State Grants of Federal Funds: What Nonprofits Need to Know
Many nonprofits rely on grant funding to start or expand programs that help fulfill their mission. In some cases, these funds are federal grants that are received by and then passed through state entities who then award the federal funds to nonprofit organizations.
While these grant funds can often represent a large sum of money for the nonprofit to use, the funds also require complying with grant guidelines at both the state and federal level. Nonprofits should do their due diligence to ensure they fully understand the guidelines and are prepared to use the money appropriately before applying for this type of grant funding.
Here are some tips for nonprofits applying and receiving state grants involving federal funds.
Check both state and federal grant guidelines
Grants that pass through state agencies come with guidelines and requirements from both the state and the federal government. While the state entity should share the federal guidelines with the local nonprofit or subrecipient, the recipient organization is ultimately responsible for understanding and complying with these federal guidelines.
When applying for a grant and before accepting the funds, the nonprofit should request a copy of both the state and federal guidelines. It is important to go back to the original source to be sure nothing has gotten lost in translation and the rules surrounding usage of the grant money are clear.
“Grants can make a huge impact on an organization’s mission, but there are also times a grant simply isn’t a good fit for the organization.”
Ask the hard questions
Grants can make a huge impact on an organization’s mission, but there are also times a grant simply isn’t a good fit for the organization. Nonprofits need to ask the hard questions and be honest about what accepting a grant and implementing the required program will mean for the organization.
New programs require a lot of time, money, and other resources. Before implementation, assess the costs involved and all that is required to fulfill any grants related to new programs. Look at your organization to see if the grant fits into your purpose and structure or if it is a distraction from your true goals. If it doesn’t fit or you will be unable to fulfill the requirements, accepting the grant could have a negative impact on the organization.
Some important questions to ask include:
● Does this grant make sense with our purpose? Do we have the infrastructure to deliver on it?
● What are the costs involved in fulfilling the grant? Are they larger than the grant itself?
● Do we have financial and expenditure policies in place that will allow us to accept federal funding and stay in compliance?
Have a solid plan in place
Grants come with a timeline for spending the funds, and it’s often not very long, especially for federal grants administered through state agencies. Before accepting grant funds, have a solid plan in place for how you will comply with the requirements, including a timeline for program implementation and reporting.
Some grants focus on establishing new programs rather than funding existing programs. It can take up to a year to plan and implement a new program, though strategizing in advance can help speed up the process. If the new program can piggyback off a current program or connect to infrastructure you already have, that can help ensure funds are used in the given timeframe rather than having to start from scratch with a new program.
Be aware that rules could change
Even with the best planning and research before applying for grants, know that the rules can change. In some situations, an organization must get started with implementing programs before the grant funding pays out. If the rules change and those initial startup costs are denied reimbursement, it can have serious financial implications. This is why recipient organizations must understand the financial risks and have a plan for what happens if something changes about their eligibility or compliance with the grant requirements.
Develop a good relationship with your state agency contact
Having a good relationship with your state agency contact is a great way to help the process go smoothly. It will ease communication between you and the state entity and facilitate staying on top of any updates to the grant or its requirements.
Take the time to communicate your plans to your primary state agency contact. They should be aware of how you plan to use the money and what your program looks like. Send a written summary of any verbal communication so you have a record of discussions to ensure your organization is clear on the guidelines and to reduce any misunderstandings.
Have a plan for disallowed costs
A disallowed cost doesn’t always mean that someone has done something wrong. Expenses that are classified as disallowed costs could occur due to a misunderstanding or miscommunication or even from the rules changing along the way. Other times, disallowed costs can happen due to incorrect reporting or record keeping that can’t be resolved. Having reserve funds available to cover anything that’s deemed a disallowed cost can help ensure the program stays on track.
If you are considering applying for grants, contact the Nonprofit Solutions team for grant compliance guidance before you submit your application. Our team can help organizations implement and manage effective grant compliance policies and procedures.
