What to Know About Grant Compliance
It is an exciting time for organizations when they receive a grant. However, with this excitement comes responsibility because of the stipulations which the recipient needs to adhere to for compliance purposes. Grant recipients that answer questions of ‘Who, What, Where, When, Why and How,’ as discussed below, will have more peace of mind towards grant compliance.
Who?
Grant recipients need to know who funded the grant. If the funder is governmental, or if a nonfederal entity awards federal funds, the recipient organization could be subject to a Single Audit. Recipient organizations who receive nonfederal funds are subject to specific stipulations from the funder; stipulations vary across each funder. Recipient organizations need to understand their grant agreement to remain compliant, as noncompliance could lead to loss of funding, among other potential issues, including additional audits from the granting agency, legal issues, fines, penalties, and reputational damage.
What?
Recipient organizations need to know the purpose of the grant. From there, the recipient organization needs to determine whether the grant is restricted. This determination impacts the accounting for the grant.
Where?
A grant needs to be recorded in one of two places when there are unmet stipulations. The first is recording in a restricted grant revenue account, and the second is recording in a refundable advance account. In both cases, the funds are released to revenue as the stipulations are met.
To be recorded in a grant revenue account with donor restrictions, the grant must be unconditional and have a donor-imposed restriction attached to the grant. If the grant agreement includes certain barriers to overcome, it is a conditional grant and has a right of return if the award is not spent according to the stipulations; in this case, the funds need to be recorded as a refundable advance until the stipulations are met. If unsure, a conservative approach is to record the funds in a refundable advance account; however, communication directly with the grantor needs to take place in order to verify the proper accounting treatment of the grant.
When?
Grant stipulations could require the grant award to be expended in a certain period. Therefore, recipient organizations need to know if the grant requires funds unspent after the grant period to be returned. Reporting stipulations may have strict issuance deadlines for various reports, such as financial data, performance metrics, and audits.
Why?
Organizations apply for grants to support initiatives to serve their community that align with their mission. In applying for a grant, the organization must fulfill the requirements of the grant application and show why the organization is pursuing the funding. In turn, funders typically request reports for the funder to monitor grant expenditures. Also, for organizations subject to audits, auditors will request documentation of who prepares, who reviews, and who approves grant-related records to assess the organization’s controls.
How?
Recipient organizations need to consider how much funding they will expend, and if there are excess funds, the recipient must determine if the funds need returned to the funder. Budgeting is a tool to determine how much funding the organization needs. Continual monitoring of budgets helps organizations strategize the activities that would benefit most from grants.
Final Thoughts
Receiving a grant provides advantages and security to organizations. To maintain compliance, organizations need knowledge and understanding about their particular grant awards. By remembering the ‘Who, What, Where, When, Why, and How,’ pertaining to each grant, organizations will be on the road to success with grant compliance.
If you have questions about the information outlined above, McKonly & Asbury’s experienced professionals are here to help. Learn more about our Healthcare practice by visiting our Healthcare industry page or by contacting the Director of our Healthcare practice, Janice Snyder, Partner.
About the Author
Mary Kilcoyne joined McKonly & Asbury in 2023 and is an Assurance Senior Accountant, where she focuses on serving nonprofit organizations, affordable housing entities, and healthcare organizations. She provides audit, assurance, and advisory services to a broad range of mission-driven entities, including charitable organizations, foundations, associations, and social service providers.
She is known for her proactive approach, attention to detail, and ability to navigate the complex reporting and regulatory requirements unique to these sectors. In her
role, Mary collaborates closely with both clients and engagement teams to ensure deadlines are met and high-quality deliverables are produced.
