Nonprofits often pursue federal grants to provide services and fulfill their missions, yet the process of applying for government grants can feel intimidating. Generally, there is a short timeline between when a federal agency releases a grant opportunity and when applications are due. That’s why organizations need to have the basic elements in place well in advance.

What are the basic requirements of a federal grant?

Each federal grant has its application and award criteria outlined in the Notice of Funding Opportunity. Audited financial statements are a common requirement, but nonprofits have unique financial reporting needs. For example:

  • Net assets in the Statement of Financial Position generally are broken down into those with and without donor restrictions. These restrictions may be temporary or permanent and have limitations on time or purpose. The net assets section should list sources of funds broken down into three areas: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.
  • Your organization’s Statement of Activities breaks out sources of gross receipts to show where they came from, such as fundraising, grants, donations, etc.
  • Nonprofits issue a unique financial statement: the Statement of Functional Expenses. This statement breaks out expenses into categories such as programs, fundraising, and administrative costs to show readers of the financial statement — including potential grantors — how your organization balances spending on programs and overhead.
  • The footnotes on your nonprofit’s financial statements are just as important as the individual statements because they provide deeper context into the financial statement numbers.

Working with an audit firm specializing in nonprofit financial reporting can ensure your organization appropriately tracks revenues and expenses, prepares accurate and thorough financial statements, and demonstrates to grantors that your organization is accountable for all funding sources.

Financial transparency and accountability

Federal grants come from taxpayers’ money, and each federal agency is required to see those resources are used appropriately. That’s why government agencies require transparency and accountability from recipients of awards.

Financial transparency and sound business/board practices start long before the grant application process. In addition to having audited financial statements, nonprofits should:

  • Be clear about how the funds will be used. Thoroughly document the problem you intend to address with the grant funds in the grant application. Support your request with facts and figures documenting the issue and how any funds awarded will help address it. Propose specific, measurable results you plan to achieve, including how many people will be impacted and in what way. Provide a proposed timeframe and method to measure results.
  • Demonstrate sound governance. Maintain minutes for all meetings of the board and committees that act on behalf of your board. Some of the activities to document in the minutes include:
    • Annually reviewing written conflict-of-interest policies and disclosure statements.
    • Approving your executive director/CEO’s compensation and benefits and how your board determined the compensation is appropriate
    • Reviewing annual financial statements and IRS Form 990 before they are filed
    • Approving the annual budget
  • Demonstrate sound business practices. Your organization should have a written document retention and destruction policy and travel expense reimbursement policy.
  • Document internal controls. Ensure your organization’s financial management systems include adequate internal controls, including proper segregation of duties to safeguard resources.
  • Demonstrate accountability. Publish your organization’s most recently filed federal tax return and list each member of the board of directors on your website.
  • Demonstrate responsible borrowing. Like businesses, nonprofits sometimes need to take out loans to make capital investments, even out cash flow and take advantage of opportunities. However, it’s important to document how you will use the funds and have a realistic repayment plan.

Government grant applications can be demanding to prepare, and competition is fierce. However, if your organization is new to seeking federal grants, you can often receive free training and technical assistance from the federal agency issuing the grant. Need help preparing, organizing, or reviewing any of the documents or strategies listed above? Call our team today!