Understanding Grant Funding- Lessons for Non-Profit Organizations (NPOs)

Part 3- Award Requirements for Grant Funding

By: Benjamin Kofi Quansah, CGMS

Benjamin Kofi Quansah
Benjamin Kofi Quansah

In part 2 of our series, we identified the pre-award requirements for grant funding, and the need to understand issues from the perspective of the funding agency. We also considered the criteria for assessing risks posed by applicants before a selection is made.

In this third part of the five-part series, we will examine the award requirements for grant funding so that it is clear from the onset what the responsibilities of the funding agency and the successful applicants are, to ensure effective implementation.

The award stage begins with the funding agency at the point of selecting successful applicants after review of all submitted applications. At this point, the funding agency has defined specifically the work that must be done, the period for which it should be carried out, how much funding is available to each successful applicant, the procedures for the disbursement of funds, how reporting should be done, among others.

Stages in the Award process

1.     The funding agency submits a notice of award to successful applicants. This is an official document notifying the applicant that its proposal is being funded

2.     Negotiation meeting is arranged between funding agency and the successful applicants to discuss among other things the award package, issues requiring clarification and adjustments, expectations for performance, the terms and conditions of the award, and the payment method.

The funding agency prepares the award package. The award package describes the information contained in the award.  It may include general terms and conditions, as well as specific conditions. The general conditions are instructions included in the award package as determined by funding agency policy or the type of grant. The specific conditions are conditions on the recipient’s receipt of award that are included as clauses set out in accordance with law or regulation. 

Everything starts with the grant award package, which usually consists of an award letter, the grant agreement, the award budget, (which may or may not be separate from the grant agreement), grant draw-down procedures and other information containing program or other compliance requirements.

The award package may contain the following information:

§  Recipient name

§  Award identification number

§  Award state date

§  Period of performance start date and end date

§  Performance expectations

§  Budget approved by funding agency

§  Total amount of funds obligated

§  Name of funding agency

3.     The funding agency obligates funds. In other words, the funding agency commits funds to the project. There is no guarantee that it will spend above the obligated amount. The date the grant agreement is signed represents the date valid for the establishment of an obligation.

4.     The funding agency establishes the payment method, which may be advance payments or reimbursements (Payment by result). The payment method chosen must ensure that minimal time lapses between the transfer of funds from the funding agency and disbursements made by the grant recipient.

Advance payments are preferred if the recipient can demonstrate it has policies and procedures, financial management practices, and internal controls in place to ensure timely payment of all disbursements associated with the award.

If the recipient is unable to satisfy the advance payment requirements, the reimbursement method is preferred. That means the recipient must spend from its resources and then submit a claim for reimbursement.

Successful financial management of the grant

Successful financial management of the grant requires close collaboration between the Finance team and the program team who will be responsible for carrying out project activities and ensuring compliance with the terms and conditions of awarded grants.  Lack of collaboration can affect project implementation as both teams are charged with the responsibility of monitoring the funds throughout the grant life cycle.

It is essential for revenue and expenses to be reflected accurately and to maintain correct financial reports as well as project narrative reports.

The following key steps are essential for financial management success:

Step 1: Study the Grant Award Package

It is important to study the grant award package completely and carefully. The grant agreement and other components of the grant award package will contain important information about budget and spending restrictions. Lack of awareness of this information is not an excuse.

Step 2: Compare the Award Budget with the Pre-Award Application Budget

It is important to compare the award budget to the pre-award application budget carefully, since they are often not the same. Often, funding agencies will award less funding than originally requested. There could also be unintentional mistakes in the award budget.

It is important to note these changes when formulating the budget for posting. It is important to note that the award budget is what should be referred to at all times during implementation and not the pre-award application budget.

Step 3: Setting Up a Grant Budget in the Accounting System

The accounting system must comply with Generally Accepted Accounting Principles (GAAP) and established non-profit financial reporting requirements.

Every grant must have its own account code and project title that distinguishes it as a special form of revenue; the revenues and expenses can be the focus of recording and reporting as required by accounting requirements that pertain to non-profit rules as well as funding reporting requirements.

Accounting System Fundamentals for Grants

The funding agency does not dictate the type of accounting system to be used to account for grants. Funding agencies, foundations and corporations do however state that manual, or electronic books must comply with generally accepted accounting principles (GAAP).

Financial management system designed for the management of the grant must meet the following requirements:

§  A financial management system must be capable of accurate, current and complete disclosure of the financial results of all activities assisted with each grant.

§  Accounting records must be detailed enough to adequately identify the source and application of funds provided for financially assisted activities.  This means that the accounting records must record authorizations, obligations, unobligated balances, assets, liabilities, expenditures and income.)

§  A financial management system must provide for effective internal controls that will assure accountability for grant and sub-grant cash, real and personal property and other assets associated with grant awards.

§  A financial management system must be capable of comparing budgeted versus actual expenditures for each grant award received and this financial data must be related to performance and productivity data so that expenditures may be reasonably tied to the outcomes of authorized project activities.

§  Established cost principles that apply to the grant awards must be adhered to in terms of allowability, proper allocation, and reasonableness.

§  Accounting records must be supported by appropriate source documentation such as cancelled checks, paid bills, payrolls, time and attendance records, purchasing records and contract documents.

§  The financial management system must be capable of ensuring that the organization stays in compliance with applicable grantee cash management policies pertaining to appropriate drawing down of grant funds in support of grant- funded activities. Blind drawdowns and excess drawdowns, are prohibited.

The foundation must be right from the very beginning before implementation starts. This will enable the recipient to be in compliance with all financial management and programmatic requirements. Being in compliance will ensure the recipient stays funded.

Part 4 of the series will address the post-award requirements of grant funding. You got the grant. Now what?

Benjamin Kofi Quansah, CGMS

Certified Grants Management Specialist


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