Department: Finance & Accounting / Grants
Process Owner: Finance Director
Last Updated: January 2026
1. Overview and Purpose
Objective:
To establish procedures for monthly grant reconciliation and reporting, including reviewing grant spending activity, ensuring payroll allocations are correctly applied, reconciling billable costs to grant agreements, and preparing supporting documentation for grant submissions. This SOP ensures accuracy in grant billing, compliance with restrictions, and audit readiness.
2. Scope
This SOP applies to all grant-funded activities, including:
- Monthly reconciliation of grant payroll and non-payroll expenses
- Updating grant reporting schedules
- Confirming alignment of payroll allocations with the Master Allocation File
- Identifying sensitive or unallowable costs charged to grants
- Preparing documentation for grant funders or auditors
3. Step-by-Step Process
3.1 Review Monthly Grant Actuals in Accounting System
- Run profit and loss reports by grant or class
- Compare actual expenses to grant budgets and allowable cost categories
- Identify variances, overspending risk, or costs outside the grant's approved scope
- Export results for reconciliation
Reviewer / Back-up: Accounting Coordinator
3.2 Validate Payroll Allocations Against Master Allocation File
Payroll is the largest source of grant spending. This step ensures accuracy:
Compare Actual Time to Expected Allocations
- Open the Master Allocation File, which defines each employee's expected grant percentage allocations
- Compare payroll system allocation results to:
- Expected grant split
- Actual timecard entries
- Program activity during the month
Identify Exceptions and Variances
- Flag employees who charged unusual or unexpected hours to grants
- Confirm variances are operationally valid (e.g., shifted effort due to programming changes)
- Follow up with program managers if unclear
Note: This review is typically performed manually by comparing payroll reports to the Master Allocation File. Organizations with advanced reporting capabilities may be able to configure automated variance reports.
Confirm Eligibility of Time Types (Sensitive Time Types)
Certain time types cannot be billed to grants unless specific criteria are met.
- Review payroll allocation detail for sensitive codes
- Remove or adjust charges that violate grant rules
- Document adjustments for the grant file
Reviewer / Back-up: Senior Accountant
3.3 Reconcile Grant-Related Expenses
- Review non-payroll expenses (accounts payable, credit card, auto-debits)
- Ensure expenses:
- Are allowable under grant terms
- Have receipts and support in document management system
- Are tied to correct class/customer in accounting system
- Identify missing or miscoded items and post corrections as needed
Reviewer / Back-up: Accounting Coordinator
3.4 Prepare Grant Reconciliation Workbook
- Document:
- Total grant-to-date expenses
- Current month allowable expenses
- Payroll allocation breakdown
- Sensitive time adjustments
- Non-payroll cost adjustments
- Include variance commentary explaining unusual fluctuations or corrections
- Save workbook to Document Management System → Grants → Reconciliations → [Grant Name] → [Month-Year]
Reviewer / Back-up: Finance Director
3.5 Prepare Grant Reporting Package
Depending on funder requirements, reporting may include:
- Budget-to-actual summary
- Payroll allocation detail
- Receipts and proof of payment
- Grant-specific narratives
- Support for sensitive time type exclusions
- Any reclass adjustments for unallowable charges
Package is reviewed internally before submission.
Reviewer / Back-up: Controller
3.6 Provide Documentation for Audits or Reviews
- Prepare support upon request from funders or external auditors
- Common requests include:
- Payroll breakdowns for specific employees
- Allocation methodology (Master Allocation File)
- Sensitive time policy exception documentation
- Receipts / invoices for non-payroll costs
- Store all provided documentation in Document Management System → Grants → Audit Support
Reviewer / Back-up: Accounting Coordinator
4. Key Roles and Responsibilities
| Role | Responsibilities |
|---|---|
| Accounting Coordinator | Reconcile expenses, maintain documentation, support payroll review |
| Senior Accountant | Validate payroll allocations, sensitive-time reviews, reconciliation summaries |
| Finance Director | Approves reconciliations and reporting, ensures compliance |
| Controller | Reviews complex issues, approves grant submissions |
| Program Managers / Supervisors | Validate operational accuracy of time allocations and expenses |
5. Key Files and Systems
- Master Allocation File (Excel) – Expected grant allocations by employee
- Payroll System – Payroll and time tracking
- Accounting System – General ledger reporting and expense detail
- Grant Budget Files – Budget-to-actual basis
- Grant Agreements – Cost eligibility rules
- Grant Summary Sheet (optional) – Consolidated reference of key eligibility rules across grants
- Document Management System – Grants Folders – Reconciliation and reporting archive
6. Exceptions and Special Cases
- Incorrect Time Type Used (Sensitive Time): Must be reclassified before billing
- Employee Role Changes: Update the Master Allocation File immediately
- Grant Period Overlap: Costs incurred outside allowed period must be excluded
- Split Allocations Over Many Grants: Requires special review and documentation
7. Risks and Controls Summary
| Process Step | Risk | Control |
|---|---|---|
| 3.1 Review Monthly Grant Actuals | Incorrect grant reporting may lead to disallowed costs or loss of funding | Monthly review ties spend to approved budget and grant agreement |
| 3.2 Validate Payroll Allocations | Charging unallowable payroll hours creates compliance exposure and potential repayment | Allocation review compares Master Allocation expectations to timecard activity and grant rules |
| 3.3 Reconcile Grant-Related Expenses | Miscoded expenses may distort reporting or cause billings to be incomplete or inaccurate | Monthly reconciliation covers all expense types, not payroll alone |
| 3.4 Prepare Grant Reconciliation Workbook | Missing or incomplete reconciliation weakens grant reporting and audits | Workbook ties directly to general ledger, payroll summaries, and allocation file |
| 3.5 Prepare Grant Reporting Package | Submitting unsupported or incorrect reports may jeopardize funding | All reports include general ledger tie-outs, payroll detail, and controlled documentation |
| 3.6 Provide Documentation for Audits or Reviews | Improper document storage leads to repeated requests and audit delays | All grant support is centrally organized and version-controlled |
