INSIGHT

DEI Compliance and Documentation: What Federally Funded Nonprofits Need to Know 

Shannon Winter • February 2, 2026

Industries: Nonprofit

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The landscape for nonprofits receiving federal funding has shifted dramatically in recent months. Organizations that rely on government grants and contracts now face uncertainty about diversity, equity, and inclusion requirements. Many are asking critical questions: What should we document? How should we update our Form 990? What happens if federal funding becomes unreliable?  

If your nonprofit receives federal dollars, you need to understand how these changes affect your compliance obligations and what steps you can take to protect your organization’s financial stability. This article will explore documentation considerations for Form 990, strategies for navigating DEI certification requirements, and ways to diversify your funding to reduce dependency on federal sources. 

Understanding the Current Environment 

Federal agencies have begun rolling back or reassessing DEI-related requirements for grant recipients. Some nonprofits are proactively reviewing their documentation and reporting practices to align with evolving expectations. Others are taking a wait-and-see approach. Neither strategy is inherently wrong, but both require careful documentation of your decision-making process. 

The key is to act deliberately rather than reactively. Your board and leadership team should discuss these changes and document your organization’s position. This creates a clear record of your governance process and demonstrates thoughtful stewardship. 

Form 990 Documentation Considerations 

Your Form 990 serves as a public record of your nonprofit’s activities, governance, and financial health. As you prepare your next filing, consider how you describe programs and initiatives that previously fell under a DEI framework. 

Review Part III, which asks about your program service accomplishments. If you’ve described programs using DEI-specific language in past filings, evaluate whether that language still aligns with your current approach and any applicable federal requirements. The goal isn’t to hide your mission or values but to describe your work accurately and in compliance with current guidance. 

Part VI addresses governance and management policies. If your organization has adopted specific DEI policies or practices, document the business rationale behind them. Can you tie these initiatives to your exempt purpose? Do they serve your beneficiaries more effectively? Clear documentation protects your organization if questions arise later. 

Navigating Certification Requirements 

Some federal grants and contracts require certifications related to nondiscrimination and equal opportunity. These requirements haven’t disappeared, but the emphasis and interpretation may have changed. Review your current federal awards carefully to understand what certifications you’ve made and what ongoing obligations you have. 

Work with your grant managers to identify which federal agencies fund your organization and what their current guidance says about DEI-related certifications. Don’t assume that yesterday’s requirements still apply today, but also don’t assume they’ve vanished entirely. The regulatory environment remains fluid. 

Diversifying Your Funding Sources 

This moment of uncertainty highlights a risk that many nonprofits face: overreliance on federal funding. Organizations with diverse revenue streams can better weather policy changes and funding disruptions. 

Donor-advised funds (DAF) represent one avenue worth exploring. DAFs have grown substantially in recent years, and donors who use them often seek meaningful charitable partnerships. Unlike federal grants with extensive compliance requirements, DAF grants typically come with fewer strings attached. Building relationships with DAF sponsors and their donors can provide more flexible funding. 

Individual giving campaigns, corporate partnerships, foundation grants, and earned revenue strategies all contribute to a healthier funding mix. No single source should represent such a large percentage of your budget that its loss would threaten your organization’s survival. 

Documentation Best Practices 

Whatever approach your organization takes, document your process thoroughly. Board meeting minutes should reflect discussions about compliance changes and strategic decisions. Create a paper trail that shows your leadership took these matters seriously and acted in the organization’s best interest. 

Maintain records of any communications with federal program officers about changing requirements. Save copies of guidance documents and policy announcements. If you modify programs or policies in response to new federal expectations, document why you made those changes and what alternatives you considered. 

This documentation serves multiple purposes. It demonstrates good governance to your stakeholders. It provides evidence of compliance if auditors or regulators ask questions. And it creates institutional memory so future leaders understand the context for decisions made during this transitional period. 

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Working With BPM  

Navigating compliance changes while maintaining your mission requires both technical knowledge and strategic thinking. BPM’s nonprofit practice works with organizations facing exactly these challenges. We help clients review their Form 990 disclosures, assess their documentation practices, and develop strategies to strengthen their financial position. 

Our team understands that compliance isn’t just about checking boxes. It’s about protecting your organization’s ability to serve your community for years to come. Whether you need support with specific technical questions or want to explore broader strategic planning around funding diversification, we’re here to help. To discuss how we can support your nonprofit through this period of change, contact us.