Managing grants and restricted funds in the books
Updated 16 October 2026
A restricted grant appears on the books as an asset, and it carries obligations with it. The money must go to named purposes, by named dates, under named rules, or the funder may take it back. Each grant also costs the organization time to apply, time to report, audit exposure and sometimes limits on how a program is designed. A grant that pays for work inside the mission repays those costs. A grant that pulls the organization away from its mission costs more than it brings. This page covers what to track for each grant and how to measure what a grant pays for. The worked examples use round figures as an illustration.
Seven items to track for every grant
- The award amount and the period of performance, which is the window in which the money must be spent.
- The type of restriction, whether by program, by time or by purpose.
- The indirect cost rate the funder has approved. Indirect costs are shared costs such as rent, finance and leadership.
- The cash timing, whether the funder pays in advance, reimburses after spending, or pays at milestones.
- The reporting requirements and anything that would trigger an audit.
- Any match requirement, which is money the organization must raise from other sources to receive the grant.
- The spend-down rate, which is spending to date measured against the time elapsed in the period.
A $180,000 grant runs for 12 months. After 8 months, 66.7% of the period has passed, and straight-line spending would reach $120,000. The program has spent $96,000, or 53.3% of the award. It is $24,000 behind pace, and the grant manager either plans the extra spending or asks the funder about an extension. The figures are an illustration.
Depending on one funder
An organization that receives half its revenue from one funder is a single funding decision away from a crisis. The risk comes from concentration in one source. The answer is a wider mix of income and a larger unrestricted base.
An organization's revenue is $2,000,000, and one foundation supplies $1,000,000 of it. That foundation is 50% of revenue. If it stops renewing, the organization loses half its income in one year. The board reads the share of the largest funder on each quarterly report. The figures are an illustration.
Recovering indirect costs
When a grant pays a lower indirect rate than the organization's actual rate, the organization covers the gap from unrestricted money. That money would otherwise pay for core operations. The organization either negotiates the rate or budgets the gap in the open.
Some funders publish a fixed rate. Others will negotiate, especially when the organization can document its actual indirect rate. Federal grants allow a negotiated indirect cost rate agreement, called a NICRA, or a de minimis rate. A CPA and the grant terms confirm which rate applies.
An organization's federal indirect rate is 18%. It accepts a grant that pays 10% on $500,000 of direct costs. At 18%, the indirect share would be $90,000. At 10%, the grant pays $50,000. The $40,000 difference comes out of unrestricted money. The figures are an illustration.
The full cost of a funded program
The full cost of a program includes its direct costs plus its share of overhead, indirect costs and the management time it uses. Many grants pay less than that full cost. Some funders now pay for overhead. Others cap it, and the organization then pays part of the program from unrestricted money. Knowing the full cost of each program, and stating the gap openly, keeps the grants plan sustainable.
A funder pays $200,000 for a program. With its share of rent, finance, leadership and management time, the program costs $230,000. The grant covers 87.0% of the full cost. The organization pays the other $30,000, or 13.0%, from unrestricted money. The board sees that $30,000 when it decides whether to renew. The figures are an illustration.
The work of managing grants
- Compliance. Each restricted grant sets allowable costs, time frames, reporting dates and audit terms. A compliance calendar holds them all.
- Spending records. Each grant's expenses are tagged in the accounting system when they are entered. Rebuilding them at report time is a sign the books are missing that tag.
- Drawdowns. Government grants often pay in arrears. The organization fronts the cash, sometimes for months, so it needs working capital, which is the cash it runs on from day to day.
- Reporting. Each funder sets its own format and schedule. A grant calendar with a named owner for each report keeps deadlines from slipping.
An organization holds 6 grants. Each funder asks for a quarterly report and a final report. That is 24 quarterly reports and 6 final reports, 30 in all. The calendar lists each one with its due date and the staff member who owns it. The figures are an illustration.
Choosing which grants to accept
An organization can decline a grant. Grants outside the mission, grants with heavy terms and grants that cover only part of the full cost are candidates to decline or renegotiate. When a funder asks for work outside the mission, the organization walks away, because the grant would pull its programs off course. Turning down a grant that sits outside the mission is a sign of discipline.
A funder offers $100,000 on the condition that the organization raises an equal match. Accepting the grant means raising another $100,000 from other sources in the same period. The organization adds both amounts to the budget and checks whether the fundraising plan can carry the extra $100,000. The figures are an illustration.
What this means for a nonprofit
Each grant has an award, a period, a restriction, an indirect rate, a cash timing, reports and sometimes a match, and the books track all seven. Spending is tagged to the grant when it is entered. A gap between the funder's indirect rate and the organization's actual rate is paid from unrestricted money. The full cost of each funded program shows how much the organization adds. One funder supplying half of revenue is a concentration risk the board watches.
Grant tracking with Averan
Averan Advisors tracks grants in the books from award to final report. See bookkeeping for grant coding and controller services for compliance calendars, spend-down reports and audit preparation.
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