Grants are an essential part of nearly every not-for-profit (NFP) organization’s funding structure and budget. Whether the NFP is new and receiving its first grants for start-up activities or large and well-established with hundreds of multi-year grants from federal programs and private donors, grants play a critical role in the viability of each organization.
Effective grant management is a priority for NFPs that often manage multiple grants from several sources with divergent reporting requirements. The grant management process must be handled efficiently to achieve the best results.
NFP leaders and their fundraising teams are concerned with questions such as:
Grant management is a process extending from pre-award planning through funding close-out and final reporting. To effectively oversee the grant process, NFPs should incorporate the following considerations in their planning, management, and accounting for grants and contributions.
Capable NFPs assemble a team to manage their grant management efforts. The team has accountability for the grant management process, which benefits from the multidisciplinary input from the team members who collectively understand the overall priorities and needs of the NFP. Limiting the grant management function to only one individual can put an NFP and its programs at risk for non-compliance and, potentially, the loss of current and future funding.
Members of an effective grant management team bring a deep understanding of the NFP's mission and operating budget and an appreciation for various grant makers’ areas of focus and grant budget. This knowledge includes terms and conditions of grants received, including any restrictions, control processes and procedures for managing grants, and how transactions should be coded to facilitate accuracy and completeness in grant reporting.
The grant management team typically encompasses the following roles:
The grant management team should meet periodically to review the progress of all grants and maintain accountability. Various tools can help facilitate an effective grant management process, including a grant tracking system with a calendar that includes reminders and deadlines for each grant. This system should be accessible to each team member and updated regularly to include any amendments to the initial terms and conditions to the existing grants.
The NFP’s accounting staff must be knowledgeable, capable, and trained to code grant-related expenditures. Their accounting system software should be supplemented for proper grant management recording and reporting to enable the tracking of revenue and expenses according to the grant budget. The accounting system should also generate budget-to-actual variance reports to monitor differences in budgeted amounts for revenue and expenses and the organization. NFP accounting teams should ensure that their charts of accounts are logically designed and that organizational and grant budgets are loaded into the accounting software.
From an accounting point of view, effective grant management is based on a system of internal controls that define responsibilities, mitigate risks, and identify related reporting requirements to provide reasonable assurance that entities can achieve their operational objectives.
Key activities to establish a comprehensive set of internal controls over the management of grants and contracts include:
NFP grant management programs should follow certain principles when accounting for grants and contributions from donors:
NFP entities should distinguish between contributions received with donor-imposed conditions and those without these conditions, as the distinction is critical for financial reporting.
Many NFP entities treat federal grants and contracts with governmental entities as exchange transactions. NFPs should consider the facts and circumstances of each agreement in determining whether the arrangement should be treated as an exchange transaction or a contribution.
Exchange transactions involve transactions where assets are transferred and in which each party receives and surrenders commensurate value. In this case, the transaction should be accounted for as an exchange transaction by applying ASC 606 or other appropriate guidance. If the commensurate value is not received, the recipient should account for the transaction as a contribution under ASC 958-605.
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