Last Updated:

September 21, 2023

A 2023 Guide: Best Practices for Nonprofit Compliance


Instrumentl team



September 21, 2023

Nonprofit organizations play a pivotal role in addressing various societal issues, from education and healthcare to environmental conservation and poverty alleviation. These organizations often rely on funding from various sources to carry out their missions effectively.

One significant source of funding for nonprofits is federal awards.

However, to make the most of these resources, nonprofits must adhere to stringent compliance requirements. In this comprehensive guide, we will explore the world of nonprofit compliance, specifically in the context of federal awards.

Let’s dive in.

Nonprofit Compliance in the Context of Federal Awards


Nonprofit organizations operate in a unique space where their mission-driven objectives intersect with a complex web of legal and regulatory requirements.

At the end of the day, nonprofit compliance is the backbone of any successful organization, ensuring that it can operate within those legal and ethical boundaries defined by regulatory authorities. When it comes to nonprofits that receive federal awards, compliance takes on a whole new level of importance.

Why is nonprofit compliance crucial for organizations receiving federal awards?

Nonprofits often receive federal awards in the form of grants to carry out specific projects or programs. These awards are a valuable source of financial support—but they come with strings attached.

Federal agencies require rigorous reporting and accountability to ensure that taxpayer dollars are used efficiently and effectively. Nonprofit compliance ensures that nonprofits meet these requirements, maintain their eligibility for federal funding, and fulfill their missions effectively.

Understanding the Basics of Federal Award Reporting


Before we explain common federal compliance guidelines for nonprofits, let’s go over the basics of federal award reporting.

What Are Federal Awards?

Federal awards encompass a wide range of financial assistance provided by federal agencies to support nonprofit organizations' missions. These awards can take the form of grants, cooperative agreements, contracts, and more. Each type of award has its own set of rules and regulations governing its use and reporting.

Types of Federal Awards:

  • Grants: These are typically provided to support specific projects or initiatives, and they often require detailed reporting on project outcomes and financial expenditures.
  • Cooperative Agreements: These are similar to grants. However, what sets cooperative agreements apart from grants is the high degree of collaboration they entail. In cooperative agreements, federal agencies actively engage with nonprofits throughout the project's lifecycle, offering guidance and oversight. This close partnership often results in more extensive reporting requirements as compared to traditional grants, as both parties work closely to achieve specific project goals and outcomes.
  • Contracts: Federal contracts involve a legally binding agreement to provide goods or services to the federal government. Compliance involves meeting contractual obligations, often with strict reporting and auditing requirements.

The Key Components of Federal Award Reporting

Effective reporting of federal awards is essential for maintaining compliance.

Robust reporting not only satisfies regulatory obligations but also showcases the impact and accountability of nonprofit organizations to their stakeholders.This is why nonprofits must be meticulous in documenting their activities, expenses, and outcomes. Some of the key components of federal award reporting include:

  • Financial Reporting: Accurate and transparent financial reporting is paramount. This includes budgeting, tracking expenses, and providing regular financial statements to demonstrate the appropriate use of federal funds.
  • Programmatic Reporting: Nonprofits must report on the progress and impact of the funded projects. This often includes quantitative and qualitative data on project outcomes and deliverables.
  • Audit Requirements: Many federal awards require independent audits to ensure compliance with financial and programmatic requirements. These audits provide an additional layer of oversight.

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Compliance Guidelines for Nonprofits


In the intricate world of nonprofit compliance with federal awards, understanding the regulatory frameworks and standards is paramount. These compliance guidelines provide the roadmap for nonprofits, ensuring they meet all legal requirements while effectively utilizing federal funds to achieve their missions.

Essential Regulatory Frameworks

Compliance for nonprofits operating within the realm of federal awards is multifaceted, involving a convergence of various regulatory bodies and standards. To maintain adherence, nonprofits must be well-versed in these critical components of compliance guidelines:

OMB Uniform Guidance: The Office of Management and Budget (OMB) Uniform Guidance outlines the rules for federal grant administration, including financial management, procurement, and reporting.

