Organizational leaders receiving federal funding should be prepared to quickly respond to targeted reviews of their accounting practices for any federal grant. Early in 2025, the Computer Science Teachers Association (CSTA) was selected for a standard targeted review, which is a practice conducted by the federal agency to confirm overall compliance with award conditions, prevent financial mismanagement, and ensure strong internal controls. CSTA manages a federal grant portfolio that exceeds $20 million in total award revenue and has a federal grants and compliance manager on staff. This review highlighted unique accounting challenges and was a good reminder of not only the importance of sound practices regarding the expenditure of federal funds but also the criticality of collaboration between finance and program staff. To that end, below are some common best practices for those who are growing their federal grant portfolio or looking to obtain federal funding.

Uniform Guidance Awareness

Organizations receiving federal funding should be fully aware of the federal financial management requirements contained in 2 CFR part 200 (the Uniform Guidance) and have consistent processes for allocating personnel costs, direct costs, and indirect costs to federal awards. In addition, there should be strong accountability measures that ensure monthly account reconciliations and the review of the allowability of expenditures between finance and program staff.

Maintain Regulatory Compliance

Throughout Grant Lifecycle Finance staff and program managers must ensure all grant financial activities fully comply with the Uniform Guidance, agency-specific requirements (e.g., NSF PAPPG), federal award terms, and applicable civil rights and equal opportunity laws. This includes the regular monitoring of updates to federal regulations and integration into internal controls and procedures. Often, this means having a subject matter expert on staff or at an accounting firm.

Maintain a Monthly Cost Review and Verification Process

Associations should establish and maintain a monthly review process of all grant-charged expenses to confirm allowability, allocability, and reasonableness. Leadership plays a critical role in setting and enforcing practices that promptly identify unallowable costs and reassign charges to appropriate non-federal funding sources. This typically involves multiple levels of review prior to incurring expenses, while coding expenses, and then again during final reconciliation. Ongoing, clear, and functional communication between finance and program staff is critical to this process; this will not happen unless leadership is aware of potential bottlenecks and helps both sides reserve the time needed to navigate.

If departmental cost transfers are needed, ensure they are timely, consistent, and well documented. Departmental cost transfers to federal programs should be submitted within a defined timeframe (e.g., 30 to 45 days) and supported by a clear and complete justification and adequate documentation. It is best practice to use a standardized workflow (e.g., through an internal project management system) to ensure transparency, consistency, and audit readiness. While this is standard for accounting and finance staff, additional training is often needed for program managers.

Apply Federal Cost Principles Consistently and Document Decisions

Federal grantees should evaluate all costs using the federal standards of reasonableness and allowability. Decisions should reflect prudent judgment, alignment with the project scope, market comparability, and consistency with organizational practices, with clear documentation supporting each determination.

When GAAP and Federal Grant Rules Conflict

While this review continued to highlight standard best practices and known expectations, CSTA’s recent targeted review isolated a set of transactions that were unusual for the organization and clarified how to best navigate the accompanying accounting challenges. For those on the program end, this is a rare glimpse into the often-hidden world of the mechanisms needed to ensure external work can thrive.

Two standards, one transaction. CSTA received federal funding for significant program enhancements based on software changes and needed guidance to rework its entries aligned with Uniform Guidance and the U.S. Generally Accepted Accounting Principles (GAAP). CSTA encountered a situation where the requirement to fully expense costs in accordance with the Uniform Guidance seemed to be at odds with GAAP expectations for depreciating software over the life of a grant. Federal grant rules require expenses to be recorded and reimbursed in full at the time they are incurred. However, leaving the transaction recorded this way on the statement of activities conflicts with GAAP’s expectation that software costs be depreciated over their useful lives.

Auditor approved solutions. New or unusual transactions can result in flags that invite targeted reviews. After consultation with an auditor, CSTA determined that the use of a simple compensating entry would allow us to prepare accurate federal program reports while also maintaining the ability to produce GAAP-compliant financial statements. To achieve this, the organization records any software costs that must be amortized in accordance with GAAP to the appropriate federal expense account. A corresponding entry is also made in a management and general account to ensure that the gross software cost is reflected in the federal project cost report while being excluded from the organization’s statement of activities. As a result, the organization can recognize the software as a fixed asset on its statement of financial position and amortize it over the appropriate period, as required by GAAP. By adopting this practice, the organization ensures compliance with both GAAP and the Uniform Guidance.

In the end, CSTA was able to launch a large project based on a new software project and ensure its accounting practices were in line with the expectations of the federal government and its auditing firm. Throughout the practice, the organization worked to implement updated review systems and ensure finance and program staff were all on the same page and had adequate time for training.

The proactive attention by leadership to compliance expectations is key to minimizing risk. Moreover, leadership must reinforce proper internal controls, quick and transparent communication, and functional collaboration between finance and program staff to ensure success. Navigating federal grant compliance requires vigilance not only with common, established best practices but also with uncommon, complex accounting challenges that can arise when federal regulations intersect with other financial standards like GAAP. Maintaining robust internal controls and ensuring proper documentation is not enough – leadership must also address any barriers to collaboration between finance and program staff. Furthermore, organizations must be prepared to consult with auditors and develop auditable, compensating solutions (like the one described for capitalizing fixed assets) to ensure full compliance across all applicable financial and regulatory frameworks.