Tracking Grant Expenditures: Important & Best Practices for Nonprofits

If your nonprofit organization has been approved for grant funding, congratulations. Grants can be the driving force behind carrying out your organization’s mission. Grants come from government agencies, private foundations, corporations, and even individuals. The best thing about grant funds is that they do not need to be paid back.

However, the funding from a Grantmaker typically comes with reporting requirements and revenue restrictions.  If your organization fails to meet the Grantmaker’s stipulations, you may lose the remainder of the promised funding.

To keep up with the requirements of current grants and be able to obtain more funding in the future, it is more important than ever to review your company’s grant management process. 

How To Track Grant Expenses

Once you find a proper funding source for your nonprofit’s purpose, it’s time to get to work. Grants often require that all, or a certain portion, of the money, is used on an approved program or project. The grant documents will give details to the recipient about what the funds can and can’t be used for, as well as list any reporting requirements.

Reporting to a Grantmaker usually entails providing information about the progress of the project and details about how the funds are being allocated. To stay compliant, be sure you are correctly tracking all costs. 

Direct Costs

Direct costs, sometimes called “allowable expenses” are the expenses incurred by the nonprofit that is directly related to the program or project approved for grant funds. What costs fall into the category of direct really is determined by the Grant documents and the type of program being executed.

Direct expenses may include salaries (or a percentage of salaries), travel costs, materials, supplies, food costs, and other program-related expenses.

Indirect Costs

Indirect costs include costs that are not directly related to the purpose of the grant funding. Indirect costs may include personal financial obligations, supply costs for other programs, leasing costs, office supplies, employee benefits, entertainment expenses, utility costs, late fees, software subscriptions (if the software is used for more than one program), and memberships. 

How To Know The Difference?

If you are unsure about whether an expense is considered direct or indirect, refer to the grant budget. Each grant application typically includes a project budget which shows the Grantmaker how exactly you intend to use their funds. Grant budgets are set up in a similar fashion as the operating budget used for the entire organization. 

Some funders will review the budget and make changes to what is considered an “allowable expense.” Administrative costs, like payroll, will be “allowable” for some funding agencies, but not for others.  When you are tracking expenditures throughout the project, be sure to refer to the approved budget to make sure expenses are classified correctly.

Solutions For Common Grant Tracking Challenges

Challenge #1: Reporting Compliance

No organization leader wants to spend a whole weekend sorting through receipts and hand-written notes while attempting to put together an acceptable progress report for a funder. If the challenge for your program is staying compliant with reporting requirements, you are not alone.

Issues with compliance are typically the result of a poorly initiated or executed grant management process and puts the nonprofit at risk of losing funding. 

Solution #1: Create A Grant Management Calendar

Keep track of required deadlines and milestone markers by creating a grant management calendar. This can be done for each separate grant or can be used for multiple grants at once. 

Challenge #2: One Person Is Responsible For The Entire Grant Process

When nonprofit organizations are awarded grant funds, there often lacks a written policy that dictates which team members or departments will be responsible for which tasks. This is how expenses get incorrectly recorded and deadlines get missed.

Solution #2: Create A Written Grant Management And Accounting Policy

In the policy, be sure to include detailed instructions about which team members will perform which parts of the grant cycle. Having responsibilities broken down into delegated lists will eliminate confusion and increase efficiency.

Pro tip: It is not always the most cost-effective method to have one person responsible for writing the grant, tracking the grant, and reporting on the grant. 

Challenge #3: Each Grant Has Spreadsheets In Multiple Locations

While receiving grant funding has many benefits for your organization, keeping track of the required accounting can be overwhelming. If you are finding that each grant awarded to your nonprofit is being tracked in more than one Excel Spreadsheet or Google Doc, it may be time to upgrade your grant management process.

Solution #3: Implement An Automated Grant Management Solution

Consider upgrading your bookkeeping and accounting software to a solution, like Sage Intacct, that is robust enough to organize all operational and financial aspects of the organization, including grants, in one easy-to-use location.  

Wrapping Up

Grant management can feel like a burden when it is not properly organized.

There is a better way.

Reach out to JFW Accounting Services today to learn how we can help your organization create better budgets, make a grant management checklist, stay compliant with funding requirements, track grant expenditures, or even upgrade your accounting software.