Grant Awards are a Contract

Congratulations! You got a grant award with just a letter and a check. The letter didn’t say anything about how to recognize the funder, what reporting was required, or even what the check was restricted to. And the check is going straight in your nonprofit’s bank account. Score! That’s it, right?

Hold your horses, there. Even if a grant award comes without any documentation, your cashing of the check enters your nonprofit into a contract with the funder. There’s a good chance that you submitted an application that specified how you would spend a grant award. Let’s dive into what it means when your nonprofit accepts a grant award.

The type of funder typically determines how formal the “contract” is

Any grant pro who has ever dealt with a federal grant knows just how complicated accepting a grant from the government can be. In addition to the reams of paperwork (digitally, at least), you’re also agreeing that your nonprofit will abide by the legislation and statutes, program regulations, administrative regulations, and on and on. Mishandling federal grant funds could lead to serious consequences. State and local governments also have their own grant terms, often informed by those at the federal level (sometimes because the funding is being passed down from federal sources).

Private foundations, on the other hand, could have very complicated or very lax terms and conditions behind their grant awards. The best foundations I’ve experienced have clear documentation about the start and end date of the grant term, agreed-upon goals and objectives, and access to the final report form. Others have literally just sent a check, and it was up to the nonprofit to clarify with the funder everything they needed to know.

P.S. A recent trend in the nonprofit sector is to receive unannounced gifts from donor-advised funds (DAFs) that have “foundation” in the title. If you receive a check from a foundation you’re not expecting, it’s important to track down (to the best of your ability) the funder and understand the purpose behind their gift. Not only is this good stewardship, it’s also important for tax and accounting purposes.

Your agreement to use the funds as specified

Whether or not it’s specified in a lengthy grant agreement, it’s very likely that you proposed a purpose to the grant award you’re holding in your hands. Especially in the example mentioned above (where the award letter had zero details), it may be tempting for your staff to use the funds however they see fit.

But in addition to the accounting requirements behind the gift, remember that your relationship with the funder is paramount. The sustainability of your organization depends on maintaining trust with your donors. By cutting you a grant check, the funder is trusting that you will carry out the goals and objectives you stated in your grant application. Whether it’s a $1,000 grant for art supplies or $500,000 for a multiyear capital project, your grant application committed you to deliver certain results.

I probably sound like a broken record, but if you don’t follow through on the promises you made in your application (or committed to in a grant agreement), it could hurt your nonprofit in the long run. Funders expect you to meet deadlines, track your progress, and report back on how you spent the money. Failing to deliver could mean losing trust—and future funding.

Complying with audit requirements

Oh, I know we all look forward to audit time. Those long lists of items the auditors need can make our eyes cross sometimes. One of the best way to prepare for your audit is to keep clear records on all your grant awards. In addition to a record of the grant check, your auditor will need to see any agreements related to how the funds were supposed to be spent, and proof that the funder’s restriction was honored (e.g., you got $1,000 for art supplies and spent $1,000 on art supplies).

Conclusion

Keeping your grant promises doesn’t have to be overwhelming. Get organized and stay organized with your grant management systems, like saving all your grant documentation in one place for easy reference (and audit access) later. Communicate often with your funder, particularly if you hit a roadblock in your funded project. Funders would rather hear from you than be surprised later, and most program officers are happy to help you.

No matter the size of your nonprofit, when you treat grants like contracts, you level up. Build and maintain trust with your funders, and show them you’re reliable. You’ll open the door to more opportunities!

Having trouble with the “get organized and stay organized” part? We’re looking for nonprofit pilot clients for our new service, Increase Your Mileage. Email us at erin @ nonprofitnomad.com to find out more.