Nonprofit leaders reliant on government grants face both shrinking dollars and sharper questions about how every dime is spent.
With over two decades of nonprofit financial management expertise, BTQ Financial has helped over 70 nonprofits successfully manage over $1 billion in operating budgets through dynamic conditions.
We explore the reasons behind this shift in scrutiny and share key questions for organizations to ensure their finance functions are prepared, proactive, and transparent.
The Shifting Landscape of Financial Oversight
While we’re not seeing a full wave of oversight changes just yet, there are clear signs that expectations around accountability are tightening, especially for those organizations receiving government funding.
- Funding Uncertainty: Many nonprofits have experienced, or anticipate, reductions in government funding, leading to uncertainty in planning and staffing.
- Increased Scrutiny: There are early signs of increased attention on how funds are being utilized by nonprofits, with a shift towards greater scrutiny from funders.
- Federal Signals: Recent executive orders indicate a renewed federal focus on preventing fraud, waste, and abuse in public spending.
- Pass-Through Entity Requirements: Pass-through entities are increasingly demanding more documentation, active monitoring, and higher expectations from their subrecipients.
- Emphasis on Internal Controls: Funders are pushing for stronger internal controls and real-time compliance, not just during audits but throughout the year.
This new environment has created a lot of uncertainty about how to plan, how to staff, and how to respond when the funding picture shifts.
1. Do We Have Instant Financial Clarity?
Funder emails rarely wait for month-end. Data quality and system integration should enable you to tell your financial story in hours, not weeks.
“This isn’t just about access to reports, it’s about the quality of your data, how your systems talk to each other, and whether your team can tell the story behind the numbers.”
- Funder Question Simulation: Regularly simulate funder questions, particularly concerning spend-down variances and restricted fund usage, to assess response capabilities.
- Understanding Regulations: within government contracts.
- Spend-Down Plans: to ensure effective and funder-approved utilization of funds throughout the year.
- Effective Financial Reporting Tools: Investing in and regularly reviewing accounting and grant management software for accurate and efficient reporting.
- Staff Understanding of Reports: All relevant staff should understand financial reports and be able to explain them to funders.
- Ongoing Budget-to-Actual Monitoring: Monthly or at least quarterly budget-to-actual monitoring, involving both finance and program personnel to identify and address changes quickly.
- Program Staff Involvement in Budgeting: Engaging program staff early in the budget process fosters greater accountability for spending and leads to a stronger, more realistic budget.
Anyone in contact with funders should understand how funds are being spent, even if that means doing a budget modification.
2. Are Our Internal Controls Real, or Just on Paper?
Beyond having policies and procedures documented, nonprofits need to verify their internal controls are working in practice, not just existing on paper, to prevent mistakes and ensure accountability.
Most organizations have policies and procedures written down somewhere, but the real question is: “Are those documents accurate and are staff following them?”
- Comprehensive Documentation: Documented policies and procedures manuals that are readily accessible and understood by all staff.
- Regular Updates: To policies and procedures manuals to comply with new general accounting principles and changes in uniform guidance.
- Spot Checks/Mini Audits: Conducting regular, informal spot checks or mini audits of financial transactions helps identify and address issues before a formal audit.
- Reviewing Past Mistakes: Analyzing previous audit reports or funder findings, as well as insights from mini audits, helps identify root causes of errors (e.g., staff training, software issues) and prevent recurrence.
“Spot checks are an opportunity, not a failure. It’s a chance for us to find out if there’s something that we missed, if a process is not being followed, someone’s not trained and it can be a really useful tool.”
3. How Quickly Can We Produce Documentation Requests?
Funder fire-drills are becoming the norm. Nonprofits need systematic organization and regular retrieval system testing to quickly locate and provide documentation upon request.
- Centralized Documentation: Establishing a centralized, easily accessible system for electronic documentation, including clear filing and naming conventions..
- “Funder Ready” Folder: Containing approved budgets, signed contracts, audited financials, and registration/renewal documents.
- Testing Response Time (Fire Drills): Simulate a funder request and give the team a limited timeframe (e.g., 24 hours) to gather and respond to the mock request. Debrief afterwards to identify obstacles and areas for improvement.
- Real-Time Updates: Calendar regular times to refresh and update materials (e.g., liability insurance certificates, board lists) to avoid sending outdated information.
- Nine-Month Audit Review Process: To proactively assess readiness for the annual audit cycle and create a culture of continuous preparedness.
“Have SOPs, even around how to store things electronically. At BTQ we have a very clear way of how we’re filing things and naming conventions, so if a new staff member comes on they’re easily able to find something.”
4. Are We Ready for Informal or Discretionary Oversight?
A single unexpected email can make or break trust. How quickly and clearly you respond can either build confidence or raise concerns.
Beyond formal audits, organizations should prepare for unexpected requests, informal inquiries, and discretionary oversight that may come without advance notice.
- Strong Funder Relationships: Building close, consistent relationships with funders, including program officers and higher-level agency contacts, helps foster trust and anticipate upcoming needs.
- Networking with Other Nonprofits: That share the same funders can provide valuable insights, advice, and contact information.
- Leveraging Technology and Automation: To significantly reduce the time required to generate reports and respond to ad hoc requests, building funder confidence and freeing up staff for program activities.
“Building close consistent relationships, strong relationships with funders is very key. Sometimes that’s difficult… but when you can find that one person…having a good contact at a funder’s office is so helpful.”
Staying Current: Resources and Best Practices
The BTQ team shares tips and tools to keep up with regulatory changes and shifting federal priorities.
Technology
- Grant-tracking and accounting systems that mesh (ledger ↔ grant)
- Automation for GL detail exports and payroll allocations
Regulatory Intelligence
- Grants.gov email alerts for Uniform Guidance updates
- National Council of Nonprofits policy bulletins
- Ask each funder about their own list-serves or portals
Best Practices
- Directly contact funders to understand their communication preferences
- Utilize resources like the National Council of Nonprofits
- Stay updated on uniform guidance requirements
- Monitor federal websites and regulatory updates
- Establish regular check-ins with program officers
Preparation Beats Perfection
Greater scrutiny is coming, but nonprofits that tighten data quality, field-test controls, centralize documents, and cultivate funder relationships can answer tough questions with clarity and confidence.
“Being ready isn’t about catching mistakes. It’s about building structure so your mission keeps moving when oversight ramps up.”
BTQ Financial has spent over two decades refining the very practices nonprofits need to withstand rigorous oversight.
Here’s what partnering with BTQ delivers:
- A 200-person bench of specialists: Directors, controllers, grant-optimization experts, and CFO-level strategists who act as an extension of your team.
- Compliance and reporting: Generate detailed financial and compliance reports, maintain audit trails, and ensure adherence to regulations and donor requirements.
- Financial analysis and planning: Monitor budgets, forecast future expenses, and conduct variance analysis to stay on top of your financial health.
- Funder submission and processing: Automated approval workflows and integration with your financial systems.
- Expense management and allocation: Track and allocate expenses to specific grants and contracts with precision, ensuring funds are used according to donor requirements.
Schedule an assessment with BTQ today to start building a resilient and transparent finance function.