Guest post by David Kilmer. David is the Lead Solutions Engineer at Blackbaud for our enterprise customers. David has over 10 years experience working with nonprofit organizations to optimize their accounting processes.
In such a competitive landscape, nonprofit organizations are facing a variety of challenges that start with the need to diversify revenue streams and can include a range of issues including a decrease in unrestricted monies to growing demands in services offered.
For organizations that received government funds through grants or contracts, these government agencies require detailed and highly specific reporting and accountability structures to ensure the monies were used appropriately and to avoid fraud, waste and abuse. Meeting the requirements can generate significant challenges and increased administrative burdens, but is essential for future grant consideration.
So what are the 4 most common challenges and what can be done to limit their impact on your grant strategy?
One of the primary roadblocks nonprofits face when awarded grants or contracts is their cost accounting practices. Cost accounting for grants and contract typically leads to a more stringent set of requirements related to cost charging practices.
To avoid noncompliance issues, organizations will need to provide assurance that there is consistency in estimating, accumulating, and reporting expenditures incurred, and that costs incurred for the same purpose in like circumstances have been treated consistently as either direct or indirect costs. Many organizations opt for multiple segments or other tracking mechanisms to alleviate this burden.
Cost charging issues faced by nonprofits can include challenges around allowable charges, lack of documentation, and shifting of costs. These issues can lead to costs being disallowed under government grants and contracts and organizations will have to bear the impact.
To be allowable, all direct and indirect costs must be adequately supported by source documentation that clearly shows the purpose and circumstance for the cost incurred. It is important to note that verbal approval is insufficient support for costs under a contract or grant. In addition, nonprofits should have controls in place to avoid costs being shifted to a federal award to overcome funding deficiencies.
Due to the nature of the work and a lack of training, detailed and accurate timekeeping can be an ongoing challenge for nonprofits.
To be allowable, labor must be based on accurate timesheets reflecting the actual activities of all employees. It is important for nonprofits to convey to employees the difference between actual and budgeted hours for timesheet purposes.
Nonprofit organizations must adhere to any budget limitations or restrictions incorporated into their grants or contracts. These limitations can be in the form of types of expenses (allowable vs. non-allowable), spending caps on certain expenses, ceilings on indirect rates, or overall funding limits.
It is important for nonprofits to establish a budgeting process to ensure all parties involved understand the grant or contract budget limitations. In addition, many grants and contract agreements may include a clause to prevent increases in budget line items without the prior review and approval of the granting body. The organization should ensure this approval is retained for documentation purposes.
Nonprofits should make it a priority to review their current practices for compliance and be more prepared to appropriately administer their grants and contracts.