Federal funding can be a powerful resource for nonprofits, helping you expand programs, reach more people, and build long-term impact. But with that funding comes responsibility. Federal dollars must be spent according to specific rules known as federal award requirements.
Understanding these requirements is key to protecting your funding, avoiding audit findings, and showing funders that your organization is a trustworthy steward of federal resources.
What Are Federal Award Requirements?
Federal award requirements are the conditions and standards you agree to follow when accepting federal funds. They cover how the money can be spent, how it must be tracked, and how compliance will be reviewed.
Their purpose is simple: to make sure federal dollars are used properly, consistently, and transparently across all types of organizations.
Who Must Follow These Requirements?
If your organization receives federal funding, these rules apply to you. That includes a wide range of entities such as states and local governments, nonprofits, tribal organizations, higher education institutions, and even subrecipients (organizations that receive federal funds passed through another entity). In other words, whether your nonprofit is receiving funds directly from a federal agency or indirectly through a pass-through partner, federal award requirements still apply.
Three Main Categories of Federal Award Requirements
Federal award requirements fall into three broad categories. Each one addresses a different part of managing federal funds.
Administrative Requirements
The first category is administrative requirements, which are the rules for how you manage federal awards day-to-day. These include things like documenting internal controls, keeping accurate records, and making sure your financial systems can properly track grant activity.
Cost Principles
The second category is cost principles, which outline which expenses are allowable and can be charged to the grant. For example, direct costs like program salaries or travel related to the grant are generally allowable, along with certain indirect costs such as overhead. On the other hand, some expenses, like entertainment, are not permitted.
Audit Requirements
The third category is audit requirements, which set the standards for external audits when an organization spends a certain amount of federal funds. Nonprofits that spend $1,000,000 or more in federal funding during a fiscal year are required to have a Single Audit. This process evaluates both the financial statements and compliance with federal requirements.
What Nonprofit Leaders Need to Know
For nonprofit executives, federal award requirements aren’t just technical details for the finance team; they are core to your organization’s sustainability and credibility. Leaders should understand that accepting federal funds means committing to rules that govern how money is spent, tracked, and reported. This includes ensuring your organization has the right systems, staff training, and oversight in place.
Why does this matter at the leadership level? Because the risks of noncompliance go beyond audit findings. They can affect your nonprofit’s reputation, eligibility for future funding, and even the ability to carry out your mission. By staying aware of federal award requirements, leaders can set the tone for accountability, ask the right questions of their teams, and make informed decisions that protect both the funding and the mission it supports.
Managing federal funding requires confidence in your systems and practices. Our Single Audit Advisory Services support nonprofit leaders by clarifying compliance obligations, strengthening internal processes, and positioning your organization for long-term funding success. Reach out to learn more.
