Your Nonprofit Got its Grant. Now What?

Article Highlights:

• Nonprofit grant management: Four ways your nonprofit’s CFO can help properly administer grants.
• Area 1: Reading the contract.
• Area 2: General Ledger Setup and Transaction Processing
• Area 3: Payment Requests
• Everybody needs to be all in for this to work.

Nonprofit grant management: Four ways your nonprofit’s CFO can help properly administer grants.

Let’s imagine all our efforts have succeeded: After a lot of hard work and coordination between the grant writing team and the CFO, your nonprofit has been awarded the grant.¹ There’s probably time for some celebration, but then the challenge of nonprofit grant management and administration begins.

Like in the other parts of the grant proposal process, the CFO plays a central role in carrying out the organization’s many responsibilities in its collaboration with the funder.

So, what should the CFO be doing in helping to administer the grant? Well, there are four main areas in which the CFO can help properly administer the grant.

Area 1: Reading the contract.

Because the CFO should have been involved in every step of the grant proposal process, they should have a reasonably clear idea of what was promised in the application.

But this is not enough! The CFO needs access to both the application and a copy of the signed contract. That is, as the CFO, you need to be familiar with the exact promises made in the application as well as any conditions and requirements outlined in the contract.

In fact, many people need to be able to see these (the program managers, for example). It might be useful to set up shared digital folders where PDFs of applications and contracts are available to everyone.

But as CFO, it is your responsibility to make sure the financial aspects of the grant are properly administered. To do this, you must read through the contract in its entirety to look for specific provisions.

Here are details to pay attention to as you read the contract:

Payment Requests and Reports

Your department will be responsible for making the grant money flow, so to speak. To do this, you must make sure you provide payment requests at the right time, in the right format, and with proper documentation.

Provisions for Budget Amendments

Despite our best efforts, things may not go according to plan. Therefore, it is important to know the options and procedures for amending the budget.

GAAP Classifications

Essentially, you want to know how the grant revenue should be classified from a GAAP (Generally Accepted Accounting Standards) standpoint. The rules have changed in the last few years, making it imperative for auditors and grant recipients to determine if a grant is conditional or unconditional.

But why does conditionality matter? Essentially, the contract is the key to the GAAP classification of the revenue. If the grant is deemed to be unconditional, for example, you will record all of the revenue as of the date that you receive the definitive notice of award, with the offset to accounts receivable or cash.

On the other hand, if the grant is conditional, you will record the revenue as you carry out the funded activities. And if you receive a cash advance on a conditional award, the offset will be to deferred revenue.

Feeling overwhelmed at the minutiae of these large categories? Here’s a checklist with a breakdown of questions to ask that might help you keep track of everything!

If you have questions about the GAAP terms referenced in the checklist such as “barriers” I recommend you show the contract to the auditors and get their guidance on how to record the revenue. Even if you feel well-versed in the GAAP principles of revenue recognition the auditors will have the final say on how the terms of the contract will be interpreted.

Area 2: General Ledger Setup and Transaction Processing

From an accounting perspective, grants management is all about accurate transaction processing.

As I’ve discussed in previous articles,² every transaction must go to the right cost center (or “class” in QuickBooks™) to assure that the numbers you pull from the general ledger (GL) for payment requests are unique, legitimate expenses with no possibility of double-dipping.

Starting on the first day of the contract period, revenues and expenses must be accurately charged to the correct accounts and cost centers — these might be bi-weekly payroll expenses, a $5 credit card receipt, or a vehicle repair bill. All shared expenses (such as supplies, vehicle usage, office rent, or program supervision) must be allocated using the same methodology that you used for the proposal budget.

Program managers and their staff must also be trained to code the new cost center on all invoices and receipts relating to the project — even that $5 credit card receipt must identify the correct cost center.

And your accounts payable/receivable staff need to be on the lookout for the proper codes on those invoices and receipts. It might be a good practice for staff accountants assigned to the program to review weekly check runs and ensure that project expenses were entered correctly in the GL.

All of this double-checking might feel inefficient but remember that your top priority is to accurately translate the program’s activities into funding dollars. In a grant cost center, money out (expense) equals money in (grant revenue).

This means that the 10% of a telephone bill that goes to the wrong cost center, for example, will not be included in the correct payment request. The expense will either go unreimbursed, or worse, it will go on a payment request for the wrong program.

Woe betide the finance person who does not get around to GL setup and training by the first day of operation! Payment requests will be a nightmarish experience of searching through different cost centers for the reimbursable expenses. And you can’t even imagine the extra work involved in correcting the accounts and cost centers after expenses have been incorrectly recorded.

Yes, it takes time and effort to prepare for a new program. But when you start working on the first payment request, you will thank yourself (and everyone involved) for being positioned to faithfully record every transaction in the proper GL account and cost center.

Area 3: Payment Requests

The CFO and general staff’s ongoing relationship with the funder usually begins when the program is underway, and cash is needed to cover the expenses. Of course, every funder has a different approach to releasing funding. At one end of the spectrum, they might require nothing more than a letter each quarter asking for a quarter of the award, followed by a budget-to-actual report at the end of the year.

At the other end of the spectrum, you might be asked to provide a specialized, detailed financial report every month, along with program performance statistics and copies of invoices and time sheets. By reading through the contract and speaking with the funder, you should be able to ascertain their requirements for releasing funding.

