October 24, 2025
Federal grants play a major role in how nonprofits serve the community. They fund programs in education, healthcare, research, housing, and local services that reach millions of people each year. In recent months, several agencies have started ending some of those grants before the performance period is complete, citing changes in funding priorities and policy direction.
For many organizations, that notice comes without warning. It can change budgets overnight and raise questions about what happens next. The first step is to understand what the termination notice means and what federal law requires. From there, staying organized, communicating with stakeholders, and documenting each step can protect the organization moving forward. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.
A federal grant termination happens when an agency ends an award before the approved end of the performance period. The decision may apply to the entire award or only part of it. Some terminations stem from compliance issues, while others reflect changes in policy priorities or a reallocation of federal funds. Whatever the cause, a termination means the organization can no longer charge new costs to that award after the effective date unless the agency gives written approval.
Termination is not the same as a suspension or funding freeze. A suspension temporarily halts payments and activities while an agency reviews compliance or program performance. A freeze is broader; it’s usually an administrative decision that stops or delays funding while policy changes are reviewed. Earlier this year, for example, several grants were frozen by executive order, and some of those funds were later restored through court rulings.
The entire process follows the Uniform Guidance, which governs federal awards across all agencies. These regulations specify when an award may be terminated, how agencies must provide notice, and what responsibilities fall to the recipient. Understanding those requirements helps nonprofit leaders navigate the close-out process and ensures continued compliance with federal standards.
Federal regulations require that all terminations be communicated in writing. The termination notice serves as the official record of the decision and establishes the terms under which the grant will close.
Under the Uniform Guidance, the notice must explain why the award is being terminated and it must specify the effective date when funding ends. It also needs to indicate whether the termination applies to the full award or only a portion of it.
In addition, the notice should provide clear instructions for what comes next, such as deadlines for submitting reports, how to handle property purchased with grant funds, and when to return any unspent money. It must also include information about the appeal or dispute process.
Importantly, the notice gives the timeline for compliance and defines what the organization must do to remain in good standing with the agency. Organizations should review it immediately, confirm receipt, and ensure that all program and financial staff understand what it requires.
The first step for any organization is to stay proactive. In this type of funding environment, nonprofits will want to maintain a complete inventory of all federal grants and related contracts. Most agreements include specific language about termination within their terms and conditions, and knowing what those provisions say can save valuable time later.
If a termination notice is received, it is important to review it carefully. Confirm the reason for the termination, the scope of the award affected, and the effective date. Note any deadlines for reports or appeals. Each federal agency has its own rules for how terminations are handled and how awards must be closed out.
Spending must stop once the termination date takes effect unless the agency gives written authorization to continue. Any costs incurred afterward may be considered unallowable and may need to be repaid. Before that date, document all allowable expenses and keep detailed records. In some cases, the organization may also recover certain unavoidable expenses that occurred as a result of the termination; for example, final staff time or the cost of winding down a project may be covered.
The nonprofit must notify any subrecipients of the grant. Document that they have been informed of the grant termination. Many federal awards fund networks of organizations and coordinated communication can prevent compliance issues for everyone involved.
It also helps to speak directly with the agency that issued the grant. Ask for written guidance on close-out procedures, including deadlines for performance and financial reports, property management, and any refund requirements. Clarify whether the organization still has access to existing funds or if additional approval is needed.
Finally, complete all required reports and maintain full documentation. This may include financial statements, program performance reports, and property inventories. Records may be reviewed during future audits.
Once the immediate steps are complete, it’s important to take a step back and look at the bigger picture. Budgets, staffing, and programs will likely need to be reviewed. Start by bringing the board and senior team together to see what can continue and what might need to be paused.
Funding gaps and cash flow are the next consideration. Some organizations can rely on reserves for a certain period of time, but other nonprofits need to apply for new grants or look for private support. Whatever the situation, it’s best practice to keep funders, staff, and community partners informed throughout the process.
Finally, watch for federal policy updates. Policies have been known to change, and staying informed gives leaders the opportunity to prepare for what’s ahead.
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A grant termination can create uncertainty, but it does not have to derail the organization’s work. Understanding the rules, keeping communication open, and acting quickly can help leaders manage the process and position themselves for future opportunities. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.