What is Grant Accounting? Requirements and Solutions

From large institutions to small nonprofits, research organizations rely on grant funding to support operations and conduct sponsored projects. However, these grants come with unique requirements that fall beyond the scope of traditional business accounting practices and management solutions.

In this blog, we’ll look at different types of research grants, specific challenges of grant accounting, common mistakes, best practices, and software solutions for managing grant accounting.

Key Takeaways

• Research organizations operate using funds from public and private grants rather than traditional revenue streams.
• Research grants contain tracking and reporting stipulations that, if not met, can result in lost funding.
• Grant tracking and reporting require more rigorous accounting methods than traditional business accounting.
• Specialized research grant accounting software like Cayuse Fund Manager is essential for ensuring accuracy without excessive time and effort.

What is grant accounting?

Grant accounting is an essential part of post-award research administration that covers the management of any grant funding applied to a project. Before we get to the specifics of grant accounting, however, we’ll first want to consider the definition of grants and the most common types of grants seen in research environments.

What are grants?

Grants are the most significant source of funding for any research program. While there are many different types of grants a research organization might pursue, all grants share a few common features:

• No repayment: Unlike loans, grants do not come with an expectation of repayment. 
• Competitive: Grants are usually allocated through a competitive process, where research teams submit proposals to justify why they should be awarded funding.
• Accountability: Most grants include specific requirements for how and when funds are allocated.

Types of grants

A wide variety of both public and private grants are available to non-profit organizations. However, research organizations will most often seek one of the following grant types:

• Project grants: The most common type of research grants, project grants are awarded to individual researchers or teams to support a specific research project. These grants usually have preset time and funding limits, and can be applied to expenses like salaries and supplies.
• Program grants: While project grants fund a specific research project, program grants are awarded to organizations to fund a broader research program. These grants can be allocated to multiple projects, often centered on a shared goal or topic.
• Fellowship grants: Fellowship grants are intended to support researcher training and career development. While not always tied to research projects, they are nevertheless invaluable for supporting career advancement, covering living expenses, tuition, and other individual costs.

Additionally, any project, program, or fellowship grant will either come from a public or private organization, both of which have advantages and disadvantages. 

• Public grants: Most research grants come from government organizations like the NIH or NSF. While by no means easy to secure, public grants are generally more numerous and widely-scoped than private grants. In recent years, however, cuts to public funding and additional regulations on research topics have limited the supply of available grants.
• Private grants: Private businesses often sponsor grants that support the development of fields, medicines, and technologies related to their products. Nonprofit organizations also offer grants to support research in a specific area unrelated to product development. Most private grants, however, are more competitive than public grants, and often cover a narrower scope of research.

Basics of grant accounting

While the scale, scope, and specific conditions of different grants will vary, there are three main requirements that must be factored into grant accounting: budgeting, tracking, and reporting.

Budgeting

Setting and maintaining project or program budgets is necessary for any research organization’s long-term sustainability and success. A thoughtfully designed budget helps track costs and estimate expenses to ensure all grant funding is appropriately allocated to cover personnel, equipment, travel, facilities, and any other applicable resources. 

Tracking

Most grants contain stipulations regarding when and how funds can be spent. For this reason, grant accountants must carefully keep track of all grant expenditures, including receipts, invoices, payroll records, and contracts, to ensure funds are appropriately allocated. 

Reporting

All grant recipients must create and submit reports of their financial activity to grantors to ensure their work meets all requirements stipulated in the initial grant award. Reports often cover the state of a project or program’s spending, budget alignment, and progress. Accurate and timely reporting helps to ensure continued funding, while inaccuracies, reporting delays, and evidence of misappropriated funds can lead to lost funding and reputational damage.

Grant accounting challenges

Compliance with regulations

All grant-funded activities must comply with regulations that can be difficult to navigate for several reasons. Regulations will vary according to factors including grant types and funding sources, grantor and grantee organization types, and the states involved in both issuing grants and receiving funds. For example, a public grant for non-profit research conducted in California will be subject to different regulations than a private grant for industrial research conducted in Louisiana. 

Adding further complexity, regulations can shift during the course of a grant’s lifecycle, requiring recipients to keep close attention on any changes that will impact their work. 

Audit risks

Grant-funded projects and programs are always subject to potential audits to ensure that the terms of a grant are upheld or that the recipients have maintained compliance with relevant regulations. While audits are not a certainty, their likelihood increases from factors like poor or missing documentation, discrepancies in financial reports, and prior organizational failures to maintain compliance with regulations and grant terms.

Resource limitations

Adherence to regulations and the risk of audits both create an enormous burden even for well-staffed grant accounting teams. However, many research organizations are faced with staffing constraints and resource limitations that can put them in even greater danger. 

