This is a guest post from Carey Carleson. Carey is a Principal Consultant for Blackbaud’s nonprofit accounting systems. Carey has spent the last eleven years helping nonprofits optimize their accounting systems and processes.
Grants are an excellent and often heavily relied upon funding source for nonprofit organizations. Awarded grants tend to fall into two unique categories: direct award grants and reimbursable grants.
- Direct award grants are often an organization’s preference and once awarded provide an organization with either the full grant amount up front, over a defined schedule, or based upon defined milestones.
- Reimbursable grants, however, reimburse the granted organization only after the organization has incurred the costs. The costs then need to be collected and submitted to the granting organization for cost reimbursement. As one might expect, reimbursable grants require additional effort on the part of the awardee and present unique set of challenges for the organization and its back office system.
One fundamental challenge often faced when accepting a reimbursable grant is that granted organizations typically agree to provide the grantor with specific reporting. This reporting requirement typically is defined by the grantor during the granting process and is usually extremely specific to the grantor. This can present a challenge to the granted organization as it can be difficult within their existing back office application to meet these requirements and often times requires a solution outside of their system to meet the reporting requirements, especially if their accounting system is not designed for nonprofits.
Reporting challenges tend to include:
- a defined format or form specific to the grantor,
- budgeting requirements,
- fiscal year alignment,
- multi-year reporting and budgeting requirements,
- cost collection,
- invoicing, and
- security to insure the grant is appropriately utilized as defined by the requirements of the grantor.
Budgeting and Reporting Tools
Grantors tend to require a format of reporting for cost reimbursement specific to their own internal reporting. This presents a challenge to the granted organization to meet that requirement within their accounting application. Often times it will require budgeting and reporting tools that span fiscal years and can maintain detail in each of those years. Some grants are date or period specific to the grantors accounting cycle. If a granted organization’s accounting periods do not align with the grantor (or data is collected on a period bases over a dated transaction), it could require the granted organization to extract data from its existing back office system and reporting on that data specific to the grantor’s accounting periods.
Flexible General Ledger
Reimbursable grants also require a granted organization to have a flexible enough general ledger accounting structure to maintain, manage, and report on grant specific information. Due to the temporary or dated nature of grants, it is recommended the structure capture this information without exponentially growing the number of accounts. This structure element should be the catalyst used to define costs associated to a specific grant and reporting. Once the data is collected the granted organization can provide effective details to generate invoicing to the grantor for cost reimbursement.
It would also be highly recommended that security be enabled around the account element to insure costs applied to the grant are specific to the grant requirements. For example, healthcare organizations may receive a grant specific to medical reimbursements specific a patient care. System security should be configured to insure only those costs are applied to the grant and disallow other costs, such as office expenses, from posting to the grant. Often times, cost mistakenly applied to a grant can invalidate the grant and the grantor may disavow any future reimbursement.
Having this insight can help your organization strategically determine which grants to pursue. Preparing your back office for grant tracking will not only make life easier but also increase the chances that you get to retain that grant year after year.