The CARES Act and other recent government initiatives have made a tremendous amount of grant funds available for non-profits. While this is wonderful news, it is not always the case that a non-profit should agree to a new grant award from the federal government. There are several questions a non-profit should ask itself before taking on a government grant.
First and foremost, the non-profit should ensure that the grant’s deliverables align with the nonprofit’s mission. “Mission creep” is a term used around non-profits that start doing things outside, or partially outside, their mission. This can lead to disorganization and tension within the non-profit and with the entity’s Board of Directors. If mission creep expands too far, the IRS could take issue with the non-profit not adhering to their mission and the entity might end up having a tax liability or their non-profit status revoked.
Next, a non-profit should make sure they have the employees necessary to accomplish the grant’s goals. Right now, with unemployment at an all-time low, it would be unwise to think that a non-profit will easily be able to staff-up to meet a large new grant’s objectives. If the current staff does not have the background or time to devote to the new grant, chances are the non-profit will not appropriately meet the deliverables. This could result in the federal agency demanding a return of funds.
Another question nonprofits should ask themselves is whether the grant funding will put them in a situation where they will be required to have a single audit. Currently, if a non-profit receives $750,000 or more of government funding, including pass-through government funding, in one year they are required by law to have a single audit. A single audit is a much deeper dive than a regular audit into a non-profit’s compliance with a myriad of government rules and regulations that cover not only what the grant funds can be spent on, but also how the expenditures are tracked and what types of documentation needs to be maintained. If a non-profit fails a single audit, the entity could have to repay all of the grant monies and/or lose any future federal funding. A non-profit that is not used to these strict guidelines and does not have in place a clear method of accounting for and tracking grant expenditures should be cautious when taking on a large amount of federal funding.
One more item a non-profit should consider when looking at a large grant is if they have the infrastructure to deliver programs/funding to recipients within the grant’s targeted time frame and to the specified audience. Surprisingly, it can be quite difficult to identify and locate qualified recipients for different grants and most grants have a time component that dictates when the funds need to be distributed by. If a non-profit does not already have the appropriate infrastructure, then they may not meet grant requirements and funds could be demanded to be returned to the granting agency.
Overall, federal funding accomplishes a lot of good and can help sustain non-profit entities and their important work. It is important however, to be aware of potential issues with accepting federal funding as the burden to spend the funds correctly, in a timely manner, within all the rules and regulations of the federal government lies squarely with the non-profit. Given all of this, there are times when not accepting a grant is the best course of action for a non-profit.