Contrary to what many people believe, free money isn’t given out to individuals and businesses to help jump-start a venture or tie down loose ends. Instead, grants are offered for certain ideas and projects that have proven to be able to provide public service to a community or stimulate the economy. Grants are financial aid that doesn’t have to be repaid, unless the terms of the grant agreement have not been met. The person or entity providing the grant is referred to as the grantor and the person or entity receiving the grant is referred to as the grantee.
There are four main types of grants:
Competitive Grants are awarded based the evaluation of a reviewer or team or reviewers. They are usually based on the merits of the grant application or grant proposal and the recipients are not pre-determined.
Formula Grants are awarded based on an allocation that is determined by the grantor. These grants are non-competitive and are allocated on a pre-determined base.
Continuation Grants give the grantee the option of renewing the grants the following year or after a specified period of time. Usually, existing grantees are given preferential treatment over new grantee applicants. Not every grant includes this option, and the lengths of time and renewal periods vary.
Pass-Through Grants are given to an entity (Entity #1) and then that entity will pass-through the funding to another entity (Entity #2). Many times the terms of the grant will be re-written by Entity #1 with greater restrictions applicable to Entity #2 for the use of the funding.
Where Do Grants Come From?
Grant money come from private foundations, community foundations, corporate sponsors, state and local governments, and the federal government.
What Happens After a Grant is Awarded?
Typically, when a grantor awards a grant to a grantee, a contract or grant agreement is drawn up and signed by both parties. The grant agreement or grant contract will state the purpose of the grant and the grant requirements. Examples of grant requirements might include allowable costs, allowable activities, cost principles, reporting, eligibility, period of performance, compliance applicable laws and regulations, monitoring of subrecipients, and the audit requirements. It is the responsibility of the grantee to fully understand and comply with the grant requirements. The grantee is also responsible for implementing proper internal controls to safeguard the grant assets, any protected personally identifiable information, other information deemed to be sensitive, and internal controls designed to ensure compliance with all applicable requirements related to the grant. Failure to comply with the grant requirements could result in defunding or repayment of grant funds. The agreement will state the life cycle or grant period. The grantee should monitor the budget, spending, and drawdown process to effectively manage the grant. Best practice is to use budget to actual reporting to monitor the grant. The focus of the grantee should be to properly spend the grant funds within the grant period without overspending. When funds are not fully spent during the grant period, some grantors will allow an extension or carryover of funds past the original grant period when proper procedures are followed. Unfortunately, other grantors are not as lenient.
If an entity has more than one source of funding or more than one grant, a best practice would be to use a strong fund accounting software package. Each grant or contract should have its own fund and trial balance so that each fund can be accounted for individually. Co-mingling of funds and accounting transactions could result in disallowed costs or repayment of grant funds.
The governing body (the body) of the entity has the authority to exercise governance over the entity and is ultimately responsible for overseeing the activities of the entity. Care should be taken in the selection of qualified individuals for management and fiscal positions. The body should meet at regularly scheduled times to monitor and review the activities of the entity.
Applying for and accepting grants can be a tricky process, and not one that should be taken lightly. If you have any questions pertaining to the grant award process, be sure to reach out to a CRI professional for more information and answers to your questions.