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Look to the Past.jpg

By: Mary Diegert



Past programs can hold potential lessons and positive legacies that could be revived or adapted to meet your nonprofit’s current needs.


Three ways your CFO can help your nonprofit apply for grants.

Most nonprofits strive to include grant funding in their revenue streams but often find that large amounts of know-how (as well as a time commitment from the executive level down to the front line) are needed. Indeed, the grant writing team may not realize that, in particular, the Chief Financial Officer (CFO) has much to contribute to the success of the grant application and the administrative processes that follow.


As we’re all probably aware, the grant application usually begins with the detailed conceptualization of the project, followed by the creation of a budget and narrative. The CFO’s full involvement in every step of this process benefits everyone. And if you are CFO, you need to be at the planning meetings—not to meddle in the program design but to provide insights into the financial impact of the decisions.


More specifically, the CFO can add value to the application process in the following three areas: administrative overhead, shared cost allocations, and the interrelations between program design and financial reporting. Read on to find out more!

Area 1: Management and General Reimbursement (aka Administrative Overhead)

Before the decision is made to go for the grant, the team (including the CFO) should determine how Management and General (M&G, also known as administrative overhead—i.e., human resources, accounting, information technology, etc.) will be handled in the application. On most application budgets, M&G is the last line item and is calculated by multiplying the organization-wide M&G rate by the project’s total expense. But how do we know what the organization’s M&G rate is?

To get the organization’s M&G rate, we divide the total M&G cost by total expenses before M&G. For example, a nonprofit with $1 million in total expenses before M&G and an M&G expense of $200,000 will have an M&G rate of 20%. In an ideal world, the M&G rate used on the grant application budget would then be 20% (i.e., $20,000 for a $100,000 project).

It is important to note, however, that the M&G rate varies across organizations depending on their cost structure. It is also important to note that while an M&G rate of 20% is not atypical for a nonprofit, some funders impose a cap on M&G. In fact, this cap could be as low as 5%-10%, which is almost sure to be lower than the organization’s actual M&G rate.

So, what does this mean in terms of the budget? Well, if the M&G rate is capped at 10% but your organization’s M&G rate is 20%, then you should be aware that only half of the project’s M&G will be funded (if you are awarded the contract, that is). This means the other half will show as a deficit on the income statement or, in layman’s terms: it’ll have to be covered by a different funding source.

But the complexity of M&G continues! Organization-wide, M&G cost must be allocated to each program according to its size—whether or not there is funding to cover it. Unfunded M&G cannot be given to other programs. Government funders would consider this to be fraud for sure and private funders would consider it highly unethical at the least. In short, no funder is willing to pay for more than its fair share of M&G.

M&G is not a problem to be solved after the proposal has been submitted and approved. The CFO’s task, then, is to remind the grant writers—preferably on the record—that M&G cost must be funded (perhaps via donations or some other revenue stream) unless the executives and the board are willing to live with deficits.

Area 2: Shared Cost Allocations (aka How to Avoid Double-Dipping)

As many of us are probably aware, grant projects often seek funding for a needed expansion or enhancement of an existing program. This can allow programs to share costs, increasing efficiency. However, the CFO’s challenge is to assure that costs are allocated between programs in a way that makes sense but also avoids double-dipping, which occurs when multiple reimbursement requests are made for the same expense. This means that if grant writers are looking to the new program to alleviate existing deficits, the CFO must explain two legal requirements in layman’s terms: one, only legitimate shared costs can be reclassified from the old program to the new program, and secondly, they can only be reclassified to the extent that those costs are not already covered by another funder. In this way, the CFO’s role here is to make sure that allocation methods both maximize funding and stand up to auditors’ scrutiny.

Does this seem confusing? Let’s break it down with an example. Say you provide housing and supports for runaway teenagers with a single funding source (FS1), but you have identified an additional need to serve teenage mothers and their babies, so you are now applying to a second funding source (FS2). The original program has six case managers and the additional services require three. However, the new case managers will report to the existing program supervisor. (For the sake of simplicity, we will assume for the moment that the supervisor’s compensation remains unchanged.)

In this instance, the cost of the supervisor’s salary (and fringe) must be allocated between both the FS1 cost center and the FS2 cost center, probably based on full-time equivalent staff (FTES). Since there are six case managers in the original program and three in the proposed program, two-thirds of the supervisor’s salary (and fringe) will remain in FS1 and one-third will go to FS2.

