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Financial Infrastructure Needed to Support Government Funding
I’m a consultant working for several small NPO and am frequently asked if they have adequate financial resources to apply for government funding. Some of them did receive government funding during the COVID programs and were ill-prepared to meet the monitoring and compliance requirements.
What additional cost for financial oversight should they be prepared for if they want to pursue government funding on an on-going basis? -
4 Replies
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An organization needs to have reliable financial systems. I use ADP for payroll and Quickbooks Online ($75/year from Quickbooks.) Quickbooks works up to about $2M-$3M in annual revenue.
There needs to be someone that really understands accounting (either staff or consultant). This means a lot more than writing checks. It means understanding accrual accounting.
It means a major commitment of time from ALL staff. Time sheets need to be prepared timely and accurately – no catching up at the end of the year. All expenses need documentation and allocation -timely, not when one feels like it.
In my nonprofits, I scan copies of all documents and attach that documentation to each transaction in in Quick. If a deposit is entered, attached is a copy of the check and the deposit ticket in Quickbooks. If a bill is paid, I include a copy of the invoice – if approved by email, a copy of the email is attached as well.
This makes audits so much easier. The documents are right with the transactions.
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Cost allocations are especially important for maximizing revenue from cost reimbursement grants. Developing and consistently executing allocations requires time and expertise which a small nonprofit might not have. Documentation of the assumptions used is critical.
Examples: A nonprofit can maximize its funding by making sure that shared staff are allocated correctly. I have used “time spent” as an allocation method when it makes more sense than FTEs or program participants. Sometimes you can carve out some of the cost of various M&G personnel if the hours spent directly on the program can be documented. For shared office space I use FTEs rather than square footage because that method is so much less labor intensive.
Another suggestion: revenue recognition of grant contracts is complicated and often the nonprofit finance person is not familiar with all of the rules. I recommend having the auditors review the grant contract to determine if the grant is conditional or unconditional as this determines if the revenue has to be recognized all at once or as the expenses are incurred.
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The initial infrastructure financing is provided by equity and loans, in proportions and at costs that vary greatly depending on the risks assumed directly by the concession company and not transferable to the granter or service providers: • Technical risks: building risks
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Hi Amy, the Federal government is a great grant source, but not without costs as you know. I submit that nonprofits will want to (1) have some payroll and HR infrastructure in order to allocate timecards well, keep timecard reports for audits, have resumes and background/DMV reports for audits, and be ready to hire timely when there is staff turnover; (2) ask for budget modifications “early and often” if needed, when spending is different from what was initially anticipated – waiting to the last minute can spell disaster; (3) allocate expenses well and be ready to explain the rationale behind allocations; (4) perform month-end close quickly when there are reporting deadlines; and (5) calculate indirect cost well, if applicable.