Nonprofits and Consideration for Effective Grant Management
By Jewel Cornelius-Royer, Director, Managed Services - Accounting
A nonprofit has received its first few grants and has the opportunity to receive additional funding. A large established organization handles hundreds of complex multi-year grants from federal awards and private donors. These are two very different situations with the same concern: how to most effectively manage grants. Teams from both organizations may ask:
- Are the proper controls in place for effective grant management?
- Are the right people involved in managing these awards?
- Do we understand each funder’s grant requirements and how we can ensure compliance?
- Is our accounting system set up to efficiently and effectively manage the awards?
- How do we ensure we spend all of these funds?
Many nonprofits are managing multiple grant funds and reporting requirements. Grant management is the process and methods, from pre-award to close-out. In this article, we will discuss considerations for effective grant management by a nonprofit.
THE TEAM – ACCOUNTABILITY IS KEY
Effective grant management cannot be the responsibility of one person, nor can roles operate in a silo. A dysfunctional grant management team will put a nonprofit and its programs at risk for noncompliance and, ultimately, loss of current and future funding.
Roles may include:
- Program and project managers –Be clear on compliance requirements and have a thorough understanding of the grant budget.
- Development office –Understand the general nature of the grant and ensure compliance with grant reporting requirements.
- Accounting & Finance –Understand the nature of the grant, grant budget, and how funding can be used. Ensure compliance with grant reporting requirements and prepare reports to management and the board on grant funding status.
- Senior management and the Finance Committee or Board of Directors – Review monthly or quarterly financial reports to see what funds were received, how much was used, and how those amounts compare to the budget.
Effective grant management requires a team effort and understanding of both the grant’s budget and the organization’s operating budget; 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.
TOOLS FOR A FUNCTIONAL TEAM
The team can develop and deploy several tools to help facilitate an effective grant management process, including a grant tracking calendar that includes reminders and deadlines for program and financial reporting, funding applications, and other tasks. Further, the terms and conditions for each grant should be summarized in a separate document and made accessible to each team member. This summary should be updated to include any amendments to the initial terms and conditions to the existing grants.
The grant management team should establish periodic and consistent meeting times to review the progress of all grants and to maintain accountability of the overall process. Based on the size of the organization, this tracking can be performed using spreadsheets. However, as the number of grants increases, the nonprofit may consider using other digital tools to assist with tracking.
Nonprofits should also ensure that their accounting systems are set up for proper grant management. The accounting system should be designed to track revenue and expenses in accordance with the grant budget and to generate budget-to-actual variance reports to monitor differences in budgeted amounts for revenue and expenses and the organization as a whole. To accomplish this, nonprofits should ensure that their charts of accounts are logically designed and that organizational and grant budgets are loaded into the accounting software. Additionally, the accounting staff must be knowledgeable, capable, and properly trained to code grant-related expenditures.
CONTROLS – CRITICAL FOR EFFECTIVE MANAGEMENT OF GRANTS AND CONTRACTS
Nonprofits must establish a structure for successful administration of their grant programs. Internal controls will allow nonprofits to define responsibilities, mitigate risks and identify related reporting requirements in order to provide reasonable assurance that entities can achieve their operational objectives. Internal controls over management of grants and contracts include the following tasks:
- Design and implement internal controls – For each phase of an award to reduce risks and detect weaknesses. Also prepare a grant accounting manual and ensure that accounting procedures in practice are consistent with documented procedures.
- Segregation of duties – Establish division of responsibilities for those who prepare, review, confirm, negotiate and/or approve grants.
- Conflict of interest policy – Include references to conflicts of interest in grant administration policy, and mitigation procedures when such conflicts are identified.
- Policies and procedures – Prepare policies and procedures regarding gift acceptance, document retention, indirect cost and overhead allocation, budget development and spending plans, revenue recognition, and cash management, among others.
- Federal awards – Document additional policies and procedures for federal awards to include sub-awards and sub-recipient monitoring, personnel changes, time and effort reporting, and procurement, among others.
- Reconciliations – Prepare and review reconciliations between development and finance and accounting records regularly. Reconcile grant financial reports with supporting accounting records.
Contributions received are recognized as revenue in the period received, depending on whether the transaction is part of the nonprofit’s essential activities. Generally, contributions made and received are recorded by the both the donor and recipient at the time of the gift. If the contribution is conditional, revenue is recognized when the condition is met. If the award does not include any conditions, the nonprofit should consider whether or not the award has any donor-imposed restrictions as to how and over what period the contribution can be used and recognized. (ASC958-605)
Donor-imposed conditions have:
- One or more barriers that must be overcome; and
- A right of return to the contributor for assets transferred or a right of release for the donor from its obligation to transfer the asset.
When determining whether an agreement contains a barrier, a probability assessment of whether or not a nonprofit can meet that specification is irrelevant. A contribution containing specifications that are not clearly unconditional should be presumed to be a conditional contribution. When a nonprofit entity receives assets that are conditional, the asset will be accounted for as a refundable advance until all conditions are substantially met or are waived by the donor.
Nonprofit entities should distinguish between contributions received with donor-imposed restrictions and those without donor-imposed restrictions, as this distinction is critical for financial reporting.
PROMISES TO GIVE
Nonprofit entities should recognize promises to give only if the promise to give is unconditional. An unconditional promise to give should be recorded when received, based upon substantive evidence that a promise was made or received. Conditional promises to give are not recognized.
Exchange transactions are transactions where assets are transferred and where each party receives and surrenders commensurate value. If commensurate value is received, the transaction should be accounted for as an exchange transaction by applying ASC 606 or other appropriate guidance. If commensurate value is not received, the recipient should account for the transaction as a contribution under ASC 958-605.
Many nonprofit entities treat federal grants and contracts with governmental entities as exchange transactions. Nonprofit entities should consider the facts and circumstances of each agreement in determining whether the arrangement should be treated as an exchange transaction or a contribution.
Grant management can be complicated. We recognize that every organization may not have the people or tools to ensure the proper infrastructure and systems for effective grant management. Raffa – Marcum’s Nonprofit & Social Sector Group can help.For additional guidance, click here to access the on-demand recording of Jewel’s recent webinar, Nonprofits and Consideration for Effective Grant Management.