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

Part 2- Pre-Award Requirements for Grant Funding

By: Benjamin Kofi Quansah, CGMS

Benjamin Kofi Quansah
Benjamin Kofi Quansah

In part 1 of our series, we identified the challenges Non-Profit Organizations face in ensuring accountability and transparency in the management of grants.  We proceeded to identify the funding instruments that are available. Are we applying for a grant, a co-operative agreement, or a contract? Each funding instrument comes with its peculiar terms and conditions, and failure to understand the funding instrument being used can lead to violations. The Non-Profit Organization can subsequently lose the opportunity for staying funded.

In this second part of the five-part series, we examine the pre-award requirements for grant funding so that it is clear from the onset what the funding agency wants before we even go through the rigorous process of applying for the grant.

The pre-award stage requires that we find, apply for, and plan for the award of the grant.

That will mean undertaking donor research to know which funding agencies or donors are available to fund our projects. The project the Non-Profit Organization seeks to undertake must align with the strategic goals, strategic objectives, and performance goals of the funding agency.

The Office of Management and Budget (OMB) defines these terms in the OMB Circular A-11 as follows:

  • Strategic Goal- A statement of aim or purpose that is included in a strategic plan. Strategic goals articulate clear statements of what the funding agency wants to achieve to advance its mission and address national problems, needs, challenges, and opportunities.
  • Strategic Objective- This reflects the outcome or management impact the funding agency is trying to achieve. Objectives are tracked through a suite of performance goals and other indicators.
  • Performance Goal- a statement of the level of performance to be accomplished within a timeframe, expressed as a tangible, measurable objective or as a quantitative standard, value, or rate.

Failure to understand issues from the perspective of the funding agency has led to many unsuccessful grant applications. A useful tip here is to learn ALL about what the funding agency actually wants! Learn as much as possible.

Where Do You Look For Guidance?

The first place to look for guidance is the Notice of Funding Opportunity or the Request for Proposal.

It contains specific instructions about eligibility, application process, the content that should be included in a program narrative, the funding that is available, how to submit a budget, how the application will be evaluated, and many more.

Non-Profit Organizations should ensure that they meet the eligibility requirements before putting together a well-developed program narrative that identifies the problem, the target audience, goals and objectives. The following are worthy of note in a program narrative:

  • Expected outcomes resulting from planned outputs
  • Every assertion made must be substantiated with appropriate data and statistics
  • Quantification of the expected return on investment. What will the funders get for the investment?
  • Address internal controls, risk, and integrity as well as demonstrate capacity to manage the grant.
  • Innovation, sustainability, and monitoring and evaluation.
  • Performance measurements
  • Use the program narrative as the basis for the line items to be included in the grant budget. This will not only show what spending has been done but also how it has been done, and whether it provided alignment to the overall programmatic goals.

Criteria for Developing your Grant Budget

In developing the grant budget, applications must ensure that all costs included are Allowable, Reasonable, and Allocable.

According to Title 2 of the Code of Federal Regulations (2 CFR 200.403), Factors affecting allowability of costs, to be allowable in a grant program, a cost item must be:

  • Be necessary and reasonable for the performance of the award
  • Be clearly assignable (allocable) to authorized activities under the grant program.
  • Be treated consistently compared with other costs of the funded entity.
  • Be treated consistently as a direct cost or indirect cost.
  • Conform with generally accepted accounting principles (GAAP)
  • Be adequately documented and must be within the performance period.

Reasonable costs

According to 2 CFR 200.404, a cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. Several factors are taken into account in determining reasonableness.

  • Is the cost of a type ordinary and necessary for the operation of the Non-Profit Organization or efficient performance of the award?
  • Does the cost fall within market prices for comparable goods or services in the geographical area?
  • Is the cost the result of prudent judgment? If an independent third party were to review the cost, would it regard it as reasonable?

Allocable costs

Allocable cost is a cost that can be assigned to a particular award or other cost objective. The following criteria can be used to determine whether a cost is allocable or not:

  • Is it incurred specifically for the grant award?
  • Do the goods or services procured benefit both the funding agency and the Non-Profit Organization?
  • Is the expenditure necessary to the overall operation of the Non-Profit Organization?

The Grant budget must always include a budget narrative. This will allay audit concerns.

Capacity to manage the Grant- Risk assessment criteria

At the pre-award stage, one of the key things the funding agency would be interested in is the Non-Profit Organization’s capacity to manage the grant.

It therefore carries out a pre-award assessment to identify risk, and whether the organization has in past complied with programmatic and financial management requirements relating to previous awards.

The pre-award assessment will consider the following areas:

  • Examination of the Non-Profit Organization’s financial stability. What is the financial health of the organization? Does it have a reliable accounting system in place that adequately captures all grants awarded, in terms of income and expenditure so that there is no comingling of funds? Does it have a chart of accounts? How strong are the internal control systems? Can organization operate without donor funds? Does the organization have a regular funding stream?

The Non-Profit Organization must provide copies of its Annual financial statements and evidence of Non-Profit status.

  • Assessment of the quality of the management systems. Does the organization have competent staff to execute the award? Can the organization submit accurate and timely financial reports? Can the organization accurately report staff time?
  • Examination of reports and findings from audits. Does the organization undergo annual reviews or financial audits? Does the organization review and correct any reported audit findings or review findings? Does the organization have to respond to special or specific award conditions that require additional reports?
  • Performance history. Has the organization managed a specific donor award? Has the organization managed similar type of awards? Did the organization meet all the reporting requirements? Did the organization complete work within performance period?
  • Evaluation of the applicant’s ability to effectively implement statutory, regulatory, or other requirements imposed on non-profit entities.

Putting all together

A successful grant application would require intentionality and effort. Non-Profit Organizations must do the following to make it easy for funders to say “YES” to their proposal:

  • Review the full funding opportunity
  • Review the evaluation criteria for merit reviews and risk evaluations and structure your grant proposal to address the evaluation criteria.
  • Develop a Program narrative highlighting project scope of work/methodology, project measures/deliverables/timeline.
  • Create organizational and management profiles.  Describe mission & length of time in business, describe services/activities undertaken on an annual basis; how funded and personnel (management team/project managers), describe interaction with external partners and surrounding community.
  • Develop budget and budget narrative. Breakdown of budget categories and justify costs for each category.
  • Review your grant proposal/ application. Ensure you have followed the guidelines set forth by the funder. Do NOT skip sections! Have others proofread your proposal before final submission.

Benjamin Kofi Quansah, CGMS

Certified Grants Management Specialist


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