Protecting Federal Funding Through Strong Internal Controls
For nonprofit organizations in Virginia and Washington DC, federal grants represent both opportunity and obligation. A grant award is not simply a transfer of funds—it is a contract with the federal government that comes with strict requirements for how money is spent, documented, and reported. When those requirements are not met, the consequences can be severe: questioned costs, repayment demands, audit findings, and in some cases, suspension from future federal funding.
The Treasury Department’s April 2026 announcement of a Form 990 transparency initiative signaled that government grants and contracts will face increased scrutiny. Treasury Secretary Scott Bessent stated plainly: “Public money and tax-exempt status demand public accountability”. For organizations receiving federal funds, the message is clear: grants management is not administrative busywork. It is a compliance discipline that protects your funding and your mission.
The Grant Life Cycle: From Pre-Award to Closeout
Effective grants management spans two broad stages: pre-award and post-award. Each stage has distinct compliance obligations and risks.
Pre-Award: Planning and Decision-Making
The pre-award phase is about deciding whether to pursue a grant and preparing a competitive application. Key activities include:
Assessing mission alignment. Does the grant opportunity align with your organization’s exempt purpose? Pursuing funding for activities outside your mission can create compliance risk.
Evaluating organizational capacity. Can your team manage the administrative requirements? Federal grants often require detailed financial reporting, time and effort tracking, and procurement documentation.
Developing a realistic budget. The program and finance teams should collaborate on the budget, ensuring the numbers are complete, compliant, and manageable once the grant is awarded.
Post-Award: Execution, Monitoring, and Compliance
Once a grant is awarded, the compliance obligations begin in earnest. Key steps include:
Reviewing and documenting award terms. The first step after award should be reviewing the terms and conditions, including the period of performance, reporting requirements, and any restrictions on spending.
Setting up the grant in the accounting system. Every restricted grant should have its own distinct identifier—a grant code, unique class, or project ID—so spending can be tracked cleanly by award. Without that structure, reporting becomes manual and painful.
Clarifying roles and responsibilities. A RACI matrix (Responsible, Accountable, Consulted, Informed) helps map who is responsible for each activity across finance, program, development, and leadership.
Internal Controls: The Foundation of Grant Compliance
Internal controls are the policies and procedures that ensure grant funds are spent as intended, reported accurately, and supportable under audit. Documented controls preserve organizational knowledge, promote consistency, and support continuity as teams evolve.
Key Controls for Grant Management
Authorization and approval. Funders and auditors want to know who can approve grant expenses, what limits apply, and where that is documented. Automated accounts payable workflows create a clear audit trail.
Segregation of duties. Ideally, the person requesting a purchase is not the one approving and recording it. When staffing is limited, compensating controls—such as secondary review or board oversight—help, as long as they are documented.
Documentation and record retention. Approvals, cost justifications, allocation methodologies, and exceptions must be documented and retained.
Time and effort reporting. Salary and benefit costs must be allocated using a documented, reasonable, and consistently applied method that accurately reflects the work performed. Timesheets or activity reports offer the clearest support.
Common Grants Management Pitfalls
Even well-intentioned organizations can run into trouble. Common pitfalls include:
Unallowable costs. Charging expenses that are not permitted under the grant terms—such as alcohol, lobbying, or certain administrative costs—can result in questioned costs and repayment demands.
Inadequate documentation. Missing receipts, timesheets, or approval records can lead to audit findings.
Procurement violations. Federal procurement rules require competition for purchases above certain thresholds. Program staff must understand that procurement rules apply directly to them.
Failure to monitor subrecipients. Organizations that pass grant funds to subrecipients must monitor how those funds are used.
Late or inaccurate reporting. Financial and programmatic reports must be submitted on time and accurately reflect grant activities.
Virginia and DC Compliance Considerations
Virginia: Nonprofits receiving state grants may have additional reporting requirements. Organizations with gross annual revenue of $750,000 or more must provide a financial review performed by an independent CPA when maintaining their Virginia sales tax exemption. Virginia Tax may require a full audit for organizations with revenue of $1.5 million or more.
Washington DC: Organizations must maintain their DC tax-exempt status by filing Form FR-164 and renewing as required. DC franchise tax applies to unrelated business income.
How Nova Tax & Accounting Services Can Help
At Nova Tax & Accounting Services, we help nonprofit organizations strengthen their grants management practices and prepare for audits. Our team provides internal controls assessment, grant compliance reviews, and training for finance and program staff. We also offer audit and assurance services designed specifically for organizations receiving federal and state grants. For more information, visit https://novataxservices.com/audit-attestation-services/ .
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