Post-award grant compliance: restricted funds, changes, and closeout

Winning a grant creates obligations. The award letter or grant agreement is a contract, and the funder can ask for money back if you do not follow it. Post-award compliance is the set of habits that keep you on the right side of that contract: spending correctly, documenting everything, asking before you change things, and closing out cleanly.

This guide covers foundation and federal grants together, because the basics are the same. Federal awards add specific rules, which we note as we go. For the full federal framework, see our Uniform Guidance guide.

Day one: read the agreement and build the file

When the award arrives, do these things within the first week:

1. Read the whole agreement. Note the purpose, amount, period, payment schedule, reporting dates, restrictions, and anything requiring approval.
2. Compare it to your proposal. If the award amount is smaller than requested, decide whether you need a revised budget and scope, and ask the funder before you start spending.
3. Set up the accounting. Ask finance to create a separate fund, class, or project code so every charge to this grant can be tracked.
4. Build the grant file. Keep the proposal, approved budget, agreement, correspondence, approvals, reports, and confirmations in one shared location.
5. Add every date to your grant calendar.
6. Brief the program team. The people running the program need to know what the grant pays for, what it requires, and what they must document.

Restricted funds

A restricted grant is limited by the funder to a purpose, program, or time period. Under the nonprofit financial reporting standard FASB ASU 2016-14, nonprofits report net assets in two classes: with donor restrictions and without donor restrictions. Restricted grant funds stay in the first class until the restriction is satisfied, by spending them on the specified purpose or reaching the specified time.

What this means in practice:

• Track restricted grants separately. Your accounting system should be able to show, at any time, how much of each restricted grant has been spent and on what.
• Spend only on the restricted purpose. Funds for a summer reading program cannot pay for a winter program unless the funder agrees.
• Watch time restrictions. A grant for a specific year may need to be spent in that year.
• Do not borrow across restrictions casually. Some organizations temporarily use restricted cash from private donors for cash flow, but a board policy alone does not make that permissible. Donor terms may forbid it, and federal advance payments can't be used this way at all: federal rules require you to minimize the time between drawing funds and spending them (2 CFR 200.305). Check the grant agreement and talk to your auditor before doing this.

General operating support, sometimes called unrestricted funding, can be used for any purpose within your mission. It still requires reporting if the funder asks, but it gives you far more flexibility.

Tracking costs and documentation

The basic rule is simple: every charge to a grant should be supportable with documentation that shows it was for the grant's purpose and within the approved budget.

For all grants

• Keep receipts, invoices, and payment records for every grant expense.
• Code expenses to the grant when they are incurred, not at report time.
• Document how shared costs, such as rent or a staff member who works on several programs, are split among funding sources, and apply the method consistently.
• Reconcile grant spending with the budget at least monthly.

Additional federal rules

Federal awards have detailed cost principles in Subpart E of 2 CFR 200. Under 2 CFR 200.403, costs must, among other things, be necessary and reasonable, be allocable to the award, be treated consistently with your other activities, and be adequately documented. Costs used to meet cost sharing on one federal award cannot be used for another.

Personnel costs charged to federal awards need records that support the time worked on the award. If you request federal funds in advance, you must minimize the time between receiving the funds and spending them (2 CFR 200.305). Our indirect costs guide covers how to charge overhead correctly.

Budget and program changes

Things change during a grant. The rule is to ask before the change, not explain it afterward.

Foundation grants

Foundation policies vary widely. Some allow you to shift a set percentage between lines without approval. Others require approval for any change. Almost all require approval for a change in purpose. Read your agreement. If it is silent, email the program officer, describe the change, and ask whether approval is needed.

Federal grants: prior approval

Under 2 CFR 200.308(f), a recipient must request prior written approval for changes including:

1. A change in the scope or objectives of the project
2. A change in key personnel named in the award
3. The approved project director being disengaged for more than three months, or reducing time on the award by 25 percent
4. Costs that require prior approval under the cost principles
5. Moving funds budgeted for participant support costs to other categories
6. Subawards not in the approved application
7. A change in the total approved cost-sharing amount
8. A need for additional federal funds
9. Moving funds between construction and non-construction work
10. A no-cost extension of the period of performance (other than an authorized one-time extension)

Agencies may also restrict transfers among direct cost categories when the federal share exceeds the simplified acquisition threshold and cumulative transfers exceed 10 percent of the total approved budget (2 CFR 200.308(i)). Requests for no-cost extensions should be submitted at least 10 calendar days before the period of performance ends. Agencies should respond to revision requests within 30 days or tell you when to expect a decision (2 CFR 200.308(d)).

