How do I track and document spending against a restricted grant or award so I can report back to the funder and survive their review?

Which rules set the conditions on your award?

Where the money came from decides what you document against:

If you cannot tell whether a grant contains federal money, ask the funder; if it does, the pass-through row applies.

The Office of Management and Budget's 2 CFR 200.101 applies subparts A through F of part 200 to federal agencies that make federal awards to non-federal entities, and says federal award terms, including part 200, flow down to subawards unless a section of part 200 or the award's terms say otherwise. Agencies may apply subparts A through E to for-profit organizations as permitted in agency regulations or program statutes, so a business should check which parts its award adopts. Also note whether the restriction limits purpose, period or both; a period limit adds a date test to every charge.

How do you keep one award separate inside your books?

2 CFR 200.302 requires a federal recipient's financial management system to allow tracking expenditures to establish that funds were used in accordance with federal statutes, regulations and the award's terms, with records that sufficiently identify the amount, source and expenditure of federal funds, all supported by source documentation. Keep that separation in posted entries, not a spreadsheet beside the books, or the report cannot be re-derived from the ledger.

Three mechanisms work inside one set of books:

• A tracking dimension. A class, tag or project code on ordinary accounts is quickest, but an untagged line silently drops out of the award listing, so make the code required. If your software cannot require it, list untagged lines in the accounts the award uses before each close and code or clear every one.
• Dedicated accounts. Award-specific accounts make the account detail the listing, but the chart grows with every award.
• A separate ledger. A separate company file isolates the award but duplicates records and needs inter-entity entries for shared costs.

A business uses the same mechanisms in an ordinary chart of accounts. The general choice between accounts and tags is a separate question; the award test is whether posted entries alone list every charge with its date, payee, amount, budget line and document reference, and every receipt, draw and interest amount, so the unspent balance comes from the ledger. For a federal award, also store with the code the identifiers 2 CFR 200.302 lists, as applicable: the Assistance Listings title and number, the federal award identification number, the year issued, and the name of the federal agency or pass-through entity. 2 CFR 200.302 also requires the records to identify authorizations, financial obligations, unobligated balances, income and interest.

How do you test a cost before it is charged to the award?

Test each cost before it is coded. For a federal award, 2 CFR 200.403 says that, except where a statute authorizes otherwise, a cost is allowable only if it meets all of these criteria:

• It is necessary and reasonable for the award and allocable to it.
• It conforms to any limits or exclusions on type or amount in the cost principles or the award.
• It follows policies and procedures applied uniformly to federally financed and other activities.
• It is treated consistently; for example, it is not charged directly if a cost for the same purpose in like circumstances was allocated to the award as indirect.
• It is determined under generally accepted accounting principles.
• It is not counted as a cost or cost sharing on another federally financed program in the current or a prior period.
• It is adequately documented.
• It is incurred during the approved budget period, except administrative closeout costs, which may be incurred until the final report's due date, must be liquidated by then and go to the final budget period unless the agency specifies otherwise.

Then check the award: does an approved budget line cover the cost with room left, and does any clause exclude it? For a private award, the agreement's own terms are the test: its purpose and period restrictions, budget lines, exclusions and any other condition it sets. Tax deductibility is not the test; a deductible expense can fail all of them.

2 CFR 200.302 requires written procedures for determining allowability under the cost principles and the award's terms. Name in them who decides, someone who knows the agreement, so the person keying a bill is not the only judge; in a one-person office, someone outside the bookkeeping, such as a board treasurer, owner or outside accountant, reviews the decisions monthly. File an eligibility note with each bill: budget line, date check, how the cost serves the award, any allocation, approver and date.

How do you split a cost that only partly serves the award?

2 CFR 200.405 makes a cost allocable to a federal award when it is assignable in accordance with the relative benefits received: it is incurred specifically for the award; it benefits the award and other work and can be distributed in proportions approximated using reasonable methods; or it is necessary to overall operations and assignable in part to the award under the cost principles. Where proportions can be determined without undue effort or cost, allocation must follow proportional benefit; where the interrelationship of the work prevents that, any reasonable documented basis may be used.

The section also gives every activity that benefits from indirect costs, including unallowable activities and donated services, an appropriate allocation of them, so leaving unfunded activities out of the base overstates the award's share. It bars charging a cost allocable to one federal award to other federal awards, for example to overcome fund deficiencies or avoid restrictions, but permits shifting costs allowable under two or more federal awards as statutes, regulations or award terms allow.

On a federal award, read its indirect cost terms before allocating an indirect pool; 2 CFR 200.403 requires costs to conform to the award's limits on type or amount. Record the method when the first allocation posts: cost pool, base, when the base was measured, and the percentages, kept with each period's entry. A percentage picked at year end to absorb a leftover budget line has no contemporaneous basis and reads as budget-driven.

What evidence does a funder's reviewer expect beyond a receipt?

