Like eating broccoli, bike helmets, changing air filters, and replacing aged smoke detector batteries, risk management for grant-funded nonprofits and local governments is not the most glamorous part of the job. It’s not the thrilling joy of an awards letter, a ribbon cutting on a new park, or a brand-new computer lab for a growing afterschool program.
Risk management is often overlooked, but it’s critical to ensuring that grant funds are used correctly. Sound risk management can be the key to successfully running programs and projects without facing financial or reputational damage.
Funders expect their resources to be appropriately managed, and regulatory bodies require compliance with various laws and regulations. Without proper risk management:
• Organizations risk misusing funds and facing repayment or canceling of grant funding
• Compliance failures result in audits or legal issues
• Operational disruptions can derail program progress
• Reputational damage can sink future funding opportunities
For nonprofits and local agencies struggling with limited resources, these risks can be devastating and threaten sustainability and survival.
Most risks to successfully fulfilling grant agreements fall into four main categories: money management, reporting and tracking, lack of institutional knowledge, and mission drift. The following bullet points outline the primary pitfalls when risk management protocols and procedures are ineffective or nonexistent.
• Budget overruns or inappropriate expenditures
• Inadequate financial controls
• Cash flow challenges
• Cost-sharing/matching requirements unmet leading to the cancellation of future reimbursements from the funding agency and risking future grant funding.
• Failure to meet reporting deadlines
• Inadequate documentation of activities and expenses
• Non-adherence to grant terms and conditions
• Regulatory violations (federal, state, local)
• Staff turnover leading to knowledge gaps
• Project delays affecting deliverables
• Inadequate systems for tracking outcomes
• Partner/vendor performance issues
• Mission drift while pursuing funding
• Overreliance on single funding sources
• Accepting grants with unsustainable requirements
In these uncertain times, devoting limited staff resources to establishing or augmenting risk management policies may feel like the last thing needed. But strong stewardship of grants currently underway will help secure future funding. Here are some tips for getting the process started and sharing the workload.
PRO TIP: Even if you aren’t a C-Suite leader with your organization, you can be a thought leader when it comes to what will keep the grant funds flowing, and that’s essential knowledge no matter what your job title is.
• Conduct a comprehensive risk assessment at the pre-application stage
• Create a risk register that identifies potential risks for each grant
• Rate risks based on likelihood and potential impact
• Assign risk ownership to specific staff members
• Separate essential duties for financial activities
• Establish clear procedures for grant expenditure approvals
• Conduct regular reconciliations of grant accounts
• Develop or review policies for procurement. Be sure to use the same policies for grant-funded procurement (unless the grant agreement stipulates procurement procedures that are stricter than your agency’s).
• Create a compliance calendar with all deadlines and requirements
• Develop checklists for documentation requirements by grant
• Establish procedures for regular internal monitoring
• Schedule regular compliance training for staff
• Standardize documentation practices across all grants whenever possible
• Implement a centralized document management system
• Establish quality control procedures for all submissions
• Maintain audit-ready files at all times
• Develop succession plans for key grant management positions
• Create procedures for handling unexpected budget adjustments
• Establish communication protocols for reporting problems to funders
• Build flexibility into implementation timelines such as recruiting and hiring new staff
• Identify backup resources for critical functions
• Update risk assessments when new grants are received
• Perform an annual comprehensive review of all risk management policies
• Solicit feedback from staff involved in grant management
Grant professionals can play vital roles in macro and micro levels of risk management. For instance, you can document lessons learned after each grant cycle for internal purposes and the “lessons learned” sections of grant reporting. Track near-misses where problems were narrowly avoided.
• Recognize and reward proactive risk management
• Ensure leadership models a risk-aware approach
• Foster an environment where staff feel safe reporting potential issues
Effective risk management isn’t an administrative burden; it’s a strategic advantage that enhances an organization’s ability to fulfill its mission through grant funding. By identifying potential issues before they arise and having systems to address them, nonprofits and local government agencies can ensure they deliver on their promises to funders and the communities they serve.
The most successful organizations don’t view risk management as a one-time exercise but as an ongoing process integral to their grant management approach. By integrating these practices into your organization’s daily operations, you can build resilience and enhance your reputation as a reliable steward of grant resources.
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