Nonprofit Government Grants & Contracts Part 2

Nonprofit Government Grants & Contracts Part 2

September 8, 2016 Lynette Garet Business Basics 0 Comment

5 Best Practices in Navigating Government Grants and Contracts


In its 2013 mandate, the Office of Management and Budgets mandated all federal agencies eliminate conflicting and duplicative guidelines to provide non-federal entities with predictable, transparent and consistent accountability standards. Agencies are to:


  • Focus on performance rather than compliance and assist nonprofits in understanding performance goals, indicators and milestones.


  • Encourage efficient use of information technology and shared services.


  • Apply consistent and transparent treatment of costs; under specific conditions, NPOs may treat administrative costs as direct costs.


Essentially, accounting for government grants and contracts equates with fund accounting principles that emphasize accountability recordkeeping as opposed to reporting profitability. Using a modified accrual basis, fund accounting recognizes revenue when it becomes available and measurable instead of earned, as with true accrual basis accounting, and books expenditures when the liability is incurred.


Whether they currently receive federal funding, nonprofits can prepare for the new order with these five recommended best practices:


Internal committee

Federal agencies, as directed by the OMB, are developing ongoing federal compliance program in the areas of grant management, cost recovery and audit surveillance. To ensure responsiveness and best practice, each NPO should establish an ongoing internal committee to address federal compliance and to improve “whole organization” procedures. Such a committee should include the organization’s finance director, grant administrator, general counsel, executive staff member and, possibly, an objective, outside consultant.


Code of ethics

Nonprofits should assess their existing codes of ethics to address relevant federal issues related to grants and contracts, i.e. no gratuities for federal workers or grant officers, etc. If no such code exists, prudent nonprofit executives hoping to win federal funding will develop an ethics code and ensure all staff know and understand how the code applies to them.


Segregation of duties/funds

Grant and contract funds are restricted to their corresponding program; nonprofits can’t use the money for non-program expenditures and must ensure only the applicable indirect costs are charged. Nonprofits must also segregate preparation and administration of budget, purchasing and payroll expenditures and functions. A program director, responsible for the technical aspects of the grant, should not have responsibility for budget development and cost allocation. While grant personnel may prepare direct cost reports, the finance department should be responsible for calculating direct costs. All program staff should have copies of and understand all grant documents.


Ongoing training

All personnel should have annual training in all aspects of timekeeping, ethics, management, compliance and audit. In addition, periodic seminars, training and conferences related to grant management, compliance and audit might be appropriate for relevant program staff. NPOs must retain all training records and materials.


Internal/external reporting

NPOs should develop a report system to track and manage actual program costs across multiple fiscal years, including the following categories:


  • Prior year
  • Month-to-date
  • Year-to-date
  • Inception-to-date


Other required report information includes:


  • Period of performance
  • Granting agency
  • Funding authority
  • Backlog


NPOs should also take steps to cross-reference direct cost line items to organizational accounts and to apply indirect costs at a provisional rate pending a year-end adjustment. They should maintain a cumulative grant budget to compare against inception-to-date costs and provide data for variance analysis. Direct and indirect costs should be aligned with the federal Statement of Function Expense (normally applicable only to health and welfare organizations), necessary for the annual Indirect Cost Rate Proposal.


Regardless of the final outcome of federal regulatory simplification, these practices will provide NPOs with valuable data to position themselves for operations that are more efficient and maximize increasingly scarce funds.

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