The IRS page on what records to keep says supporting documents for a business expense should identify the payee, the amount paid, proof of payment and the date incurred, and include a description of the item or service that shows the amount was for a business expense; general expense substantiation is a separate question. A funder's reviewer asks whether the cost belonged to this award (approval, budget line, date within the award period, program use), and under 2 CFR 200.1 an auditor's questioned cost includes an amount that lacked adequate documentation to support compliance at the time of the audit.

For each award charge, keep the invoice or payroll record, proof of payment, purchase approval, eligibility note, a record that the goods or services reached the program, and any allocation worksheet or time record, all referenced in the entry memo and attached to the posted transaction. Keep an award index (agreement, budget revisions, reports, reconciliations, allocation methods, correction memos) that a successor can follow without the original preparer.

2 CFR 200.334 requires federal recipients and subrecipients to retain all award records, including financial records, supporting documentation and statistical records, for three years from submitting the final financial report or, for awards renewed quarterly or annually, the quarterly or annual financial report. It permits only these other retention requirements:

• Records stay until litigation, claims or audit findings started within the three years are resolved and final action taken.
• A written notice from the federal agency, pass-through entity, a cognizant agency for audit or indirect costs, or an oversight agency for audit extends the period.
• Property and equipment records are kept three years after final disposition.
• Where the award requires reporting program income earned after the period of performance, those records are kept three years from the end of the fiscal year it is earned.
• Records for indirect cost rates, cost allocation plans and similar rate computations run three years from submission if they must be submitted for negotiation, otherwise from the end of the fiscal year or other period they cover.

A private award's agreement sets its own period.

How do you document staff time charged to the award?

2 CFR 200.430 requires salary and wage charges to federal awards to rest on records that accurately reflect the work performed: backed by internal control, part of your official records, reflecting all of the employee's compensated activity (not above 100 percent) and supporting the split of pay across awards and other activities. Budget estimates alone do not qualify; they may carry interim charges only if they reasonably approximate the work, significant changes are entered promptly and periodic after-the-fact reviews adjust the charge. For nonexempt employees, 2 CFR 200.430 also requires records of the total hours worked each day.

Reconcile effort to payroll each pay period, employee by employee: the award share on the employee's approved time record for that period (for interim charges from estimates, the estimated share until the after-the-fact review adjusts it) times posted pay should equal the amount coded to the award, which a payroll-total check cannot confirm.

How do you watch budget against actual before a deadline?

2 CFR 200.302 requires a comparison of expenditures with budget amounts for each federal award. Build it from the award code by budget line (approved budget, award-to-date actual, commitments, remaining balance, share of the period elapsed) and review it monthly:

• Overspending. 2 CFR 200.308 requires reporting deviations from the approved budget, scope or objectives, and requesting prior approval for the budget and program revisions that section lists, so ask before a line runs over.
• Underspending. 2 CFR 200.403 requires costs other than administrative closeout costs to be incurred during the approved budget period, though the agency may, at its discretion, waive prior approval to carry unobligated balances forward, so raise a slow burn early. At closeout, 2 CFR 200.344 also requires promptly refunding unobligated funds paid to you that you are not authorized to keep, so also compare cash received with costs incurred.

Build the calendar on reporting dates. 2 CFR 200.328 requires recipients to submit financial reports as the award requires, annual ones within 90 calendar days after the reporting period and quarterly or semiannual ones within 30, unless the agency or pass-through entity extends a due date on justification. 2 CFR 200.344 requires a recipient to submit all required reports and liquidate all obligations within 120 calendar days after the period of performance ends; a subrecipient does both for the pass-through entity within 90 calendar days of the subaward's end or an earlier agreed date; extensions may be approved when justified. Without a final indirect cost rate for the period of performance, a recipient must still file the final financial report on time under 2 CFR 200.344 and file a revised one once all applicable rates are final; calendar that second filing.

How do you keep an award-to-date view across your own year ends?

Keep each award's code alive across year-end closes, run its reports from the award's start date, and keep a roll-forward tied to saved ledger reports: ledger award-to-date at the last report plus this period's posted activity (corrections within it, not added again) equals ledger award-to-date now, and that less reconciling items open now equals the figure reported now. A close that strips the code forces hand-rebuilt totals that drift from the ledger.

First confirm the award is a contribution: under the Financial Accounting Standards Board's (FASB) Accounting Standards Update (ASU) 2018-08, if the funder receives commensurate value in return or pays on behalf of your existing exchange with an identified customer, other guidance such as Topic 606 applies and neither nonprofit row below does.

The unspent balance is presented by recipient and award:

How do you tie each report to the ledger?

Before submitting, prove every reported figure from posted entries:

1. Run the award-code listing from the award's start to the period end, by budget line.
2. Set each reported figure beside its ledger total.
3. Explain each difference as basis, timing, a posted correction or an error, and fix errors with new entries.
4. File the reconciliation, with each reconciling item's support, preparer and reviewer, alongside the submitted report.

