Grant Management

What is a Grant?

Exchange Transaction vs Grant

Understanding above for grant contract is crucial otherwise contributions maybe considered as exchange transactions inviting GST and TDS implications and also charitable status maybe jeopardised.

Grant Management

The Grand Management Process

Grant Management Life Cycle

Principles of grant management

Fund Accounting

NGOs follow Fund Accounting for managing grants:

Features:

Type of funds for NPOs

Grant word is not comprehensively defined in Indian laws, referred to as Voluntary contribution/donation (VC) in Income Tax law. FC under FCRA and CSR fund under CSR law.

ICAI has classified funds for NPOs in its Technical Guide on Accounting for NPOs:

  1. Unrestricted funds: Funds with no specific restrictions on use (purpose)/time
    • Corpus (acknowledged in IT law)-non-refundable, non reducible, reinvestment obligation.
    • Corpus only
      • when specific donor direction that it be treated as corpus by donor
      • not income but capital per IT Act
      • to be invested in section 11(5) modes of investment
      • considered application when replenished
      • not application if given to another charity. Corpus income shown in I&E.
    • Donations i.e. no obligations attached, a gift
    • Designated/earmarked funds-appropriated and set aside for specific purpose/future, self imposed by management and not binding in law for NPOs
    • General funds-surplus/deficit transferred from I&E which are not designated. Free reserves
  2. Restricted funds: funds with conditions/restrictions
    • Project/program grants-to be utilized as per terms and conditions of award, Restriction-by purpose and by time. There could be other conditions/restrictions. Principle of fund based accounting
    • Endowment: fund amount cannot be utilized, only income utilized for general/specific purpose as per donor stipulation. The recipient owns it but does not control it.
    • Restricted funds maybe
      • Permanent restriction
      • Temporary restriction: restricts use for a certain period or meeting objectives after which it becomes unrestricted.
Format of financial statements as per ICAI

BALANCE SHEET AS AT _________________________________________

SOURCES OF FUNDS (LIABILITIES)

Schedule Current Year Previous Year

Corpus Fund/General Fund/Designated Funds

TOTAL

APPLICATION OF FUNDS (ASSETS)

TOTAL

Significant Accounting Policies and Notes on Accounts

Net Assets

 

Format of financial statements as per ICAI

Name of Entity ______________________________________

INCOME AND EXPENDITURE ACCOUNT FOR THE PERIOD/YEAR ENDED __________

INCOME Schedule Schedule Current Year Previous Year

TOTAL (A)

EXPENDITURE

TOTAL (B)

Excess of Income over Expenditure (Surplus) or excess of Exp over Income (Deficit)(A-B) (Net Income in for profit entity)

Significant Accounting Policies and Notes on Accounts

Accounting for grant recognition by NGOs in India

Practise followed as per convention-no legal directive:

Option 1: Gross grant treated as income
Option 2: Gross grant routed through Balance Sheet only-asset and liability side settled
Option 3: Grant treated as income to the extent of expenditurewhile unutilised grant is a liability--hybrid method

Recipient, Sub-recipient and Vendor

Recipient is the organization receiving the grant, sometimes called the Prime recipient because it has full responsibility for grant funds. The document evidencing this arrangement is grant contract

Sub-recipient is involved in substantive activities of the award project. The recipient passes on some or all of its duties to the sub-recipient called sub award. All the terms and conditions from the grant award flow down to sub-recipients through a document evidencing it called sub grant contract

Vendor/service provider provides goods/services to the recipient to accomplish project’s purposes. Selected terms and conditions might be passed through to the vendor. The document evidencing is a goods/service contract

Cost-Key concepts

Cost-amount spent to acquire an asset

Expense-amount spent on regular operations

Natural expense head-WHAT (type of expense) the funds are being spent on-salary, rent, hotel accommodation etc

Furcation expense head- WHY (purpose of expense) the funds are being spent

Cost - Key concepts

NPOs should follow functional expense head for presenting reports, that is what is the basis for their constitution and work. Broadly the functional heads are two-Program/service delivery and Support/Admin & General

Costs for a project for NGO

Understanding and computing direct and shared cost crucial for correct and realistic budget formulation

Common cost be reviewed every year within the purview of common cost policy

Total cost for a project:

Institutional/Management cost/indirect cost if permitted basis donor grant management policy to address contingency/create a reserve

Other types of cost

Capital & Revenue cost:

Fixed and Variable Costs:

Cost Principles in grant budgeting for NPOs

Costs budgeted for a project grant should be

Budget basics

A budget is estimation of revenue and expenses over a specified future period, usually the project period for a grant.

