Grant Management

What is a Grant?

• Funds given from one entity to another for a public benefit/charitable purpose
• Usually given to a charitable entity or NPO
• Is not an automatic entitlement, it is for an obligation to be discharged
• Grant is trust money with 3 actors-grantor, grantee (trustee with fiduciary responsibility to grantor and beneficiary) and beneficiary
• Grantor does not get direct benefit and grantee is not expected to payback if utilised for the intended purpose
• Grant comes in different forms from different sources-govt (grant-in-aid), retail, corporate, foundation
• Are awarded directly or through a competitive process

Exchange Transaction vs Grant

• Exchange transaction (as per GST Act) involves:
  • Supply of goods and services
  • Consideration
  • In course of furtherance of business
• Grant is not exchange transaction since there are
  • No specific beneficiaries
  • Nothing in return from beneficiaries or benefit derived by grantee
  • Not for furtherance of business

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.

AccountabilityGrant & TransparencyManagement

• Involves

  Withtwo respectkey players:

  • Grantmakers-grantor/donor
  • Grantseekers-grantee/donee
• Grant management is a system that includes identifying, applying for and securing grants, adhering to utilisationgrant conditions, evaluating outcomes.
• Grant management process in grant management system (GMS) is the grant management lifecycle.

The Grand Management Process

• Planning
• Opportunity
• Application
• Award
• Execution
• Closeout

Grant Management Life Cycle

• Pre award
  • Planning-need identification, SWOT, due diligence preparatory etc
  • Scout Funding opportunity
  • Grant application & review-eligibility and Qualification
• Award
  • Award Negotiation
  • Award Decision
  • Award Notification/Contract
• Post Award
  • fund request-advance, reimbursement etc,
  • Implementation
  • Reporting-program and finance
  • Post award amendment-key changes and approval, budget realignment, NCE
  • Performance/impact
  • Closeout
• Reapplication

 

Principles of grant funds

management

• Accountability,

  EfficientTransparency & EffectiveTrust use of thefor grant funds

• Efficiency

  Compliance& Effectiveness with applicablegrant funds

• Compliance with laws of the land

• Adherence

  Adherence withto terms and conditions of Grant Agreement

• Internal controls i.e.in financial and accounting systems, budgetary control, funds management

  place
• Communication 

  & Timely submissionReporting of- narrative and financial reports as required under theper grant

  contract

Principals

Fund 

Accounting

StagesNGOs offollow GrantFund Management:Accounting Grantfor Lifecycle

managing

Grant Management Lifecycle

• Pre-awardgrants:

  • Fund accounting is an accounting system for recording and tracking project resources (fund) whose use is limited/restricted by specific conditions by donor through a grant contract
  • This accounting system emphasizes accountability/productively over profitability which is the accounting basis for for-profits

  IdentifyFeatures:

  • Separate funds (buckets/compartments)
  • Restriction on use
  • Separate budget established for each fund/project and income credited and expenses debited from the need
    fund

  • Planning

    Transparency
  • Software

    Opportunity

    for recording
  • Good

    Applyinternal controls

  • Monitoring and Reporting mechanisms ensures fund accounting

  Type of funds for grantNPOs

  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

       Awarded

       i.e.
       no
       • obligations

         Receiveattached, grant

         a gift
       • Designated/earmarked

         Sharefunds-appropriated additionaland informationset asaside needed

         for specific purpose/future, self imposed by management and not binding in law for NPOs
       • General

         Documentation

         funds-surplus/deficit transferred from I&E which are not designated. Free reserves
     • Restricted

       Post-award

       funds: funds with conditions/restrictions
       • Project/program

         Developgrants-to currentbe yearutilized projection

         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:

         Executefund allamount activities

         cannot be utilized, only income utilized for general/specific purpose as per donor stipulation. The recipient owns it but does not control it.
       • Restricted

         Managefunds andmaybe monitor

         the
         • Permanent project
           restriction
         • Temporary

           Sharerestriction: programrestricts anduse financefor report

           a
         certain
         • period

           Documentation/Reporting

           or 
         meeting
         • objectives

           Closeafter out

           which
         it
         • becomes

           Close grant

           unrestricted.

