Blog

For many nonprofits, grants are the backbone of program funding. They make the difference between launching a new initiative and turning people away. But with grant funding comes accountability: you must track every expense, report it accurately, and show that funds were used as promised. 

The stakes are high. If your organization cannot document how funds were spent, you risk clawbacks, losing future funding, and damaging relationships with funders. And in many sectors, the pressure is increasing. Some grant programs are shrinking or disappearing altogether. That means nonprofits must maximize every awarded dollar and prove they can manage funds responsibly. 

Strong grant expense tracking is not just about compliance. It’s about stewardship, building trust with funders, and giving boards and donors confidence that their contributions are making an impact. Here are the best practices nonprofit finance teams can follow to stay compliant, keep programs funded, and be audit-ready year-round. 

1. Segregate and Track Expenses by Grant 

The most important step in grant compliance is being able to quickly answer: How much of this grant have we spent, and on what? 

Best Practice: Set Up Separate Ledgers or Dimensions 

Your accounting system should let you track each grant as its own “bucket.” This could mean using separate ledgers, classes, projects, or dimensions for each funding source. Every expense, from payroll to supplies, should be coded to the correct grant. 

Practical tips: 

• Assign a unique identifier to each grant and require staff to use it when submitting expenses. 

• Code shared costs (like salaries, rent, utilities) based on a pre-approved allocation method that matches the grant agreement. 

• Review your chart of accounts to make sure it can support grant-level reporting without creating unnecessary complexity. 

Best Practice: Reconcile Monthly 

Grant spending shouldn’t only be reviewed at year-end. Perform a monthly reconciliation for every active grant: 

• Compare actual spending to the budgeted amount. 

• Investigate any discrepancies right away. 

• Adjust allocations proactively to avoid overspending or underspending. 

Regular review ensures surprises don’t surface during reporting deadlines or audits. 

Best Practice: Automate Where You Can 

Modern ERP and fund-accounting systems make this process much easier. Instead of spreadsheets or manual journal entries, use automation to: 

• Post approved expenses directly to the right grant. 

• Allocate shared costs based on predefined rules. 

• View real-time grant balances on dashboards. 

This reduces manual work and keeps reports accurate and audit-ready. 

2. Document Allowable and Unallowable Costs 

Every grant comes with its own rules for what is considered an allowable cost. Mixing allowable and unallowable costs is one of the fastest ways to create compliance issues. 

Best Practice: Create a Clear Reference Guide 

Work with your finance and program teams to create a short, plain-language document that explains: 

• Which types of costs are covered 

• Which are excluded 

• What documentation is required for each expense 

Distribute this guide to staff and approvers, and include it in onboarding for new hires working with grants. 

Best Practice: Require Documentation Up Front 

Use your expense system to require receipts, notes, or approvals at the time of submission. This keeps everything tied to the transaction and prevents last-minute scrambling when funders request proof. 

Best Practice: Train Approvers and Staff 

Spend time educating program managers and approvers so they know what to look for before approving expenses. Periodic training helps reinforce rules, especially when new grants are added with different requirements. 

3. Perform Regular Budget vs. Actual Reviews 

The earlier you catch spending issues, the easier they are to correct. 

Best Practice: Schedule Routine Reviews 

Set a schedule for budget vs. actual reviews — monthly or quarterly at a minimum. Include program managers in these reviews so they can see how their spending aligns with the grant budget. 

Best Practice: Use Dashboards for Visibility 

Give managers access to real-time budget data. Dashboards and reports should display: 

• Total grant amount 

• Amount spent to date 

• Remaining balance 

• Upcoming committed expenses 

This prevents overspending and helps managers make informed spending decisions. 

4. Prepare Grant-Specific Financial Reports 

Different funders require different reporting formats and frequencies. Having a process for producing grant-specific reports saves time and reduces errors. 

Best Practice: Standardize Where Possible 

Develop a standard reporting template that includes: 

• Expenses broken down by budget category 

• Variances between budgeted and actual spending 

• Notes explaining significant differences 

This keeps reporting consistent, even when multiple people are involved in preparing it. 

Best Practice: Automate Report Generation 

Use your accounting system to generate reports by grant with a single click. If possible, schedule automated reports to be sent to program managers or leadership monthly to keep everyone aligned. 

Best Practice: Include Narrative Context 

Numbers alone don’t tell the full story. Add short notes or narratives that explain variances — for example, why one category is higher or lower than expected. This provides funders with clarity and demonstrates strong financial management. 

5. Use Technology to Simplify Multi-Grant Management 

Many nonprofits juggle five or more active grants at the same time. Trying to manage these in spreadsheets or disconnected systems is time-consuming and error-prone. 

Best Practice: Choose an Integrated System 

Look for a finance platform that allows you to: 

• Tag expenses by grant at the time of submission 

• Post transactions directly to the general ledger with correct coding 

• Allocate shared costs automatically 

• Produce funder-ready reports instantly 

Sparkrock Example: With mySparkrock, staff can snap a receipt on their phone, tag it to the right grant, and submit it in seconds. Managers can review and approve those expenses from the mobile platform too. This keeps transactions flowing into the general ledger accurately and on time — without waiting for employees to get back to their desks. 

Best Practice: Consider Dashboards and BI Tools 

Tools like Power BI can make grant data visual and actionable. Dashboards allow program managers to see trends, drill into details, and answer questions quickly. Check out our Power BI reporting sampler. 

Thought Leadership Insight: 

Some nonprofits are even using AI-powered expense tools that flag unusual spending patterns, auto-categorize receipts, and alert managers to potential compliance issues — reducing risk while saving time. 

6. Link Expense Tracking to Transparency and Trust 

When expense tracking is accurate and detailed, it reassures auditors, funders, boards, and donors alike. 

• Transparent reporting shows that funds are being used responsibly. 

• It supports annual filings like Form 990 (U.S.) or T3010 (Canada). 

• It highlights how much of every dollar goes directly to programs rather than overhead. 

This kind of visibility strengthens relationships and can increase the likelihood of renewed or expanded funding. 

Conclusion: Build Confidence with Better Grant Tracking 

Grant funding is too valuable to risk with weak expense processes. By segregating expenses, documenting costs, reconciling budgets regularly, preparing grant-specific reports, and using the right finance technology built for nonprofits, organizations can protect funding, stay compliant, and strengthen trust with stakeholders. 

Ready to simplify grant expense tracking? Schedule a 15-minute chat with our team to see how Sparkrock helps nonprofits manage expenses by grant, stay audit-ready, and give funders the reporting they expect.