and structure.

One of the most important steps is to maintain a centralized repository for grant documentation. This includes award letters, budgets, invoices, payroll records and correspondence with grantors. Organizing these files by grant and by fiscal year can make the audit process faster and less stressful.

If your organization expends $1,000,000 or more in federal funds within a fiscal year, you are required to complete a single audit. This comprehensive review covers both financial and programmatic compliance. Preparing for it means ensuring your books are closed on time, your reports are complete and your records clearly show how funds were spent.

Common audit findings often involve lack of documentation, inconsistent time tracking or incorrect application of cost allocation methods. Avoid these issues by conducting internal reviews quarterly and addressing discrepancies right away.

Audit preparation should also include coordination between departments. Your finance and program teams need to speak the same language and understand each other’s documentation needs. A shared calendar for grant reporting and internal deadlines can help keep everyone on track. Staying prepared allows your organization to build credibility and keep funding partnerships strong.

Your Blueprint for a Compliant Grant Management System

Building a compliant grant management system protects your nonprofit’s future and fulfills the promise you made to funders and the community you serve.

James Moore partners with nonprofits to design systems that prioritize compliance while staying grounded in the realities of day-to-day operations. Our advisors recognize the pressure nonprofit leaders face to meet funder expectations without overloading their teams. That is why we deliver solutions that align with your mission, resources, and strategic goals — so your organization can grow confidently and stay focused on its impact.

Contact a James Moore professional to learn how we can support your compliance goals and give your team the confidence to move forward.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.