       Pre-requisites for robust grant management system:

       • Policies & Procedures (Finance & HR) - ensuring strong internal control environment

       • Accounting - ICAI Technical Guide for accounting of NPOs

         • Fund based accounting for presentation of financial statements

         • Accrual basis of accounting

         • Maintenance of prescribed books of accounts

         • Accounting Standards as framework for recording and reporting

       • Statutory laws of land - understanding and compliance

       • Donor contacts - expectations and reporting fully understood

       • Segregation of duties - checks and balances, dedicated finance staff

       • Encourage audit and assurance - risk mitigation

       Income of charitable institutions - Types of Funds

       • Aggregate Income from property held in trust (Schedule AI)

       • Voluntary contribution (Schedule VC)

       • Capital Gains

       Types of funds (ICAI):

  A. Unrestricted funds:

  • Corpus: non-refundable, non-reducible, reinvestment obligation

  • Designated/earmarked funds: for specific purpose/future, not legally binding

  • General funds: neither designated nor restricted, includes I&E surplus/deficit

  Income of Trust and Types of Funds 2/1: Corpus:

  • Comply with Income Tax provisions - Section 11(5), Section 11(1)(d)

  • Donation to another registered entity not considered application

  • Application to be considered in year of replenishment

  • Should be shown as Capital; income earned shown in I&E

  B. Restricted funds:

  • Project/program grants: to be used as per terms of award

  • Endowment funds: only income used as per terms

  Format of financial statements as per ICAI:ICAI

  BALANCE SHEET:SHEET

  AS
  • AT _________________________________________

    SourcesSOURCES ofOF Funds:FUNDS (LIABILITIES)

    Schedule Current Year Previous Year

    • UNRESTRICTED FUNDS

    UNRESTRICTEDCorpus FUNDS:Fund/General Corpus/General/Fund/Designated Funds

    • RESTRICTED FUNDS-Unutilised Grants (Deferred Revenue), Endowment

    • RESTRICTED FUNDS

      LOANS/BORROWINGS-Secured/Unsecured

    • LOANS/BORROWINGS

    • CURRENT LIABILITIES & PROVISIONS

  • TOTAL

    ApplicationAPPLICATION ofOF Funds:FUNDS (ASSETS)

    • FIXED ASSETS

      ASSETS-Tangible Assets/Intangible Assets/Capital Work-In-Progress
    • INVESTMENTS-Long

      INVESTMENTS

      Term/Short term

    • CURRENT ASSETS, ASSETS-LOANS, ADVANCES & DEPOSITS

      DEPOSITS-Grant Receivable

  TOTAL

  Significant

  IncomeAccounting Policies and ExpenditureNotes Account:on Accounts

   

  Net Assets

  • In

    INCOME:NPOs, Operations,net Grantsassets is like net worth (share capital+reserves & Donations,surplus) Other

    in case of for profit entities
  • Net

    EXPENDITURE:assets=Total Materials,Assets-Total Employee Benefits, Admin, Finance Costs, Depreciation, Other

    Liabilities
  • Net

    Surplus/Deficitassets transfermeans owner funds (capital) although there are no owners in charitable institutions generally

  • In an NPO, net assets mainly include corpus and carrygeneral forward
    funds

  Cost

   Principles in grant budgeting:

  • AllowableFormat costof financial statements as per ICAI

  Name

  • of Entity ______________________________________

    AllocableINCOME costAND EXPENDITURE ACCOUNT FOR THE PERIOD/YEAR ENDED __________

  INCOME

  • Schedule

    ReasonableSchedule cost

    Current
  Year
  • Previous

    Consistent

  • Unallowable cost

  Budgeting & Budgetary Control:

  • Budget is estimation tool and framework

  • Segregates costs: direct, common, indirect

  • Supports co-financing/multi-donor grants

  • Budgetary control:Year

    • Grants

      Track& income and expenses

      Donations
    • Other

      DeviationIncome-rent, analysis

      interest,
    incidental
    • business

      TimelyIncome, approvalsFee for& overspend

      Subscription,

  TOTAL

  Terms and Condition of Grant:

  • (A)

    Understand full contract

  • Common clauses:EXPENDITURE

    • Program

      Separate accounts

      Exp
    • Administrative

      Cashand expenseGeneral limits

      Expenses, Finance costs
    • Depreciation

      Interest& treatment

      Amortisation

    • Procurement rules

    • Fixed assets treatment

    • Reporting timelines

      Expenses

  TOTAL

  • (B)

    ComplianceExcess Calendarof postIncome signing

    over

  Robust Grant Monitoring System:

  • Performance tracking

  • Progress reviewExpenditure (physicalSurplus) &or financial)

    excess
  of
  • Exp

    Riskover management

    Income
  (Deficit)(A-B)
  • (Net

    KeyIncome tools:in for profit entity)

