Grant accounting is uniquely different from traditional accounting. Grant accounting has specific requirements, restrictions, and reporting obligations associated with tracking grant funds and spending. Organizations that receive grants must have a clear understanding of grant accounting principles and processes to effectively manage and report on those funding sources.
Grant accounting is a specialized subset of financial accounting that focuses on the financial management and reporting of grants and other forms of funding received by grant recipients. Grant accounting differs from traditional accounting in several aspects, including budgeting, funding restrictions, allocable grant income, matching requirements, separate accounting for each grant, timelines, and tracking and reporting financial and performance metrics. Grants may also include compliance and auditing requirements.
Detailed budgets should be created for each grant, outlining how funds will be spent and aligning with the grant’s objectives. Regular financial reports specific to each grant must be submitted to grantors to demonstrate compliance and show progress. Traditional accounting primarily focuses on the organization as a whole and may not involve the same level of detailed project-level budgeting and reporting.
Grants often come with specific restrictions on how the funds can be used. Grant accounting requires careful tracking of expenditures to ensure that the funds are allocated in accordance with the grantor’s requirements; additionally, grant-related income and any matching funds must also be tracked closely. (“Match” is the non-grantor share of costs that the grant recipient or the recipient’s partners must contribute to the grant-funded project.) Grant funding must be directly allocated to the related expenses incurred in the grant project. This ensures that grant expenses are properly allocated to specific grants and not commingled with other operating expenses. This is different from general accounting, which deals with more flexible sources of revenue, and typically allocates expenses based on the organization’s overall cost structure.
Organizations that receive multiple grants from various sources need to manage and account for each grant separately, which can be more complex than managing a single revenue stream in traditional accounting. This means that grants have their own unique accounting records and financial statements. If matching funds are required by the grantor, they need to be accounted for as well. Separate accounting for each grant maintains transparency and demonstrates compliance. Additionally, rigorous documentation and record-keeping is required to support the use of grant funds. While traditional accounting also involves documentation, the level of detail and scrutiny in grant accounting is often more extensive.
Grants generally have strict timelines and reporting deadlines. Grant accounting must adhere to these schedules and ensure that financial reports are submitted accurately and on time. This time sensitivity may not be as prominent in traditional accounting, where reporting timelines can be more flexible. Grant accounting also requires organizations to track performance metrics and outcomes related to each grant. This includes demonstrating that the grant funds have been used effectively to achieve the intended goals, which is not a primary focus of traditional accounting.
Grant accounting requires organizations to comply with grantor requirements and applicable laws and regulations. This includes maintaining documentation, conducting (and receiving) audits, and ensuring that the grant funds are used for their intended purposes. Compliance is a critical component of grant accounting that may not be as prominent in general accounting. Auditors may examine all grant records in detail to ensure compliance and the proper use of funds.
Colhio Grant Consulting can advise grantees about their grant accounting requirements and methods. Contact us for more information on how we can help your organization with understanding what is required to account for grant income and expenditures to meet your grant’s requirements.