5 financial concepts grant managers need to maximize funds

General ledgers

A general ledger is the tool an organization uses to keep a record of financial transactions. It can be used for planning, budgeting, financial reporting, preparing taxes, grant reporting, and management.

When grant managers understand the general ledger, they can use it to:

• Track grant and budget activity
• Calculate, report, and claim indirect costs
• Report grant financial data correctly
• Create an audit trail

However, when grant managers don’t know how to use the general ledger sufficiently, these common pitfalls can occur:

• Intermingling of grant data
• Lack of alignment between general ledger data and detailed grant activity
• Imbalance between cash basis and accrual accounting
• Double-counting between grants, matching, and nongrant funding
• Lack of an audit trail
• Failure to comply with the U.S. Title Code 2, Subtitle A, Subpart D – Post Federal Award Requirements list, 200.302(b)

Related grant management best practices

To effectively use a general ledger for tracking purposes, unique accounts should be set up and used for each grant by fiscal or award year as well as subaccounts for grant award line items. Accounts should also be used to identify direct versus indirect costs and track any matching requirements.

General ledger account examples

Reconciliations

Reconciliations involve the process of comparing two or more sets of similar records (such as bank statements, payments, and debits) for consistency and accuracy. Reconciliations are key to catching errors in general ledgers, but many grant managers don’t understand their importance or how to perform proper completions of reconciliations. If reconciliations aren’t a part of the standard workflow, then common errors might go unnoticed, left for an auditor to discover.

Related grant management best practices

To support accurate audits – and improve processes so similar errors don’t continue happening – organizations can perform general ledger reconciliations, at a minimum, by:

• Grant
• Grant award years, if multiple per grant
• Grant line item and general ledger account
• Direct and indirect costs

Reconciliations should be performed timely and completed monthly to avoid delayed identification of errors at year-end. Clear identification of reconciling items is crucial to fully understand the impact. The reconciling items should be addressed and corrected or resolved timely to avoid reporting errors.

Following is a basic example of a general ledger reconciliation by grant. Adjustments reported should be referenced to additional information. More complex organizations with significant grant activity might require a more detailed, in-depth reconciliation to properly identify any reconciling items.

General ledger reconciliation by grant example

Budgeting

If grant managers don’t fully understand the financial side of a grant they’ve been awarded, then budgeting errors can occur, and such errors can come with hefty consequences.

Common pitfalls related to grants and budgeting include:

• Underestimating costs
• Neglecting indirect expenses
• Overlooking matching funds requirements
• Misaligning budgets with project goals
• Inadequate tracking of expenditures

These errors can lead to requiring more money to accomplish the grant-funded project or underspending the grant award and not meeting the goals and objectives. As a result, the intended community impact could be jeopardized, and the organization might miss out on reimbursement for the grant – or even have to pay grant funding back.

Related grant management best practices

To avoid serious financial implications, organizations should align their budgets with the purpose of the grant and include all line items associated with carrying out the grant program. Items such as salary, fringe, supplies, equipment, travel, and education should agree to the budget submitted with the initial grant award.

Then, if things don’t go to plan, organizations can adjust budgets accordingly. This is where the importance of tracking and regular visits to your budget (monthly or quarterly, if possible) comes in. If organizations track well and provide justification for each line item, then they can identify and request budget modifications or additional funding requests, as needed.

Financial analytics

Financial analytics can help grant managers identify possible issues or forecast potential financial scenarios related to their grant programs. For example, when they use historical financial data to understand spending patterns, they can create more accurate budgets that require fewer modifications down the road.

Related grant management best practices

Grant managers can use detailed financial data to create financial analytics. Benefits of using financial analytics include:

• Understanding spending patterns
• Predicting future performance
• Optimizing financial aid
• Identifying and understanding potential risks
• Identifying possible misuse of funding
• Identifying potential opportunities
• Using grant funding more efficiently

Following are a few examples of financial analytics.

The spending by category chart shows an example of actual to budgeted spending by category, or line item, for a specific grant to help grant managers understand where they need to modify their budget and identify potential issues in grant spending.

Grant A — Spending by category