Grant Reporting Requirements and Misuse of Funds – Part I
For many nonprofits, grants are a major source of funding. Grants are a means for the federal government to fund ideas and projects that provide public services and stimulate the economy. Oftentimes, nonprofits get excited at the funding possibilities and forget that grants come with the responsibility of adhering to the grant guidelines and reporting on how the money is spent. Unfortunately, the consequences of not following the requirements of the grant create significant risk for the nonprofit.
Reporting requirements
Grants flow from the government and, therefore, require those receiving the funds to record and report on how those funds are used. Reporting is a means of ensuring that the funds are used for the stated purpose and that the stated purpose is accomplished.
When a grant is awarded, a Notice of Award is provided. This notice specifies all conditions of the award, how much has been awarded, the performance period, and the reporting requirements. Your organization should consider whether it is equipped to fulfill all the reporting requirements at the time of application.
Grant winners must submit regular reports called Performance Progress Reports, which document the project throughout its lifespan. These monthly, quarterly, and annual reports capture both the financial expense-related data as well as information about how the project is impacting the community. Documentation includes grant expenses, staff time allocations, and cash match claims.
Nonprofits are also assigned a Grant Officer or FPO (Federal Project Officer) who will ensure compliance with all the terms of the grant and be the contact person for the nonprofit. This is the person to talk to about any questions regarding the reporting requirements or if you need to request a modification to the stated use of funds.
Misuse of funds and failing to report
Part of the condition of receiving a grant is that it is used for the purpose and within the time stated in the grant application. Using grant funding for a purpose other than what’s stated in the grant classifies as misuse of funds and may need to be reported to the state attorney general, the IRS, and to your auditor.
“Using grant funding for a purpose other than what’s stated in the grant classifies as misuse of funds and may need to be reported.”
Grant funds that are misused must be paid back as well, either by working with your granting agency to deduct the funds from your next grant or by repaying the agency directly if there are no plans to apply for future grants.
Misuse of funds also could trigger or be a part of an audit. There is potential for fines or the need for legal counsel, which comes along with fees. Ultimately, it costs the nonprofit a great deal when they misuse funds or fail to follow the reporting requirements for use of funds.
We’ve seen a case where a nonprofit neglected to have the proper documentation and sign off on timecards. The wages were paid from a grant, and when it was discovered in an audit, it led to disallowed costs and misuse of funds. The nonprofit ended up owing half of its annual budget to repay the misuse of funds. In that particular case, it could have been avoided by properly documenting time and having a board member sign off on the timecards as they were submitted.
The risk of failing to document and report the use of grant money is high for nonprofits. In some cases, the nonprofit can be placed on a list and no longer receive grant money from the federal government. For those who rely on grants for a large part of their funding, this can be devastating.
Creating reporting processes
Nonprofits should always protect themselves from the consequences of improper reporting by making sure they are equipped to handle all requirements before they receive the grant. This includes a commitment not only from the staff to do their duty in documenting and reporting the use of the funds but also from the board in overseeing and properly approving the documentation.
For the staff, this includes ensuring funds are spent within the bounds of the budget, reviewing timecards and signing them, and gaining approval before any changes are made to the budget. The board should receive regular updates on grants, oversee the process, and document everything in the meeting minutes, including approval of financial statements and budgets.
Watch for our next post, in which we will cover more specifics of the necessary processes and recommendations for avoiding misuse of funds with your grants.