2 CFR 200.302 requires accurate, current and complete disclosure of each award's financial results. Where a federal agency or pass-through entity requires accrual reporting from a recipient keeping other books, the section says the recipient must not be required to set up accrual accounting and may develop accrual data from an analysis of documentation on hand; record the basis and conversion.

If the award reimburses costs already incurred, each draw request is the funder's form, the award-code listing of costs claimed and the support the agreement asks for. Book a receivable per claim and clear it on payment, reconciling posted costs to the request and the request to cash received, with each difference explained. When reimbursement is used, 2 CFR 200.305 requires the federal agency or pass-through entity to pay within 30 calendar days of receiving the request unless it reasonably believes the request improper.

What does one charge look like from invoice to report?

A nonprofit holds a two-year federal job-training award starting 1 July 2025, coded AWD-24-017, with a Supplies line of 12,000.00. On 3 March 2026 a printer invoices 2,400.00 for participant workbooks. The charge moves through five steps:

1. Document. The invoice, purchase approval and a delivery slip signed by the program coordinator go into the award file.
2. Eligibility. Note EN-0312 records the Supplies line, a date inside the budget period, use by participants only and no excluding clause; the program director approves it on 5 March.
3. Posting. The bill posts as below, with the award code, memo "Inv 4471; EN-0312" and files attached.
4. Budget against actual. Supplies spent rises from 6,150.00 to 8,550.00, leaving 3,450.00: 71 percent used a third of the way through, so the manager confirms the remaining needs fit or seeks a revision first.
5. Report. The award-to-date ledger total at 31 March is 61,780.00; the funder wants cash-basis figures and the bill is unpaid, so the reconciliation deducts it and 59,380.00 is reported.

What do you do when a charge turns out to be ineligible?

2 CFR 200.1 defines a questioned cost as an amount expended or received from a federal award that, in the auditor's judgment, is noncompliant or suspected noncompliant with federal statutes, regulations or the award's terms, lacked adequate documentation to support compliance at the time of the audit, or appeared unreasonable and unlike what a prudent person would do; the questioned amount is calculated as if an undocumented portion were confirmed noncompliant. A disallowed cost is a charge the federal agency or pass-through entity determines to be unallowable under federal statutes, regulations, part 200 or the award's terms.

Never delete, void or overwrite the original entry. Post a new entry, dated when made, moving the cost off the award code to general operations, which absorb it, citing a correction memo: what was charged, why it does not belong, who found it, who approved the move, whether it was in a submitted report or draw, and what the funder was told. If the original sits in a closed period, correct it in the current one and carry a reconciling item.

What else you do depends on timing:

For federal awards, three further rules can apply, each only on its own trigger:

• Refunds. Once the awarding agency, the cognizant agency for indirect costs or the pass-through entity has determined a cost unallowable, 2 CFR 200.410 requires payments for it to be refunded with interest, under the determining body's instructions unless a federal statute or regulation directs otherwise. A cost you find yourself before any determination follows the timing table instead.
• Disclosure. 2 CFR 200.113 requires an applicant, recipient or subrecipient to disclose promptly, in writing, to the federal agency, its Office of Inspector General and any pass-through entity, whenever in connection with the award, including its activities and subawards, it has credible evidence of a violation of federal criminal law involving fraud, conflict of interest, bribery or gratuity violations found in Title 18 of the United States Code, or of the civil False Claims Act; failing to disclose can bring the remedies in 2 CFR 200.339.
• Audit follow-up. If your organization is a non-federal entity that must have a Single Audit, 2 CFR 200.511 makes it responsible for follow-up and corrective action on all audit findings, including a corrective action plan for current-year findings; 2 CFR 200.101 does not apply this to a business.

Before sending any refund or return of funds, confirm the payment instructions and amount through a route you found yourself: a number on the agency's or pass-through entity's own website that you looked up, or one given to you in person, never a number, link or meeting that reached you through the correspondence carrying the instructions, earlier or later in it. Where staffing allows, someone other than the person who entered the payment details makes that confirmation; if you work alone, you make it yourself before release and note whom you reached on what number. If you cannot confirm, the payment waits. Match the amount to the determination cost by cost, not only in total.

For example, on 18 April 2026 a review of award AWD-25-003 finds a 600.00 board-meeting catering bill posted to it on 2 February that no budget line covers and that the program director confirms did not serve the program; memo CM-007 records the finding. The original entry stays as posted:

A new entry dated 18 April moves the cost to general operations:

The award code now shows the original charge exactly as posted and the 18 April reversal citing CM-007; CM-007 names the original entry's date, amount and reference, so the two are read together without changing the original.

If income was already recognized against the 600.00, reverse it too, dated 18 April and citing CM-007, because under FASB's ASU 2018-08 and ASU 2016-14 an ineligible cost neither earns conditional revenue nor satisfies a restriction:

If the claim was already paid, credit a refund liability to the funder instead, and follow its instructions.

The first-quarter report's reconciliation deducts the 600.00 from the 31 March ledger total; the second-quarter ledger total already excludes it, since the reversal falls in that quarter, so that reconciling item is not carried forward.