Reporting during the grant

Required reports are part of compliance. Late or missing reports can delay payments and harm future applications, and for federal awards, failure to submit final reports can be recorded in SAM.gov (2 CFR 200.344(i)). See our full grant reporting guide.

Record retention

For federal awards, 2 CFR 200.334 generally requires you to keep all award records for three years from the date you submit the final financial report. The period is longer if:

• Litigation, claims, or audit findings started before the three years end (keep records until resolved)
• A federal agency or pass-through entity notifies you in writing to extend the period
• Records relate to property and equipment (three years after final disposition)

Foundation agreements may set their own retention periods. Many organizations adopt a written document retention policy, often longer than the federal minimum, with their auditor's input.

Closeout

Closeout is the formal end of the grant. Done well, it is quick. Done poorly, it can follow you for years.

Foundation closeout

1. Spend the remaining funds within the grant period on allowable costs.
2. Submit the final narrative and financial reports.
3. If funds remain, ask the funder whether you may keep, extend, or must return them. Get the answer in writing.
4. Send a thank-you, and confirm when you may reapply.

Federal closeout

Under 2 CFR 200.344:

• A recipient must submit all final reports (financial, performance, and others required) no later than 120 calendar days after the period of performance ends.
• A recipient must liquidate all obligations incurred under the award within the same 120 days.
• A subrecipient must meet both deadlines with its pass-through entity within 90 calendar days, or an earlier date the pass-through entity sets.
• Unobligated funds that you are not authorized to keep must be promptly refunded.
• Property bought with federal funds must be accounted for under the property rules.

Extensions can be approved when justified, but request them before the deadline.

Noncompliance, suspension, and termination

If a federal recipient does not comply with the award terms, the agency or pass-through entity may impose specific conditions. If those are not enough, 2 CFR 200.339 allows remedies including withholding payments, disallowing costs, suspending or terminating the award, initiating suspension or debarment, and withholding future funding.

Termination rules are in 2 CFR 200.340. As of October 2026, the current text allows an agency to terminate an award for noncompliance, by mutual consent, at the recipient's request, or "pursuant to the terms and conditions of the Federal award, including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities." Termination provisions must be clearly stated in the award terms. When a termination is for material failure to comply, the agency reports it in SAM.gov after the recipient's opportunity to object.

Costs incurred after termination are generally unallowable unless the agency authorizes them, but properly incurred obligations from before the effective date, not made in anticipation of termination, may be allowable (2 CFR 200.343). Closeout requirements still apply to terminated awards.

What changed in 2025–2026

The federal grants environment shifted significantly beginning in 2025. Many termination notices issued that year cited the "no longer effectuates the program goals or agency priorities" language, and legal commentators noted those terminations could be open to challenge where the award terms did not include that authority. In August 2025, Executive Order 14332, "Improving Oversight of Federal Grantmaking," directed changes to federal grant oversight, including revisions related to termination. On May 29, 2026, OMB published a proposed rule substantially rewriting 2 CFR 200. As of October 2026 that rule has not been finalized; according to BDO's summary, the continuing resolution signed in September 2026 bars OMB from finalizing it, or a substantially similar rule, through December 11, 2026. The 2024 version of the Uniform Guidance remains in effect for now.

This is moving quickly. Read our federal funding landscape page for the current picture, and read the termination clause in every new award carefully.

Audit readiness

Under 2 CFR 200.501, an organization that expends $1,000,000 or more in federal awards in its fiscal year must have a single audit (or, in limited cases, a program-specific audit). Federal funds received as a subrecipient count. See our single audit guide.

Even below that threshold, your annual financial audit or review will look at grant revenue and restrictions. Make audits easier by keeping:

• A schedule of all grants with amounts, periods, restrictions, and balances
• Signed agreements and all approved modifications
• Budget-to-actual reports for each grant
• Documentation for allocation methods and time records
• Copies of all submitted reports

A monthly compliance checklist

• Grant spending coded and reconciled to the budget
• Variances reviewed; approvals requested if needed
• Time records complete for staff charged to grants
• Upcoming report and deadline dates checked
• Program data collected for outcome reporting
• Any significant change communicated to the funder
• Grant file updated with new correspondence

Compliance is not glamorous, but it is what makes funders comfortable giving you larger and longer grants. Good systems also protect your staff: when everyone knows the rules and the documentation is in place, no one has to scramble when an auditor or program officer asks a question. If you are a subrecipient on federal funds, read subawards and pass-through funding next.