These limitations often mean that more grant accounting responsibilities are placed on fewer individuals, leading to risks of burnout, errors, and discontinuity in the event of turnover. Potential consequences like the loss of funding, reputational damage, and legal repercussions mean that teams cannot afford to ignore their responsibility to maintain compliance and stay audit-ready, even when constrained by resource limitations.

Common mistakes

Reliance on manual processes

While grant accounting was previously an entirely manual process, the digital revolution introduced more reliable methods for managing grant funds. Still, many organizations only leverage technology insofar as switching from paper files and phone calls to digital documents and emails, instead of making the jump to a fully digital accounting management platform. Digitization is certainly an improvement over paper processes, but issues like duplication, errors, and missed communications can still persist without integrated software for managing the accounting lifecycle.

Persistence of organizational silos

Grant accounting relies on consistent communication between stakeholders and departments. However, minimized collaboration between teams can easily lead to organizational silos, where individuals from one department may not fully understand the requests from another, leading to errors and delays. This is a particularly relevant danger at a time when offices may be partially or fully remote, and teams have fewer occasions to interact with their counterparts. 

Use of standard business accounting software

Many teams looking to modernize with an accounting software platform run into the same issue: Some of the most commonly used products are built for standard business accounting. While standard business accounting software can help automate some parts of the grant accounting process, they are not built to handle the specifics of grant accounting, leading accountants and administrators to build imperfect workarounds that only increase administrative burden and can lead to errors and inconsistent workflows. 

Best practices

Simplify the process

Simplifying record-keeping, especially in the important area of grants accounting, is key for a busy department. Ease of use and an intuitive cloud-based interface are key when looking to implement automated grants accounting systems. Having easy access and a simple process is the first step to ensuring accuracy and reduced staff burnout.

Increase transparency

As covered earlier, granting organizations regularly ask for comprehensive reporting showing how funds are used. Increasing transparency into grant, vendor, salary, and other financial data on a digital platform can help ease tracking and reduce time spent generating reports. Transparency also increases effective communication between teams and helps break down organizational silos.

Streamline time-intensive tasks

Manual data entry, cumbersome spreadsheets, and duplicate record-keeping take time when it comes to analyzing spending, budgets, data reconciling, and more. Automating grant accounting speeds the process and removes the administrative burden.

Integrate systems

Fully integrating grants accounting with the institution’s general ledger or ERP system helps remove organizational silos and duplicate data. The key is to supplement the GL transaction information with additional information to track post-award activities. Data should also tightly link with payroll, purchasing, and other systems.

Create user-defined calculations

Effectively accounting for grant funds means departments need to easily calculate and track F&A costs and easily handle user-defined coding systems for tracking special commitments. Because traditional business accounting software usually does not offer this level of configurability, it’s important to ensure your management platform can fit your calculations instead of forcing your calculations to fit the platform.

Grant accounting software

The best method for simplifying grant accounting and reducing administrative burden is implementing accounting management software designed specifically for grant lifecycles. 

It’s why Cayuse Fund Manager was built with the needs of research teams and grant accountants at the forefront, with features for organizations of all sizes, including:

• Real-time visibility into grant spend and projections enables 99% spend-to-zero performance and stronger financial control
• Streamlined workflows simplify and automate time-intensive tasks to free 0.5-1 FTE per $50M in research spend
• Automated reporting tools pull up-to-date project data and encourage proactive compliance
• Grant-friendly language and dashboards ensure our software fits your processes; no more forcing your process to fit the software
• Integration with Cayuse Sponsored Projects creates a single entry point for pre- and post-award teams, saving hours per reporting cycle

FAQs

Is grant accounting a pre-award or post-award process?

In organizations and institutions where research activity is divided into pre-award and post-award departments, grant accounting is primarily considered a post-award process, as it deals with the management of funds that have been secured and are actively supporting a project or program. However, because grant accounting relies on the available award budget, grant accountants will often need to reference and coordinate with pre-award team members involved in budget-building and proposal submissions.

Who is responsible for grant accounting?

Grant accountants are primarily responsible for overseeing the financial aspects of grant management, including income and expense tracking, financial compliance checks, maintaining documentation, preparing and presenting financial reports, and assisting with audits.

What is the difference between FASB and IFRS grant accounting?

The FASB (Financial Accounting Standards Board) and IFRS (International Financial Reporting Standards) provide two different approaches for grant accounting. Nonprofit grants provided by entities within the United States are mostly held to the standards set by the U.S.-based FASB, while the IFRS cover international nonprofit grants (including U.S. nonprofits not subject to the FASB).

Whether a grant will be subject to FASB or IFRS requirements is established during the initial grant recognition. It is important to note the regulations covering any grant to ensure compliance with either the FASB or IFRS.