Landing a grant can be so exciting—those big gifts hold so much potential! But most grants come with some strings attached; funders want to know that you’re using that money to fund the programs or objectives you mentioned in your grant proposal.
Many grants have very strict rules about how you can use them, and you’ll almost certainly need to prove that you’re stewarding that money well. That’s where grant accounting comes in.
What Is Grant Accounting?
In many cases—maybe even most cases—grant funders will have some requirements about how you use that money. Grant accounting involves careful tracking of how you’ve spent that grant money and what the outcomes of that spending are.
Say, for example, you received a $5,000 grant to purchase new computers for your staff. You’ll want to keep careful records of what you bought and how much it cost. You may need to return any extra cash you didn’t spend—that depends on your agreement with the funder and the terms of the grant itself—and careful grant accounting will make that process as easy as possible.
Aside from ensuring you meet the terms that come with any grant you receive, good grant accounting can also set you up for other grants in the future. If you submit a grant proposal for something that’s awarded on an annual basis, having provided thorough documentation one year may make them more likely to give you the same grant in the future.
Why Good Grant Accounting Is Important
Good grant accounting is important for a few reasons.
It Establishes Transparency and Trust
Whether it’s an individual donor, a family trust, or a larger grant-making organization, a grant funder needs to be able to trust that you’re using their funds as they were intended to be used.
Take that $5,000 grant for new computers, for example—a funder will want to know that you actually used that money to buy new equipment, not to pay your rent or electric bills. Proper grant accounting will help you maintain trust with your grant funder by providing clear, detailed records of what you did with their funds.
It Keeps You In Compliance with Grant Regulations
There are a few different kinds of grants, and some have more rigorous reporting requirements and regulations than others. Depending on the type of grant you’re awarded, you may be subject to specific regulations and reporting requirements.
Whether those requirements come from individuals, State or Federal governments, a for-profit company, or some other group, it’s important that you follow the rules and regulations associated with your grant. If you don’t, it could lead to loss of funding, damaged relationships, or other penalties. Good grant accounting will make it possible for you to follow those rules and regulations regardless of what they may be.
It Helps You Demonstrate Impact
The people and organizations that fund grants do so for a reason—they want to fund certain kinds of programs or activities, and they want to know that they’re funding the outcomes they set out to achieve. They want to know that their gift is being used to meet their goals!
Effective grant accounting makes it possible for you to give your funders what they want. You’ll be able to show them how their funds are making a difference, which is going to be an important part of building a relationship with that group or individual.
Key Concepts in Grant Accounting
If you’re brand new to grant accounting, here are some terms or phrases you’ll want to wrap your head around:
Restricted vs. Unrestricted Funds
Many grants—maybe even most grants!—come with pretty strict guidelines or requirements about how you can use them. Those are restricted funds. Grant accounting is exceptionally important when you receive a restricted fund.
Some grants are unrestricted, which means they come with few or no restrictions or requirements. That doesn’t necessarily mean you don’t have to report on those funds at all—every funder is going to want to know how you used your grant and what it achieved—but it does mean you can use them a bit more freely.
Fund Accounting
In most cases, you’ll need to maintain distinct records and accounting for each grant you receive. You’ll need to keep accounting separate for individual grants so you can easily track and report on each one. This is an important way to prevent misreporting or misuse.
Grant Periods
Grants are usually time-bound, which means they come with specific start and end dates. Good grant accounting involves tracking your expenses within each grant period, which will help you make sure you use those funds appropriately and in a timely manner.
Budget vs. Actuals
Part of the grant process is creating a budget for each grant that covers how you’ll use those funds. During your grant accounting, you’ll need to make sure to track your projected budget amounts and your actual expenditures. That way, you’ll be able to monitor and control your spending to make sure you use your funds appropriately.
Practical Steps for Getting Started
Feeling a little overwhelmed? That’s okay—it happens! Let’s take a look at some basic steps you can take to establish some good grant accounting processes.
First, Find a Good Grant Management System
Look for a grant management system that includes good tracking, accounting, and reporting features. A good solution will make it possible for you to track multiple grants and make sure any restricted funds are used correctly.
Train Your Team
Once you’ve got a system in place, make sure that everyone involved in managing your grants is up to speed on how to use it. Offer some training on your grant accounting and management software, reporting requirements, and internal controls (more on those in a minute!). The more thoroughly your team is trained, the less likely you are to encounter accounting errors or compliance issues later on.
Create a Grant-Specific Budget
Next, develop a detailed budget for each grant you’re managing. Be as specific as you can! The different line items you’ll want to include will vary based on the specific grant in question, but some common ones include things like salaries, administrative expenses, supplies, fees, and program costs. Creating a clear budget right away will make it possible for you to stay on track and simplify the grant reporting process.
Set Up Some Internal Controls
“Internal controls” sounds really intense, right? It doesn’t have to be—you’re really just setting some safeguards in place to prevent errors or fraud. This could include simple measures, like requiring approvals for expenditures. It could also mean establishing more thorough processes, like conducting regular audits and sharing grant-related duties among staff so no single person controls every aspect of the grant.
Keep Good Records
It’s important for you to maintain accurate records of all expenses and other transactions associated with a grant. This includes everything from invoices to receipts, payroll records, and anything else that you can use to account for how you used grant funds. Don’t let those receipts pile up, either—keep up-to-date records in your accounting system so you don’t have to scramble around later.
If you’ve got good nonprofit bookkeeping processes in place, this part will come easily to you!
Monitor and Report On Spending
On top of simply recording your spending, you’ll want to regularly check how your spending and your budget compare to each other. You’ll want to go over your progress with your staff and—if it’s appropriate—share periodic financial reports with your grantors. Taking that step will help you fulfill any of the grantors’ reporting requirements, and it can help you build trust that will be important if and when you apply for future grants.
Grant Accounting Is Important—and Manageable
If you’re just starting to wrap your head around grant accounting and other management pieces, taking these steps will get you started. You’ll get the hang of it quickly! Remember, your big grant accounting goals are to keep good records about how you use grant funds, then share those records with your funders so they know you’re using that money wisely.
Did you know that Neon CRM includes grant management tools? Those features, combined with our integration with QuickBooks, simplify the grant accounting process.
Want to see it in action? Join one of our group demos! They’re a great way to get a feel for the platform without the pressure of a one-on-one sales call. Here’s where you can find one that works for your schedule!
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