Federal Acquisition Regulation (FAR): Nonprofits receiving federal contracts must adhere to the FAR, which governs federal procurement and contracting processes. Compliance with the FAR is essential for successful contract management.

IRS Regulations: Nonprofits must also navigate IRS regulations to maintain their tax-exempt status. It is vital to harmonize IRS compliance with federal award compliance for a seamless operation. Failure to do so could jeopardize an organization’s eligibility for federal awards.

Understanding Specific Reporting Obligations

Different types of federal awards come with specific reporting obligations, reflecting the nuanced nature of each funding mechanism: They include:

Grants and Cooperative Agreements: These typically require detailed programmatic and financial reports, including information on goals, outcomes, and expenses.

Federal Contracts: Compliance with contracts involves meeting specific deliverables, milestones, and financial reporting requirements as outlined in the contract agreement. These contracts come with distinct obligations that must be met to ensure compliance.

Compliance Essentials for Nonprofits


Achieving compliance in the context of federal awards is not just about navigating the legal framework; it's about translating that knowledge into day-to-day practices that keep your organization on the right path.

Navigating compliance requirements can be a complex and daunting task, especially when federal awards are involved. It's not enough to understand the rules; you must also put them into action effectively. This section will guide you through the fundamental practices and strategies that are essential to maintaining compliance in your nonprofit.

Keeping Accurate Records

Accurate record-keeping forms the cornerstone of nonprofit compliance. This practice is not only a regulatory necessity but also a strategic advantage for your organization. Precise and comprehensive records empower you to track the flow of funds, demonstrate transparency, and facilitate the auditing process. This process involves:

  • Financial Record-Keeping: Keep meticulous financial records that track the allocation and expenditure of federal award funds. Use accounting software and systems that allow for easy auditing and reporting.
  • Programmatic Record-Keeping: Document all program activities, outcomes, and evaluations. This information is vital for programmatic reporting and demonstrating impact.

Regular Audits and Reviews

Independent audits play a crucial role in nonprofit compliance. Regularly scheduled audits ensure that your nonprofit organization's financial and programmatic activities align with federal award requirements. They serve several key purposes:

  • Objective Assessment: Independent auditors evaluate financial records and internal controls impartially, identifying compliance risks and discrepancies early.
  • Risk Mitigation: Early risk identification allows proactive correction, preventing larger problems and protecting your nonprofit's reputation.
  • Stakeholder Confidence: Clean audit reports build trust with donors and federal agencies, demonstrating transparency and accountability.

In addition to financial audits, programmatic compliance is also essential for nonprofits for the following reasons:

  • Program Monitoring: Regularly review program activities and ensure alignment with award goals.
  • Documentation: Maintain detailed records of program-related activities, essential for programmatic compliance.
  • Outcome Assessment: Evaluate program outcomes, make improvements as needed, and communicate deviations to funders.

Regular audits not only ensure compliance but also support continuous improvement in nonprofit operations and mission fulfillment. Nonprofits can consider hiring a certified public accountant (CPA) or an audit firm experienced in nonprofit compliance.

Training and Capacity Building

Staying compliant requires ongoing education and skill development within your organization. The leadership board of nonprofits must pay critical attention to the following aspects and devise effective strategies to act on them:

  • Staff Training: Ensure that your staff members are well-versed in compliance requirements, especially those directly involved in grant management and reporting.
  • Board Involvement: Engage your nonprofit's board in compliance matters. Provide them with resources and training to fulfill their oversight role effectively.
  • Continuous Learning: Stay informed about regulatory updates and best practices in nonprofit compliance. Attend workshops, webinars, and conferences related to nonprofit management and compliance.

Wrapping Up: The Next Steps


Nonprofit compliance is not merely a set of rules and regulations to be followed begrudgingly; it is a powerful tool that can elevate your nonprofit’s impact and credibility.

From understanding the basics of federal award reporting to navigating regulatory frameworks and implementing compliance essentials, nonprofits must commit to maintaining the highest standards of accountability and transparency.

Compliance allows your nonprofit to build trust with donors, federal agencies, and the communities you serve. It enables you to tell a compelling story of how you are using federal awards to create meaningful change. Compliance is not a burden; it is a strategic advantage.

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