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Grants Management: Best Practices & Internal Controls

Since the start of the COVID-19 pandemic, federal funds have played an increasingly important role for nonprofits. Read on for best practices to consider.
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Since the beginning of the COVID-19 pandemic, there has been a massive influx of federal funds into communities and organizations across the county. Federal funds have been vital to organizations in helping their communities, and they are playing an increasingly important role in the operations of many nonprofits. However, federal funds can come with complex requirements and compliance issues that may be unknown to those who are new to federal funding. Using grants management best practices and internal controls is vital for organizations that receive grants from the federal government to help avoid fraud, abuse, and waste; substantial time commitments; and clawback of funds. There is no substitute for proper planning when it comes to these funds. These practices can include:

1) Understand Relevant Compliance Requirements & Where to Find Them

Before an organization can satisfy compliance requirements, responsible parties must know what they are. While some requirements are laid out in the grant agreement, others may not be as clear and sometimes even hard to find. The expenditure of federal funds can lead to complex Single Audits, so an organization should know the source of the funds it receives. While some federal funds come directly from a federal agency, these funds are often received from a city, state, or other pass-through entity. This makes it vital to take an inventory of your grants to determine the originating source of the funding. Although grant agreements are supposed to disclose the CFDA number and source, in practice this is not always the case.

Once the source is determined and federal funds are identified, an organization should review the annual Compliance Supplement, which can be obtained online from the federal government. This can contain specific guidance for each federal program listed by federal program number. This information can provide an organization with the proper resources it needs to prepare for a Single Audit should one be required.

2) Internal Controls

When it comes to grants, most organizations know the importance of internal controls, but there is often confusion over what constitutes sufficient controls. In the aforementioned Compliance Supplement, the federal government lays out its expectations for internal controls in each of the Single Audit areas. This is a great starting point for any organization getting involved in federal funds.

Organizations should document the ways in which they meet requirements laid out in the Compliance Supplement and other guidance to not only set themselves up for a smooth and stress-free Single Audit (if required), but also to follow best practices, which can help protect them against fraud, waste, and abuse. Proper internal controls reviewed by a board can accomplish a fiduciary responsibility to the public, helping ensure the organizations are good stewards of the resources at their disposal.

3) Tracking of Grant Funds

Another important aspect of grant funding is tracking an organization’s grant funds separately within an accounting system. By setting up an accounting system properly, it can make grant reporting, grant budget to actual tracking, and providing auditors information far less tedious and time-consuming.

Tracking the funds from day one provides evidence that an organization isn’t double dipping, i.e., submitting a reimbursement request to more than one funding source for a single expense. Most accounting systems for nonprofit organizations have solutions out of the box for tracking different funding sources and programs. Many of them use “dimensions” to segregate different funding sources or programs. It is possible to run a number of reports showing a dimension’s revenue and expenses and how those roll into the organization’s totals.

4) Documentation

Documentation is key to any audit or backup, but even more so for grant accounting. Auditors will typically request documentation of an organization’s internal controls, policies, and procedures, but having this documentation provides benefits to an organization that transcend audit time. Having written policies around internal controls can streamline staff training and help staff know their roles and responsibilities. This clarity makes it far more likely that an organization’s policies are being followed on a daily basis. It also makes it easier on an organization if a key staff member leaves. Policies and procedures can more easily be adjusted to adapt to this staff change, as well as changing compliance guidance, new funding sources or programs, and other organizational changes.


This is by no means an exhaustive list of everything organizations can do to comply with grants management best practices and internal controls for federal funds, but it can be a good starting point for an organization to evaluate its policies and procedures. FORVIS has extensive experience with grants and helping clients navigate the complex and ever-changing compliance landscape.

If you have any questions or need assistance, please reach out to a professional at FORVIS or submit the Contact Us form below.


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