(3 Mistakes Non-profits Should Avoid)
Grants are vital to non-profits. The funding provides financial stability to support mission-driven initiatives, enhance infrastructure and meet critical community needs.
However, managing grant funds properly is just as important for an organization’s financial health as receiving the grant itself.
Without proper management of grant funds, you risk losing the awarded funding, endangering future grant opportunities and damaging your organization’s reputation with stakeholders.
Strong financial management is key to grant success. But with complex requirements and limited resources, mistakes can be easy to make. Below are three common pitfalls organizations face after securing grants—and how your organization can avoid them.
Mistake 1: Failing to Budget Carefully
A grant budget is typically required as part of the grant application process. But if your organization doesn’t incorporate the budget into your accounting system (or if your budget isn’t detailed enough), you could see significant problems.
Without looking at expenses at an organization-wide level and properly allocating them, it’s easier to over spend or under spend in various categories. Even worse, you might accidentally get reimbursed for the same expense by two different grants! To ensure proper accounting and allocation across grants and programs, the grant budget should be incorporated into the organization-wide budget.
If your accounting system is capable, code budgets to the program and grant level. If your system lacks this capability, consider preparing budget in Excel to combine multiple grants and operating budgets.
Mistake 2: Inadequate Tracking of Spending
If you don’t track expenses month by month, you may use funds too quickly, which can result in the need to use operational funds to continue a program. On the other hand, the grant period could end with unspent funding. Scrambling to spend fund sat the end of a grant period can lead to mistakes and unnecessary spending.
If your system allows, review budget-to-actual reports by grant and across the organization every month. If it doesn’t, prepare a budget to actual spreadsheet for each grant outside the accounting software. Analyze year-to-date spending and compare it to known activity and the percentage of the time period completed versus percentage of the budget spent.
Mistake 3: Neglecting Proper Record keeping
Most grants cover payroll costs for employees running the program, and most organizations budget those employees based on an estimated percentage of time. Be sure to keep records that support the time and effort spent by all employees whose time is paid for by the grant. Additionally, your timekeeping system should include grants, so employees can charge out their time across all grants and administrative tasks.
If you can’t provide evidence of the actual hours and pay rate charged to the grant during an agency site visitor during your annual audit, it may result in findings or even the requirement to return grant funds.
Proper management of grants is crucial for maintaining financial stability. By avoiding these common pitfalls, organizations can ensure the successful use of grant funds while advancing their missions.
By Jeri Groce
Jeri Groce is a Member in Warren Averett’s Audit Division and is a part of its Public Sector Industry Group and provides auditing, attestation and consulting services in the public sector industry Jeri has more than 18 years of experience in public accounting. She specializes in planning and conducting audits for nonprofit, higher education and governmental entities.
