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Importance Of Grant Accounting For A Nonprofit Organization

Each organization must review their grant agreements and other funding arrangements and determine whether they are contributions or exchanges. An exchange is a reciprocal transaction where both parties give and receive something of equal value, i.e., services for compensation. A contribution is a non-reciprocal transfer where a party gives something without expecting anything in return. Because of these requirements, Getting Attention recommends only pursuing grant opportunities that align closely with your organization’s goals. Allow me to walk you through the steps to properly account for funds restricted in QuickBooks Online.

Challenges of Grant Management for Nonprofits

• Efficiently managing indirect costs enables nonprofits to maximize grant funds while maintaining operational stability.
• By taking these steps, organizations can better manage their funding and confidently report their financials.
• Establishing sound internal controls is essential for ensuring the financial security, accuracy, and completeness of your records related to grants.
• Limiting the grant management function to only one individual can put a nonprofit and its programs at risk for noncompliance and, potentially, the loss of current and future funding.
• By implementing these strategies, grant managers can streamline workflows and maintain compliance while reducing administrative stress.
• Thorough grant research and relationship cultivation with accurate notes and attached requirements make it easy to lay out a grant management roadmap once it’s time to begin putting the funding to work.

The update uses a flowchart to help remove uncertainty arising from the revenue recognition standard that took effect January 1, 2018, for nonprofit organizations. Grants are the lifeblood of nonprofits, giving them the much-needed cash injection to market the organization, fund a project, or get an initiative off the ground. Having a full grant pipeline increases your nonprofit’s chances of success and improves your visibility and credibility. But in order to get the most out of these grants, you need to understand how to properly manage and account for them. Grants often require an itemized invoice and proof from an independent auditor that there is no performance-related barrier.

Fund Accounting Deep Dive

• Determining how to distribute these expenses equally becomes a complex puzzle when multiple programs share staff, space, and resources.
• For example, New York and California have detailed reporting requirements, while other states might be more relaxed.
• NFPs must comply with all relevant laws and regulations to ensure proper grant management.
• Therefore, embracing data analytics in grant management is key to achieving operational efficiency and better financial outcomes.
• Common mistakes include using restricted funds for the wrong purpose or forgetting to “release” funds from restriction when you’ve met the requirements.

At Rooled, we are committed to supporting nonprofit organizations in navigating the complex world of grant accounting and financial management to achieve their goals with confidence. Grant accounting is essential because it directly impacts an organization’s financial health and sustainability. It ensures that funds are utilized for their intended purposes and reported accurately, instilling trust and confidence in donors and stakeholders. Familiarity with different types of grants is equally vital for individuals involved in nonprofit management.

Why Grant Cost Allocations Matter

This choice depends on the nonprofit’s goals for ease of use, the complexity of the relationship between various grants and programs, and the organization’s process for performing allocations. At the end of the day, the cloud time platform is the system of record for time and is used to derive the percent of the employee’s total time spent on each subcategory. Grant cost allocations are more than just a bookkeeping https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ exercise—they are essential for ensuring your nonprofit remains financially healthy, compliant, and trusted by donors and grantors. Properly allocating costs helps your organization demonstrate transparency, accountability, and effectiveness in managing funds. Proper nonprofit revenue recognition is vital for accurate financial reporting, as it directly impacts audits, tax filings, and decision-making.

• Our CFO services are customized to your organization’s specific requirements, ensuring that you can access the right grants to fuel your mission.
• Nonprofit grant management consists of all the steps and processes organizations must follow to satisfy the requirements of grant funding that they’ve been awarded.
• For example, the terminology of “exchange transaction” will be superseded by “contract with a customer,” but the concept will remain the same.
• If you’re a nonprofit producing scientific or academic research, you might also receive research grants.
• Maintaining accurate, up-to-date records is essential to provide transparency, ensure compliance with grant requirements, and facilitate financial audits.
• What matters is the overall picture of your organization’s financial health and impact.

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. 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. It may be hard to believe but getting too much money can sometimes destabilize a nonprofit organization. Understanding what outstanding checks are in bank reconciliation is key to keeping your finances on track. Learn how to identify, record, and manage them to maintain a healthy accounting system.

Proven Grant Management Best Practices for Growing Nonprofit Funding

• Finally, government grants are treated as an expense in the same period they’re recognized, rather than when they’re received.
• This split helps donors see how much of their money goes directly to the cause.
• Furthermore, an effective grant budget management system enables organizations to assess the financial performance of grant-funded projects, informing future budgeting and strategic planning.
• For example, a federal grant may specify that the funds be used for community outreach, education, or infrastructure development.
• Many grant management systems offer tools to help you track and report on restricted and unrestricted funds separately.
• Ultimately, grant accounting isn’t just about managing numbers—it’s about empowering your nonprofit to achieve lasting change.

Often barriers are noted accounting services for nonprofit organizations by specific and measurable achievement levels rather than goals. When a new grant is activated in your ERP system, it should automatically be available in your timekeeping software. By integrating your ERP system with your time-tracking solution, new grants are immediately provisioned in your time-tracking system. This ensures that employees can track time to the appropriate grants immediately, reducing the risk of errors. Now that we know what role each software platform should play in grant compliance, let’s take a look at each of the steps involved with financial reporting and learn how to use the software in unison.