Nonprofit Grant Compliance IT: What Federal Funders Require From Your Technology

The IT Compliance Framework for Federal Grantees

Nonprofits receiving federal funding are subject to 2 CFR Part 200 — the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (commonly called "Uniform Guidance"). While not purely an IT regulation, its requirements have significant IT implications:

• Section 200.303 (Internal Controls): Requires nonprofits to establish and maintain effective internal control over the federal award — including controls over financial management systems
• Section 200.334 (Retention Requirements): Records related to federal awards must be retained for 3 years after the final expenditure report, or longer if litigation or audit is pending
• Section 200.337 (Access to Records): Federal agencies and auditors must have access to all relevant records — your IT systems must be capable of producing these records on demand
• Section 200.303(e) (Safeguarding PII): When programs collect PII from beneficiaries (which most social service, health, and education programs do), adequate safeguards must be in place

What Single Audit Covers From an IT Perspective

Nonprofits receiving $750,000 or more in federal awards in a fiscal year must undergo a Single Audit. IT-related findings in Single Audits typically involve:

• Access controls: Are only authorized staff able to access financial systems and grant records? Auditors look for terminated employees who still have active accounts, shared credentials, and excessive access privileges.
• Segregation of duties: No single person should have the ability to both authorize and record a transaction. This has IT implications — system permissions must enforce segregation, not just rely on staff following procedures.
• Financial system adequacy: Can your accounting system produce the reports required by the grant? Nonprofits using inadequate systems for grant financial management (like basic QuickBooks without fund accounting) risk audit findings.
• Data backup: Are grant records backed up and recoverable? Auditors have cited organizations for inadequate backup of financial records.
• PII protection: Organizations running federally funded programs collecting client data (names, addresses, income information, health information) must demonstrate adequate protection of that data.

Financial Systems That Support Grant Compliance

Basic QuickBooks or Wave is adequate for simple grant tracking, but nonprofits managing multiple federal grants typically need fund accounting software:

• Sage Intacct for Nonprofits: Cloud-based fund accounting with grant tracking, allocation, and reporting built in. Supports multi-dimensional reporting needed for cost allocation across multiple grants.
• Blackbaud Financial Edge NXT: Purpose-built nonprofit fund accounting with grant management features. More expensive but comprehensive for larger organizations.
• QuickBooks with proper fund accounting setup: Adequate for smaller organizations with straightforward grant structures, but requires careful class and location configuration and knowledgeable bookkeeping.
• MIP Fund Accounting (Community Brands): Mid-market fund accounting platform common in human services nonprofits.

Your IT provider should be able to support the infrastructure running these systems, but the accounting configuration requires a nonprofit accounting specialist.

Records Retention: The IT Requirements

The 3-year retention requirement (longer in some circumstances) has specific IT implications:

• Financial records must be retained in a format that remains accessible throughout the retention period — not just backed up to media that will be unreadable in 3 years
• Email correspondence related to the grant should be archived, not just retained in individual email accounts subject to deletion
• When cloud software is discontinued or a contract ends, you must export and retain grant records before losing access
• Program records (client files, service delivery documentation) may have their own retention requirements under the specific grant terms

PII Protection for Program Data

Programs serving vulnerable populations — housing, food assistance, mental health, workforce development — collect significant PII from clients: names, addresses, Social Security numbers, income information, health status. Federal grant terms increasingly include data security requirements:

• Encryption of PII at rest and in transit
• Role-based access limiting client data to staff with a legitimate program need
• Data breach notification procedures (and some grants require notifying the funding agency of a breach)
• Data retention and destruction procedures at program end

If your program uses a case management system (Apricot, Bonterra, Salesforce NPSP, ETO), your IT provider should verify it's configured to meet these requirements and that your staff understand access controls.

Preparing for a Federal Grant Audit

If your organization is subject to Single Audit or a program-specific audit, IT preparation includes:

• Run a user access review: every active account in financial systems should have a current employee attached to it
• Verify backup is working and recent: auditors may ask when the last backup test occurred
• Confirm records are exportable: can you produce grant expenditure records in a format auditors can review?
• Document your data security policy: a written policy covering access controls, encryption, and incident response demonstrates management commitment

Frequently Asked Questions

Does a state government grant have the same IT requirements as a federal grant?

State grants that involve federal "pass-through" funding (where the state received the money from a federal agency and passes it to nonprofits) are subject to the same 2 CFR Part 200 requirements. Direct state grants vary by state — some states have adopted uniform guidance equivalents, others have their own requirements. Check your grant agreement for the applicable standards.

What happens if we receive a finding related to IT controls in a Single Audit?

Audit findings require a written corrective action plan and may trigger enhanced monitoring by the federal agency. In serious cases (particularly around financial management systems), findings can require repayment of questioned costs. Repeated findings or failure to implement corrective actions can result in loss of grant eligibility.

Do we need a separate system for each federal grant, or can we use one system for all grants?

A single accounting system with proper fund accounting configuration can manage multiple grants simultaneously — and this is the preferred approach. The key is having a system that can produce grant-specific reports showing income and expenses by grant, with appropriate cost allocation for shared expenses. Project or class tracking in QuickBooks, or fund accounting software, handles this.