First of all, applying for a grant itself is a detailed process and is a skill to develop. Once a nonprofit is awarded grant money, it must be very careful how it is managed. To ensure clarity, the federal government’s Office of Management and Budget (OMB) monitors the universal administrative procedures drafted by 26 federal agencies on the use of grant money.
The OMB has three circulars or rule books for the accounting, administration and auditing of grants. Thankfully, when a nonprofit is awarded a grant, the many details of these circulars is included. In addition, most federal agencies also offer specific training on grant management.
Circular 1: 2 CFR Part 215
The purpose of this circular is to define the administrative requirements of all nonprofit organizations, institutions of higher education, and hospitals. These standards for the administration of grant money are to help establish that all nonprofits are treated equally.
OMB Circular A-122
The intent of this circular is to determine the cost of work performed or purchases made by nonprofit organizations. The nonprofit’s auditor will verify whether all its costs are in compliance with generally accepted accounting principles (GAAP) and the cost prinicples outlined in this circular. Costs are classified as:
- Reasonable cost: The cost for an item isn’t any higher than what an another person would pay under similar circumstances.
- Allocable cost: The cost is for an expense incurred specifically for the grant, benefits the grant or is necessary for the operation of the nonprofit.
- Allowable cost: A cost that is reimbursed by the federal governement in accordance with the cost principles.
OMB Circular A-133
The purpose of this circular is to address the government’s audit requirements for grant money. The nonprofit is required to keep copies of all grant documents. Not following the rules could lead to loss of grant money or loss of the right to serve the community as an organization.