When a nonprofit is allocated grant money, every penny must be carefully documented. There are many rules and regulations about how to spend the money granted. It is crucial to meticulously track just how and where every penny is spent.
A grant is not received in the form of a big check. Instead, it is held for the nonprofit organization in the U.S. Treasury. Therefore, when requesting payment for expenses and for auditing purposes, careful documentation is necessary proof.
It is advisable to open a separate bank account for grant funds. This will facilitate the ease in which purchases, sales and payments are tracked. The federal government will require specific reports to monitor the nonprofit’s progress. Having a separate account will assist in producing the reports correctly.
Federal Grant Accounting Requirements
- Keep records that demonstrate the use of grant funds.
- Segregate employee duties as a form of internal controls to protect the organization from employee theft.
- Report quarterly and annually to the government.
- Use grant funds only for the specified purposes.
- Keep all supporting documentation like paid bills, receipts, invoices, checks, and bank statements to show the use of grant funds.
The term “administrative requirements” is used by the federal government when referring to distinct grant matters like financial management, type and frequency of reports and the retention of reports.
Just like with other accounting matters, a paper trail is a must. It will protect the organization if there is cause for questioning by the government. The organization will receive a budget outlined by the federal government detailing how the grant money is to be spent. By carefully tracking the grant money, the nonprofit will demonstrate good financial stewardship.