Features of Grant Fund Accounting in NGOs

September 24 2025; 11:09

4 min read

The functioning of charitable and public organizations (hereinafter – NGOs) in Ukraine in today’s realities is critically important for supporting the population, providing social assistance, preventing a humanitarian crisis, and contributing to solving issues related to education, ecology, and more. Accordingly, grant funds are an important source of financing for non-profit organizations, enabling them to implement their social, environmental, and educational projects.

Proper accounting of grant funds and reporting is extremely important for NGOs, as it ensures transparency and accountability in the use of funding, meets donor requirements, and prevents financial risks. In turn, deficiencies in grant fund accounting can lead to a reduction in donor funding. This only underscores the importance of a clear systematization of financial documentation and compliance with reporting requirements.

Read more about the features of grant fund accounting in the article by UHY Prostir, whose specialists have many years of experience working with NGOs. To receive a consultation, fill out the form on the website or call the numbers listed in the “Contacts” section.

Regulatory Framework

In Ukraine, the financial accounting of grants in NGOs is regulated by a set of legislative acts:

The Tax Code of Ukraine regulates the tax accounting of targeted funds in NGOs and tax benefits for NGOs.
The Law of Ukraine “On Accounting and Financial Reporting” establishes the general principles of bookkeeping and control.
The Law of Ukraine “On Public Associations” and the Law of Ukraine “On Charitable Activities and Charitable Organizations” define the status of non-profit organizations and their regulations.
Regulatory acts of the Ministry of Finance of Ukraine regarding documentation standards.
Requirements of international donors, which may include their own standards of transparency and monitoring.

Tax Benefits for NGOs: How to Properly Keep Records

Distinctive features of grant fund accounting in non-profit organizations include:

Accounting for the targeted use of funds.
Ensuring that the organization’s activities align with its statutory objectives.
Registration of non-profit status in the State Register of Non-Profit Institutions and Organizations.

Taxation of Grant Funds

Grant income received by non-profit organizations is not subject to taxation if it is used for its intended purposes. However, nuances arise if the organization spends part of the funds not in accordance with the approved project budget under which the grant is provided.

Naturally, funds used by NGOs to pay salaries or fees to individuals involved in projects or administrative staff are subject to taxation, as these amounts are taxed under applicable legislation. To ensure the legality and targeted nature of such payments, it is important to consult with an accountant or tax advisor.

Documentation for Grant Fund Accounting

For transparent monitoring, the following documentation should be maintained:

Grant agreements and annexes – contain financing and reporting conditions.
Expense-supporting documents:
- invoices;
- receipts and payment orders;
- certificates of completed work;
- expense invoices.
Donor reports – detailed records of expenses in line with sponsor requirements.

The Role of Internal and External Control in Grant Accounting

Internal control ensures:

Correct accounting of grant receipts in NGOs.
Compliance with the grant agreement.
Transparency of financial activities.
Compliance with tax legislation.

External control (audit) is used to confirm the accuracy of documentation and compliance of grant expenditures.

It implements effective control mechanisms, increases donor trust, and promotes the financial stability of the organization.

It also checks compliance with requirements regarding the use of funds for designated project purposes.

Read more about how to choose an external auditor for NGOs via the provided link.

How to Avoid Mistakes

Accounting for grants in non-profit organizations has a number of essential features, including:

Targeted use of funds – they must be used exclusively for approved projects.
Separate accounting for grants – maintaining records for each grant separately.
Reporting to donors – detailed documentation of expenses according to donor requirements.

The most common mistakes include:

Insufficient attention to accounting

Some organizations do not separate their own funds from grant funds, leading to financial confusion and reporting errors.
It is also important to avoid expenses not included in the target budget, as this may raise donor concerns, require repayment of funds, and risk of losing non-profit status.
To prevent such issues, NGOs should establish financial and tax accounting systems in line with both regulatory and donor requirements.

Errors in maintaining supporting documents

Organizations often neglect proper archiving of receipts, invoices, and work completion certificates, which complicates audits and expense checks.
It is important to maintain a systematized documentation base and clear grant fund reporting in NGOs to avoid losses or confusion during inspections.

Failure to meet reporting deadlines

Missed reporting deadlines negatively impact on organization’s reputation and may result in denial of future funding.
To avoid this, NGOs should establish a clear reporting schedule and monitor compliance.
Adhering to accounting standards for targeted financing allows NGOs to avoid penalties and retain donor trust.

Regular internal control involves systematic checks of financial operations, analysis of expenses against the grant budget, and maintaining a detailed expense register. For example, organizations may use monthly internal audits or a dual-signature control system for financial transactions.