There are three things you absolutely must do (and do right!) if you manage grant funds. Nonprofits that rely upon grant funding should have best practices and good software in place to help manage grant funds and activities. Without these in place, you run the risk of compliance issues that range from an expensive mistake to losing your nonprofit status. Let’s take a look at the three things you must do to properly manage grant funds and talk about efficient ways to ensure compliance.
Grant Funds Differ from Donations
Not all funds are created equal. Although both grant funds and donations may come to your nonprofit, these funds come with different stipulations, and as such, must be treated differently.
Grant funds differ from general donations in several important ways, and those differences shape how nonprofits must manage them. Grants are typically restricted, meaning the money must be spent exactly as the funder specifies: on certain activities, within certain time frames, and under specific rules.
Donations, on the other hand, are often unrestricted, allowing organizations to use them for whatever best supports the mission, from salaries and rent to emergencies or overhead. Because of this, restricted grant dollars require careful tracking, documentation, and reporting, while unrestricted donations offer flexibility.
Grants also come with formal agreements, including contracts, budgets, reporting obligations, compliance requirements, and sometimes audit rights. A typical donation rarely involves more than a thank‑you letter and a tax receipt. This means grants create legal and financial responsibilities, whereas donations primarily create stewardship responsibilities. Grants require detailed reporting—financial statements, outcome data, narrative updates, and proof that spending aligns with the approved budget. Donations simply require acknowledgment and relationship-building through updates or annual summaries.
Finally, grants often prohibit certain expenses, such as food, lobbying, capital purchases, or indirect costs above a set rate, while donations generally allow any mission-supporting use. In short, grant compliance is about staying within strict boundaries, while donations give nonprofits room to maneuver.
Three Grant Fund Management Best Practices
- Track every restricted dollar in true fund accounting
- Keep one compliance calendar for every funder deadline
- Connect grant spending to program outcomes before the report is due
Given these key differences between grants and donations, it comes as no surprise that managing grants comes with a specific set of guidelines, too. These include tracking every restricted dollar in true fund accounting, keeping a compliance calendar, and connecting grant spending to program outcomes. Please note that there are more best practices when it comes to grants – we’re just covering three of them. If you’d like to learn more, AlignMint offers a longer guide with other best practices to note.
1. Tracking Restricted Dollars in True Fund Accounting
Because grants are restricted dollars, they must be used towards the specific program associated with the grant. You need to know, at all times, exactly how much you’ve spent and how much remains. To do this, you must use true fund accounting. True fund accounting tracks dollars against a specific fund rather than in general categories. Each grant is treated like a mini budget or “fund.”
Why this matters: If you can’t provide an accurate report to funders about how their money was spent, not only are you at risk of losing funding, you are also at grave risk of losing both the funder’s trust and the public’s trust. Grants are awarded based upon specific criteria, and the money must be put towards a stated purpose. True fund accounting enables both your organization and the grantor to see exactly how the funds were used and for what purpose, giving clarity and insight into how well they met their stated purpose.
2. Maintain a Fund Compliance Calendar
Grant compliance often involves multiple time-sensitive tasks. To ensure you maintain compliance, it is vital to keep a calendar of key dates for specific grants.
Every grant has deadlines: reports, site visits, audits, reimbursement requests, renewal dates, data submissions. Instead of tracking these in scattered emails, spreadsheets, or staff memory, you maintain a single shared calendar.
This calendar should include:
- Due dates
- Required documents
- Who is responsible
- Reminders well before deadlines
Why it matters: You worked hard to secure the grant. A simple slip up, like failing to submit the required documents on time to maintain it, may be all it takes to lose it. A calendar is the simplest way to track everything that matters to maintain grant compliance.
3. Connect Grant Spending to Program Outcomes
This one should be obvious, but you’d be surprised at how often it is overlooked: before spending one penny of a grant, ensure that you’ve mapped specific program outcomes to every dollar you intend to spend.
Nonprofits who skip this step often scramble at the last minute to connect the dots, and that’s a shame. There’s no need for a “funding fire drill” when preplanning and preparation can prepare you for success.
Grants are performance-based. Funders want to see that dollars produced results. By establishing goals before spending grant funds, you’ll be able to regularly compare what you’ve presented, the outcomes you’ve achieved, and what you’ve promised in the grant. And, doing this throughout the grant period (rather than at the last minute) helps you catch any gaps early. For example, spending may be on track, but outcomes are lagging. If you’re tracking it in real time, you’re able to see this gap early and take steps to close it. You can also adjust activities before reporting and produce better reports.
Why this matters: Funders care about impact. When you can clearly show how money turned into outcomes, you strengthen your credibility and future funding chances.
New to True Fund Accounting? Welter Consulting Can Help
To manage grants effectively, organizations need to know exactly how much of each award has been spent and how much remains at any given moment. Because grant dollars are typically restricted for specific purposes, true fund accounting is essential. This means treating each grant as its own mini‑budget rather than lumping all revenue together. Solutions like MIP Fund Accounting, Araize FastFund, and Sage Intacct are designed specifically for nonprofits and provide the structure needed to track restricted dollars accurately, prevent overspending or underspending, and ensure every expense is charged to the correct grant. With this level of clarity, organizations can quickly answer funder questions, stay compliant, and maintain the trust that future funding depends on.
There are many grant management software platforms available that help nonprofits strengthen these best practices, streamline grant tracking, and simplify reporting. If you’d like guidance on choosing the right tools for your organization’s needs, Welter Consulting can help you evaluate options and get you connected with the solutions that fit your structure, size, and goals.
Welter Consulting
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.
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