It is financial plan (blueprint) of the project plan. One need to budget the plan and not vice versa

Budget is a Planning (align with objectives)Tool, Control (within policy framework) Tool, Compliance (ceiling) Tool and Mirrors the Financial Report

A budget covers quantitative, qualitative and cost aspects.

The purpose of budget is to:

Pre requisites

Types of Budgets: Activity budget

Activity based budget as the name suggests, covers the costs required for implementing a project activity.

In ABB, one looks at resources required for completing an activity and the resources cost

For example, if project strategy is to build capacity of civil society leaders, workshops is an activity. Workshops costs would be towards hiring resource persons, booking a venue, transportation cost, food, lodging and materials and handouts.

Illustration: Activity Budget for Conducting a Workshop

Particular of Expense Rate per unit No of Units Total in Rs

Trainer Fees

@ Rs 1000 per day

3 days

3,000

Venue

@ Rs 500 per day

3 days

1,500

Rental for Furniture

@ Rs 500 per day

3 days

1,500

Rental for Equipment

@ Rs 100 per day

3 days

300

Catering Exp for Lunch and tea two times

@ 100 per person

55 persons X 3 days = 165

16,500

Conveyance paid to

attendees

@Rs 50 per person per day

50 attendees x 3 days = 150

7,500

Printing of handouts

@ Re 1 per page

50pages x 50 copies = 2500 pages

2,500



Grand Total

32,800

Line Item Budget

Illustration: Line Item Budget

Expenses Unit # of Units Unit Rate ($) Costs ($)
Human Resources 
CEO Per day 3 350 1050
Trainer Fees Per day 2 200 400
Subtotal Human Resources


1450





Travel
Trainer Airfare Per Person 1 300 300
Participant Transportation Per Person 30 10 300
Subtotal Travel


600





Equipment and Supplies



Materials and hand-outs  Per Person 30 15 450
Subtotal Equipment and Supplies


450





Other costs, Services



Venue Per day 2 300 600
Catering Per Person 30 15 450
Subtotal Other costs, Services








Subtotal


3550
Overhead (10%)


355
TOTAL


3905

Other Types of Budget

  1. Incremental budget: Next year’s budget prepared by making marginal changes to the current year’s budget. The current budget is used as a base to which incremental assumptions are added or subtracted from the base amounts to determine new budget amounts.
  2. Value Proposition Budgeting focuses on allocating the ideal amount of financial resources that provides the highest value to the customer. Another name for Value Proposition Budgeting is Priority Based Budgeting or value based budgeting.
  3. Zero-based budgeting (ZBB) based on efficiency and need at that point rather than budget history. Formulation starts from scratch that only includes operations and expenses essential, no expenses are automatically added to the budget.
  4. Performance based budget (PBB) considers input of resources and the output of services. The goal is to link funding to results delivered, thus called Outcome based budgeting
  5. Fixed Budget: not modified for variation in actual activity and costs.
  6. Flexible budget: budget changes in response to activity level and costs
Budget Justification Note

Balanced, Surplus and Deficit budgets

A balanced budget is a e budgeting process where total expected revenues are equal to total planned spending.

A budget deficit occurs when expenditures surpass revenue.

A budget surplus means there is additional money to spend at the end of the accounting period

Budget Monitoring & Budgetary Control

Budget Monitoring is the process:

Budgetary Control is the process to:

Interest apportionment
  1. With a single bank account for multiple projects, interest apportionment for reporting to donor has to be made as per well defined method
  2. Interest apportionment not applicable for dedicated bank account
  3. Interest can be additive or deductive from grant as specified in grant agreement.
HR cost allocation
Robust Grant Monitoring System

Grant monitoring is a process to measure/review performance during grant period. It assesses physical & financial progress, identify risks and corresponding mitigation measures, ensure that funds are used as intended and programs achieve desired outcomes and impact.

Important Tools and Process:

Grant Contract - General Conditions

Grant Contract - General Conditions

Grant Contract - General Conditions
Grant Contract - Operational Conditions
Treatment of interest

Please note: Information is for reference only. Read our disclaimer here.

Revision #4
Created 9 April 2025 16:25:05 by Pooja
Updated 3 July 2025 14:24:06 by Pooja