According to The Nonprofit Times, almost 80% of all nonprofit revenue comes from the US government in the form of federal grant funding or fees for services. Those numbers may be skewed by some outliers, like education, but, regardless, there is still a lot of federal money up for grabs.
If you’re like most organizations, you would love to get some of that funding to put toward your mission. But before you start searching for grants you need to ask yourself– is your organization ready for federal funding?
This article will help you determine if you are ready or not.
And, if not, what you can do to prepare yourself.
🗽What do I need to be eligible for federal funds?
There are a lot of things to consider when you start thinking about federal grants or service contracts. But the first one is this–do I meet the basic eligibility requirements?
Here are the main points you’ll need to check off:
- You have a 501(c)3 status in good standing with the IRS. (You have received your determination letter and you are filing your annual Form 990 or 990-EZ on time)
- You have an active Employer Identification Number (EIN), which would be issued and maintained by the IRS.
- You have registered your organization at grants.gov and sam.gov to be considered for grant proposals.
- You have been issued a DUNS number (Data Universal Numbering System). You can follow the steps outlined in this article to get one.
If you meet all of the 4 above criteria, you are likely eligible to apply for federal funding. But that doesn’t necessarily mean you’re ready to do it
🗽Are my programs ready for federal funding?
When searching for federal grant funding, you need to consider whether your program team can actually deliver based on the proposal. Otherwise, you could find yourself scrambling to fill roles and failing to follow through on your commitments. You could even find yourself in worse shape than if you’d never secured the funding.
- Consider the following factors:
- Do I have team members with the appropriate skills and experience to achieve the program outcomes?
- Will I need to hire people if this proposal is accepted? If so, how easily or quickly will I be able to recruit and fill these positions?
- Does my organization have the appropriate institutional knowledge to execute on this grant I win the award?
- Do I have the software and physical infrastructure required to deliver on this proposal?
You don’t necessarily need to be ready to hit the ground running on day one. But you need be confident your organization can deliver on the proposal and any program outcomes within a reasonable period of time.
Here are some other factors to keep in mind:
- It takes more work than ever to recruit, hire, onboard, and train new employees. It also takes time to build-out software and technology capabilities.
- Will you need full-time employees or contractors (or both) to execute on the grant proposal. And will they require a specialized or hard-to-find skillset?
Neither of these factors alone can tell you not to apply for federal funding. Sometimes you need to make an aggressive move to push your mission forward. But be realistic about what you’ll be able to accomplish to avoid regretting your decision.
🗽Are my finances ready to apply for federal grants?
Your financial system must be in good working order before you even consider applying for federal funding.
In fact, the government places very rigorous financial reporting requirements on organizations that receive federal funding. The Uniform Grant Guidance (UGG) outlines these rules that recipients of federal grants must follow to maintain compliance; and penalties for non compliance can be severe.
If your organization isn’t in a position to meet the requirements before you apply for funding, it’s highly unlikely you’ll be ready when you’re awarded funding. Therefore, it is imperative that you get your financial system ready before applying for federal grant funding.
The UGG is too extensive to explain here, but these are a few requirements you should consider:
- You must have an accounting system in place
- You must be closing your books each month; that means reconciling all of your bank accounts and credit cards
- You must be tracking your expenses in at least two dimensions; in other words, every expense must be recorded to a GL code/category and a funder/program/grant
- You must have a documented, consistent, and reasonable approach to allocating shared expenses such as payroll, facilities, and insurance
The UGG also outlines requirements for unallowable expenditures, but every grant will have its own set of requirements. It is imperative that you read your grant requirements carefully and that you only use grant dollars to cover allowable expenses for your organization.
🗽Do I need an audit to secure federal grant funds?
No, you don’t always need a nonprofit audit in order to qualify for federal grant funding.
However, if you receive more than $750k in federal grant money in any given fiscal year (even if this was the result of multiple smaller federal grants), you will be required to undergo what’s known as a ‘single audit’.
A single audit is different from a financial statement audit, but the process is somewhat similar. The purpose of a single audit is to test whether the organization complied with grant guidelines and only used grant dollars for allowable purposes.
An independent CPA must prepare the single audit, at the expense of the nonprofit.
And just because you required a single audit last year, it doesn’t mean you’ll be required to do one this year. It is important that you evaluate each year the total dollars of federal funding you will be receiving to determine whether a single audit is required.
Are you ready to prepare for federal funding?
Obtaining federal grant funding is a scary process for most nonprofits, especially the first time.
You should carefully consider your preparedness in advance of submitting proposals. Ensure you’re in a good position to obtain funding and deliver on your program outcomes.
If you’re concerned that your financial systems and processes aren’t ready to handle that level of scrutiny, reach out to The Charity CFO to see if we can help you.
We provide professional, outsourced bookkeeping and accounting support for 150+ nonprofit organizations, many of which have to meet federal guidelines. Our team of nonprofit financial experts will give you the support that your organization has been missing. Reach out for a free consultation.