Can You Spend Grant Money on Anything?

Grant money provides financial awards to support specific projects or initiatives, differing significantly from personal funds. These awards come with predefined conditions and expectations from the granting organization. Understanding that grant funds are not “free money” is crucial, as their use is always tied directly to the grant’s stated objectives. Recipients must adhere to strict guidelines to ensure the funds are utilized appropriately and for their intended purpose.

Allowable Expenses

Allowable expenses represent costs that can be legitimately charged to a grant, provided they meet certain criteria. These costs must be necessary for the performance of the grant, reasonable in amount, directly allocable to the grant project, and treated consistently within an organization’s accounting practices. Federal grants, for instance, generally follow the principles outlined in 2 CFR Part 200, which defines these criteria for federal awards.

Personnel costs are a common category of allowable expenses, covering salaries, wages, and benefits for staff directly working on the grant-funded project. Documentation, such as time and effort reports and payroll records, must demonstrate that compensation directly contributes to the grant’s objectives.

Travel expenses related to grant activities are also generally allowable, encompassing transportation, lodging, subsistence, and other associated items incurred by employees on official business. Reimbursement for transportation typically adheres to the most economical mode, and lodging and meal costs often follow an organization’s established travel policy or federal per diem rates.

Equipment purchases are permissible if the items are specifically needed for the project and meet certain thresholds. Equipment is typically defined as tangible personal property with a useful life of more than one year and an acquisition cost often exceeding $5,000. Prior approval from the awarding agency is frequently required for purchases exceeding this threshold. “Special purpose” equipment directly supporting the project’s objectives is generally allowable, while “general purpose” equipment usually requires prior approval.

Supplies, defined as consumable items directly used by the project, are another common allowable expense. This includes materials, project-specific software, and other items consumed during the grant period. Contractual services, which involve payments to third parties for specific project tasks, are also allowable when they directly support the grant’s goals and are documented with agreements, invoices, and proof of payment.

Indirect costs, often referred to as overhead or administrative costs, cover expenses not directly tied to a specific project but necessary for the organization’s overall operation, such as rent, utilities, and general administrative support. These costs are typically calculated as a percentage of direct costs, known as the indirect cost rate. For federal funds, a common de minimis indirect cost rate is 10% of Modified Total Direct Costs (MTDC) for organizations without a federally negotiated rate.

Unallowable Expenses

Certain types of expenditures are generally prohibited when using grant funds, regardless of how beneficial they might seem to an organization. These restrictions ensure that public funds are used for their intended purpose and prevent misuse.

Entertainment costs are broadly unallowable, including expenses for amusement, social activities, tickets to events, lavish meals, and alcoholic beverages. While some exceptions exist for programmatic purposes, these usually require prior approval.

Lobbying and political activities are also strictly prohibited uses of grant funds. This includes attempts to influence legislation, elections, or certain activities aimed at obtaining grants or contracts. Similarly, general fundraising costs, such as those for financial campaigns, endowment drives, or soliciting gifts, are typically unallowable, as these activities are not directly related to the grant’s program objectives.

Costs classified as bad debts or contingency funds are generally unallowable. Fines and penalties resulting from violations of federal, state, or local laws and regulations are also prohibited expenditures.

Certain capital expenditures, particularly those not directly approved or unrelated to the grant project, are unallowable. Expenses incurred before the grant start date or after the end date are also typically unallowable unless specifically approved. Costs for goods or services for personal use of employees are unallowable.

Documentation and Reporting

Meticulous record-keeping is fundamental to managing grant funds responsibly and demonstrating accountability. Recipients must maintain comprehensive documentation for all expenditures, including invoices, receipts, payroll records, and contracts. All expenses must be supported by dated, original documentation, and approvals from authorized personnel are typically required.

Documentation should clearly show that expenses are necessary, reasonable, and allowable for the specific project, aligning with generally accepted accounting principles. Organizations are expected to have internal controls in place to ensure proper authorization and tracking of all expenditures.

Grant recipients are also subject to various reporting requirements, typically including both financial and programmatic reports. Financial reports detail how funds were spent, while programmatic reports describe achievements related to the grant’s objectives.

For federal awards, organizations expending $1 million or more during their fiscal year are generally subject to a single audit. This comprehensive review verifies financial statements, internal controls, and compliance with federal regulations and grant terms. Failure to comply with grant terms and reporting requirements can lead to serious consequences, including repayment of misused funds, financial penalties, and potential ineligibility for future funding.