Let’s look at this in quantifiable terms: say the amount to be allocated from FS1 to FS2 is $25,000, but FS1’s deficit is only $10,000. If and when the grant is approved, the allocation will result in a surplus of $15,000 in FS1, and that funding will have to be returned—an undesirable outcome for both the grantor and grantee.

Shell games such as these  must be considered during the application planning stage. The CFO might even be able to save the grant writer’s work. For example, the CFO might be able to ask the question: if sharing costs results in a surplus in the original program, is new funding needed?

In the example, funding for the cost of the new case managers is needed. But at the same time, the temptation to bypass the inconvenience of allocating the program supervisor’s cost must be resisted. If we accept that the cost must be allocated, perhaps the allocation would free up FS1 funding to cover an unmet need in the original program. A conversation with the FS1 program officer would be warranted, and they might even be happy to approve a budget amendment that will improve service as a result of the additional support.

A final note on this topic: in this example the supervisor might be due a salary increase with the additional workload, depending on circumstances. There are so many possible scenarios here that I will leave it to our hypothetical CFO to devise a strategy for utilizing the FS1 and FS2 and/or other funding to make that happen if is warranted.

Area 3: The Impact of Program Design on Financial Reporting

GAAP (generally accepted accounting principles) has a lot to say about how and when grant revenue is reported on the audited financial statements. Of course, these rules are probably far away from the grant writer’s mind, but the CFO knows that the project’s design will have an impact on the financial reports that the board and public see.

These GAAP “revenue recognition” rules dictate the timing of when funding (i.e., revenue) is recorded in the books and recognized on the income statement. Depending on how the project and grant application are structured, this revenue will be labeled as either “unconditional” or “conditional.” These differ in terms of how they are recorded: unconditional grant revenue is recorded and recognized on the income statement upon notification of the award (even if it is a multi-year project) whereas conditional funding is recognized as the expenses are incurred. Conditional funding is also usually preferable because the revenue directly matches the expense on the income statement. In contrast, unconditional funding is recognized all at once: it is recorded in the books and appears on the income statement in the year that it was awarded. In this case, no revenue is recorded in subsequent years, regardless of when expenses are incurred.

Essentially, a grant will be considered conditional if milestones or metrics (such as a required number of meals to be served, students registered for summer camp, or number of mental health assessments conducted) are included in the application and subsequently appear in the contract. However, if metrics (or other less commonly encountered criteria) are absent from the application, the funding probably will be considered unconditional and will be recognized upon award of the contract.

As you can probably tell, grant revenue recognition is a challenging area; CFOs often need to ask the auditors for help in applying the GAAP rules correctly, including how to ultimately determine whether the project funding is conditional or unconditional. If the CFO suspects that revenue recognition issues may pop up when it comes time to report revenues and expenses, they should consider introducing these concepts to the grant writing team early on so that everyone is on the same page. By making sure that the grant writing team understands how revenue is reported, the CFO may be able to head off future headaches (like years of income statements showing expenses with no matching revenue) by simply suggesting that metrics or other milestones be included in the project design.

I strongly recommend caution, however, and perhaps a consultation with the auditor if you feel yourself getting too deep into the weeds here. Always better to be safe than sorry in regard to financial reporting, anyway.

Remember, your CFO is a resource. Use them!

Ideally, the CFO should both guide the development of the grant budget and offer input relating to the management of funding after it is awarded. The CFO’s unique combination of knowledge and experience is a critical ingredient in a successful grant application and fully funded project. Instead of viewing the CFO as “just one more person you have to check in with” before sending off a grant application, make sure they are involved from the start. Their expertise and knowledge of financial controls and regulations will be crucial to making sure the grant application process (and hopeful award) runs as smoothly as possible!

About the Author : Mary Diegert is a recently retired CFO with 25 years’ experience in the nonprofit human services sector. She earned a master’s degree in accounting and her CPA license (now lapsed) in the 80s. Her most recent experience is fifteen years with a $20 million Catholic charities agency in upstate New York. Her focus is on sharing with nonprofit leaders her lessons learned from 25 years of on-the-job training.

Mary’s writings on non-profit financial management can be found at

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