Nonprofit Grant Accounting

Nonprofit organizations rely on grants to fund their mission-critical activities, but the grant process can be complicated. Managing grant accounting can be even more so, which is why many NFP partner with specialized firms to ensure accuracy and compliance.

An NFP accounting specialist knows how to accurately record grants according to state and federal regulations and helps ensure that the funds are used in an appropriate manner. Let’s take a deeper look at securing, using, and managing grants.

What Is Grant Accounting?

Grant accounting involves recording and monitoring all types of grants to track their use and ensure they comply with regulations. Proper grant management includes transparent reporting that shows the funds are used for the intended purpose.

The nature of the grant determines which accounting approach must be used, for example, capital or income approaches. To effectively manage grants, it is essential to know about the different types of grants and what each entails.

What Are The Main Types Of Grants?

There are four main types of grants: unconditional, conditional, matching, and reimbursable.

  1. Unconditional grants are given with no strings attached.
  2. Conditional grants have specific usage requirements.
  3. Matching grants are equal to the amount raised through funding raising projects.
  4. Reimbursable grants are transferred after the NFP has covered the program’s expenses. For example, you launch a new sterilization program for stray dogs. Your organization must fund the program after which you’ll receive the grant to reimburse your expenses.

It’s crucial to understand each type of grant to ensure you apply for the one that meets your organization’s needs. By doing so, you can structure your proposal to maximize your chances of securing the funds you need to achieve your goals.

What Are The Main Accounting Principles Used For Grants?

Grant accounting for nonprofits involves three main principles: the capital approach, the income approach, and the deferred income approach.

  • Capital grants are funds used for acquisition, construction, renovation, or repair of capital or fixed assets.
  • The income approach is used when grants are recognized as income over the period necessary to match the related costs.
  • The deferred income approach is used when grants pertain to depreciable assets.

Grant accounting principles ensure that nonprofit organizations record and report grants accurately. With the right accounting method, nonprofits can ensure compliance, transparency, and effective financial management. Understanding these principles is essential for nonprofit organizations that rely on grants to achieve their mission.

Grant Management Requirements

NFPs must be certain of the grant’s requirements to ensure it’s used for a specific purpose in accordance with the agreement’s terms and conditions. NFPs must comply with all relevant laws and regulations to ensure proper grant management.

Nonprofit accounting compliance requirements must also be met to avoid any legal or financial penalties. If it proves necessary to deviate from the grant agreement, it must be discussed with and approved by the grantor.

Overall, ensuring proper management is key to maintaining a positive relationship with the grantor and maximizing the impact of the grant on the NFP’s mission.

Benefits of Accurate Grant Accounting

Grant accounting is not just about recording and monitoring government grants. It also has a significant impact on NFP financial health. Accurate grant accounting can help NFPs better manage their finances and identify new funding opportunities. Tracking progress also provides valuable insights for future decision-making.

Additionally, grant accounting provides information about how well a grant is being used, which can be used to make better-informed decisions in the future. By identifying potential funding opportunities, grant management helps NFPs achieve their goals and have a greater impact on the communities they serve.

Accounting Tips for Grant Management

Effective grant management is crucial for NFPs to use funds efficiently and maximize ROI. Here are some accounting tips for NFPs to help manage their grants:

  • Keep track of all required paperwork for the grant, including the grant agreement, budget, and reporting requirements. This also includes recording all correspondence related to the grant, which must be filed in an organized manner.
  • Use the applicable accounting method – capital, deferred income, or income approach.
  • Ensure that all reporting deadlines are met to avoid potential loss of funding.
  • Keep in contact with the grantor throughout the grant period so they are always up-to-date on progress.
  • Use grant accounting software or tools to help with budget tracking, progress reporting, and compliance monitoring. For example, Sage Intacct is effective in automating the grant process for faster and more accurate reporting.

Where To Start In Getting A Grant?

The first step to securing grants for your nonprofit is to search for grants that align with your organization’s mission and programs. Research is important to find grants that will help fund the specific aspects of your nonprofit’s mission that need a financial boost.

Consult your accounting partner while you’re putting the proposal together to see if the requirements have usage restrictions or conditions that need special financial consideration. For example, conditions that specify the grant will be paid in four installments throughout the year and not in one lump sum.

Don’t waste time submitting proposals to grantors whose conditions don’t meet your requirements because if you do and you fail to meet the conditions, you’ll lose the grant.

Keep in mind that grants are in high demand among NFPs. You must submit a well-prepared and compelling proposal that demonstrates the impact of your organization’s work and how it aligns with the grantor’s priorities. By taking the time to research and prepare a strong proposal, you can increase your chances of securing the funding your nonprofit requires.

Tips to Secure more Grants

Prioritize your needs and estimate how much money you need to fund the program. That way you know if one grant will cover all the costs or if you need to submit multiple proposals to secure all the funding you need.

1) Create a rough outline

Use your list of needs to create a rough outline of what you want to achieve with the grant. Think about how the grant can help you meet your goals.

2) Paint a picture in your grant proposal

Your proposal must stand out from all the others (which could number in the hundreds). Explain the need for the project and include a real-life example of the difference it can make. Use emotive language to evoke an emotional response in the person assessing proposals for a short-list. The more you make them believe in your mission, the better your chances of winning the grant.

3) Research the grantor to make a good match

Research their priorities, funding history, and the types of NFPs they usually support. This will help you tailor your proposal to meet their specific needs and increase your chances of success.

4) Be sure you understand the proposal instructions

You must comply with the instructions. If you don’t, your proposal will be thrown out before it’s been considered. If you have questions, ask them. No one is going to penalize you for wanting to be accurate. Double-check your proposal for spelling and grammatical errors, and make sure it meets all formatting and submission requirements.

5) Work with your accounting partner to get the calculations right

Your accounting partner knows how to format the proposed budget so it clearly states your needs and how the funds will be spent. You can work together to ensure everything is correct as per instructions.

6) Submit the proposal

Once you’re confident that your proposal meets all requirements, submit it before the deadline.

7) Follow-up

After submitting your proposal, follow up with the grantor to confirm receipt and ask about the timeline for award announcements. If you don’t receive the grant, ask for feedback on how you can improve your proposal for future applications.

Grant accounting is a crucial aspect of managing funds for nonprofit organizations. Accurate grant management ensures compliance with regulations, transparency in reporting, and effective financial management. By understanding the different types of grants and accounting principles, NFPs can better manage their finances and identify new funding opportunities. By following the tips mentioned above, NFPs can increase their chances of securing grants and effectively use funds to achieve their mission’s goals.

Working with an accounting partner and utilizing grant accounting tools like Sage Intacct can streamline the grant process and maximize their impact. For instance, Sage Intacct’s grant tracking and management software helps non-profits report and compare budgets to actuals, track and approve employee effort per grant, and stay compliant and audit-ready with centralized grant records and reports.

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