However, there are some practical tips to be aware of in your communications with the funder to demonstrate you are committed to this relationship.

Tip 1:

Use the term “request for payment” rather than “claim.” Some foundation personnel prefer the use of this terminology, and it’s better to be safe than sorry.

Tip 2:

Submit requests on or before the deadline.

Tip 3:

Meet all requirements. Again, don’t hesitate to call the funder’s office if there are any that you don’t fully understand.

Tip 4:

Organize any backup documentation in the same order as the requested amounts.

I’d even suggest highlighting the totals that correspond to amounts requested. The less you make the funder work, the better.

If the contract requires voluminous backup documentation (such as invoices, credit card receipts, or payroll records), consider scanning or copying them with every check run and keeping them in a dedicated electronic or paper file to save time preparing the request. Again, this is something that should be made pretty clear when you read over the contract itself.

If you have any questions about the required documentation, it’s always best to check with the funder for clarification.

Area 4: Spending the Money

Underspending a grant contract is a headache that pops up more often than you might expect. It is guaranteed to haunt you if you applied for funding without adequate planning and evaluation of need. But it can crop up even if you did everything right.

Like all budgets, the proposal budget is a collection of estimates based on incomplete information, which means that it’s never an exact science. And underspending also happens with forces completely outside of the CFO’s control: It can happen when there is a delay in hiring and training staff, staff turnover occurs, or time is needed to gather referrals for the services, to name a few possible scenarios.

However, some of these challenges can be avoided with careful monitoring. There’s no need for CFOs to spend New Year’s Eve filling up shopping carts with office supplies to spend up grant money.

Instead, an infinitely better approach is for finance and program people to work together to monitor the financial reports and plan ahead. The monthly budget-to-actual income statement is designed to show how the program is doing in spending the money on schedule but consider the many demands on the program manager’s time.

Here, a little extra effort on the part of the finance department (that’s you) to communicate with the program may be warranted. Hopefully, you have cultivated a strong relationship with your program managers (possibly from your coordinated efforts in the grant proposal process) so that they feel grateful when you alert them that their spending rate is too high or too low — instead of feeling like they’re being scolded.

But what if you still can’t spend all that money (shopping carts of office supplies notwithstanding)? Before contemplating giving back funding, take a careful look at your cost allocations. Remember that when you developed the application budget, you were using the information you had at hand. Now, you have actual experience and actual numbers to work with.

First, see if your shared costs are correctly allocated between programs and cost centers. The actual usage of office supplies or vehicles may be different from your expectations. Supervisory and support staff may be spending more (hopefully not less) time in the program than you had imagined.

Second, review the time that M&G personnel have spent on the new program. Find out if the IT staff spent a significant amount of time reconfiguring the network for the new hires, or maybe your quality assurance staff spent time creating new policies, procedures, and audit programs for this program.

Any activities of this sort (that can be documented) can give you justifiable cause for increasing your indirect cost allocations. Remember, M&G costs are defined as costs that cannot be identified with an individual program. M&G personnel hours identified with individual programs can be carved out of M&G expense and charged to the relevant program.

But sometimes, despite our best efforts, the approved grant budget and the actual costs just don’t match. At this point, you must alert your ED and suggest a frank discussion with the funder. As I have stressed elsewhere, the foundation is your partner in carrying out this project and has just as much at stake as you do.

As such, your ED should be on board with informing the funder of the challenges you have encountered. The relationship that you have built with your funder (in part through your respectful communication of payment requests, for example) will help you to convince them of two things: One, you have operated in good faith, and two, you have the know-how to overcome any obstacles for a successful project.

Especially if you are just starting a new program, the funder may actually anticipate a slow start to its operations and might offer (or you can suggest) a “no-cost extension” as a solution to this common problem. Essentially, this means extending the grant period for as many months as are needed to use the funding as it is intended. However, the funder will only grant this with proper communication. Let them know what’s going on, and then offer this as a solution (if they don’t offer it first).

Alternatively, you may be able to get the go-ahead to use a budget amendment to redirect unspent salary expense, say, to an unmet need. This unmet need might be a vehicle to transport clients to appointments or specialized software to better track program outcomes.

Again, to make this happen you must clearly communicate to the funder the source of the unspent funds and how your proposal will strengthen the program.

Everybody needs to be all in for this to work.

As CFO, your ability to understand the program’s mission and the contract’s provisions while creating a strong GL and great rapport with the foundation will go a long way towards a successful project.

But at the end of the day, nonprofit grant management and administration is not just the work of the CFO. Of course, it involves finance, but it also concerns executive management, program supervisors (and their staff), the auditors, and the funder, too.

A successful grant award creates a network that connects all of you to each other, wherein the strength of the grant (and how effectively it can be used) depends upon your teamwork.

These are the bonds that you as the CFO create in your role throughout the grant process, and you must be involved at every step of the way. Only this way will you ensure your organization is best poised to obtain and administer grant funding so that you can better serve your community.

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Footnotes:

1. For a more general detailing of what to do after receiving the grant, check out this article! ↩︎
2. For more, see The Art of Grant Budgeting, Involving your CFO throughout the Grand Application Process, and Roadmap to Navigate the Challenges of Grant Proposal Budget Calculations. ↩︎

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