More nonprofits are leaning on grants right now than ever before. Federal and state budgets are tightening, Medicaid is less predictable for organizations that rely on it, and many agencies are looking for new revenue. Grant funding can fill real gaps.
However, it also comes with strings. When grant rules slip, organizations can end up repaying costs, facing audit findings, or losing future funding. Most of these problems are preventable, but they tend to surface a year or two after the money is spent, when they’re much harder to fix.
Below are eight questions every tax-exempt organization should be able to answer with confidence.
Before Accepting a Grant: Know the Requirements
- Do we know what we’re agreeing to? Grant agreements carry terms that aren’t always obvious on a first read. Requirements differ by funder, and federal, state, pass-through and foundation awards each come with their own rules.
- Can we carry the spend? Many grants reimburse costs after they’re spent. Organizations are often surprised by how long the gap runs. Can we fund expenditures with cash on hand or working capital?
Managing Grant Compliance & Costs
- Would every cost hold up under review? Auditors test more than whether money was spent. They ask whether each cost was allowable, reasonable and properly assigned to that grant. Those are three separate tests, and costs that look fine on the surface can fail one of them.
- Do our time and payroll records support what we charge? Staff salaries are usually the largest cost on a grant and one of the most common sources of findings. How time is documented matters a great deal, especially for staff funded from more than one source.
- Could the same cost be paid twice? Organizations with several funding streams can end up charging one expense to more than one source without realizing it. That’s especially true when one of those streams is Medicaid.
- Do our reports tie to our books? When the numbers sent to a funder don’t match the general ledger, that’s usually the first thing an auditor follows up on.
Strengthening Organization-Wide Grant Oversight
- Is it clear who owns grant oversight? Development wins the grant, finance manages the money, and program staff deliver the service. Problems tend to arise as handoffs between them occur.
- Can we produce a complete list of our active grants today? Many organizations can’t. Without it, it’s hard to know how much risk you’re carrying.
Staying Current With Changing Federal Grant Requirements
Federal grant rules saw their biggest update in a decade in 2024, and many organizations are only now being audited under them. A broader overhaul was proposed in 2026 and is on hold until at least December. Meanwhile, agencies have added new oversight and termination terms to federal awards. What met the bar two years ago may not today.
Is Your Organization Ready for a Grant Compliance Audit?
If you hesitated on any of these questions, you’re not alone. Most organizations have a few gaps, and they’re far easier to close before an audit than after one.
Our team works with tax-exempt organizations on grant compliance, audit readiness and internal controls. If you’d like a second set of eyes on where your organization stands, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
