7 Common Grant Compliance Mistakes (And How to Avoid Them)

The most frequent errors we see in grant expense management, and practical steps to prevent them in your organization.

After working with dozens of grant-funded organizations, we've seen the same compliance mistakes come up again and again. Here are the seven most common—and how to avoid them.

Mistake 1: Invoicing Ineligible Expenses

The most obvious mistake, but still surprisingly common. This happens when:

Staff don't know the rules: AP codes an expense without checking eligibility
Rules change mid-grant: A previously allowed category becomes restricted
Shared costs aren't allocated: 100% of a shared expense is charged to one grant

**How to avoid it**: Document eligibility rules for each grant. Review every expense against these rules before invoicing. Use software that automates eligibility checking.

Mistake 2: Missing Eligible Expenses

The opposite problem—and often more costly. Organizations frequently miss:

Indirect costs: Not claiming the full allowed rate
Fringe benefits: Forgetting to include benefits on labor charges
Allocated expenses: Shared costs that should be partially charged

**How to avoid it**: Create a checklist of all eligible expense types. Review your full expense ledger against this checklist each period.

Mistake 3: Poor Time Allocation Documentation

Labor costs are often the largest grant expense—and the most scrutinized. Common issues:

No contemporaneous records: Time tracked after the fact
Round numbers: Suspiciously even allocations (exactly 50%?)
No supporting detail: Can't explain how allocation was calculated

**How to avoid it**: Require time tracking at least monthly. Document the methodology for any allocation. Keep supporting calculations.

Mistake 4: Inadequate Supporting Documentation

When auditors ask for backup, can you produce it? Common gaps:

Missing receipts: Especially for small purchases
No approval documentation: Who authorized this expense?
Incomplete vendor invoices: Missing dates, descriptions, or amounts

**How to avoid it**: Establish documentation requirements upfront. Audit your own files quarterly. Don't invoice expenses without complete documentation.

Mistake 5: Ignoring Budget Modifications

Grant budgets aren't static. Organizations get in trouble when they:

Exceed line item limits: Spending more than budgeted in a category
Don't request modifications: When spending patterns change
Miss modification deadlines: Waiting too long to request changes

**How to avoid it**: Monitor budget vs. actual monthly. Request modifications proactively. Know your funder's modification policies.

Mistake 6: Inconsistent Cost Allocation

If you allocate shared costs to grants, you need a consistent methodology:

Different methods for similar costs: Rent by headcount, utilities by square footage?
Changing methods mid-year: Without documentation or approval
No written policy: Allocation decisions made ad hoc

**How to avoid it**: Document your cost allocation methodology. Apply it consistently. Get funder approval for any changes.

Mistake 7: Late Invoicing

Submitting invoices late creates multiple problems:

Cash flow issues: Delayed reimbursements
Increased error risk: Harder to remember details months later
Funder frustration: May affect future funding

**How to avoid it**: Set internal deadlines ahead of funder deadlines. Build invoicing into your monthly close process. Track invoice submission and payment.

Conclusion

Most compliance mistakes stem from the same root causes: unclear rules, manual processes, and inadequate documentation. Address these fundamentals, and you'll avoid the vast majority of issues.

The best organizations treat compliance as a continuous process, not a year-end scramble. Build good habits now, and audits become routine rather than stressful.