    • Balance

      Budget,Being LFASurplus understanding

      (Deficit)
    Carried
    • to

      VarianceBalance analysis

      Sheet-General
    Fund,
    • Transfer

      Courseto correction

      Designated
    fund,
    • Building

      Timelyfund/ narrativeOthers and financial reports

      (specify)

  Significant

  Accounting Policies and Notes on Accounts

   

  Accounting treatmentfor 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

  • AS 9 mentions income recognition to the extent of expenditure for grants toapplicable NGOs:if

    • Grantthere is trustbusiness/commerce money

      etc
    • Follow

      Options:

      1. Grant as income

      2. Grant as liability

      3. Hybrid (income = expenditure)

    • Followthe principle of prudence

      in selecting the option for recognition.

     

    GeneralRecipient, ConditionsSub-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 Grant: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

    • Classification

      Termsof definitions

      expense
    for

    • Commitments (funder & grantee)

    • Rights, reports, assets, termination

    • Force majeure, dispute resolution, confidentiality, interest, employment, IP

      NPOs

    Interest

    Natural apportionment:

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

      Withnatural multipleexpenses projectsare ingrouped oneinto account:group useheads definedlike method

      HR cost, Travel, capital cost, office exp, legal & professional etc
    • Group head-Travel-natural expense-conveyance, airfare, meals, accommodation etc
    • Group head-HR-natural expenses-salary, HRA, PF, Gratuity

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

    • Program cost (program implementation, MEL)
    • Support cost (Accounting, Admin, Fund raising)

     

    Cost - Key concepts

    NPOs should follow functional expense head for dedicatedpresenting accountsreports, 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

  • Direct

    Interestcosts treatment(100% direct traceability to a program/support function) to benefit the beneficiary as per grantproject agreement

    design. No cost if no project.
  • Common/Shared costs-benefit multiple projects-shared cost apportionment based on time, space, no of employees/beneficiaries/ no of project locations

  Common/Core

  Understanding Cost:

  and computing direct and shared cost crucial for correct and realistic budget formulation
  • Apportionment method and share of common cost included in common cost policy

  SharedCommon costs:cost HR,be travel,reviewed office,every etc.

  year within
  • the

    Proratedpurview to donor projects

  • Must haveof common cost policy

    Total cost for a project:

    • Direct cost+
    • Common Direct cost
    • Shared cost apportioned to the 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:

    • Capital Costs: Capital costs are one-time fixed assets purchases that will be used for revenue generation over a longer period- more than one year.
    • Revenue Costs: are referred to as operating expenses are short-term expenses that are used in running the daily business operations.

    Fixed and Variable Costs:

    • Fixed cost is one that does not change in total within a reasonable range of activity.Since the fixed cost remains constant in total, the fixed cost per unit of activity decreases when the volume increases and vice versa
    • Variable cost or expense is where the total cost changes in proportion to changes in volume or activity.
    • Historical cost: original cost of asset when it was purchased.
    • Sunk cost: money spent that cannot be recovered.
    • Marginal cost: change usually decrease in the cost of producing one more unit or serving one more customer.
    • Opportunity cost: value of next best alternatives when taking a decision given the resource constraint.

    Cost Principles in grant budgeting for NPOs

    Costs budgeted for a project grant should be

    • Allowable cost-costs which are not subject to any restrictions/limitations in the grant award.
    • Allocable cost-costs which are incurred specifically for the attainment of the objective of the grant.
    • Reasonable cost-cost which is generally recognized as necessary to be incurred by a prudent person in the conduct of normal business
    • Consistent: cost applied in same fashion throughout the grant
    • Unallowable cost-those costs that cannot be incurred and paid under the grant.

    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:

    • Ascertain reasonable estimation of costs for interventions/activities in a grant proposal/award.
    • Segregates costs-direct/common/indirect or OH costs
    • Cost matching/sharing (co-financing) for multi donor grant, in kind match.
    • Is a framework for donor-donee in a grant award

    • AllocationEnables examples:course space,correction staffbased time,on units

      measurement 
    of
    actual

    Salaryachievements Allocationversus forestimates multiple projects:

    • Allocate as per grant and annual budget

    • MonthlyStatement salaryof registerSOF withand allocation,Estimated deductions, variancesCosts

    • NeededEnables forRecognition-activity, audits

      group,
    period, 
    • income,

      FC/localexpenditure, fundsdeficit, booking compliance

    • Timesheet compliance if requiredsurplus

    Recipient,

    Pre Sub-recipient and Vendor:

    requisites
    • Organisation

      Recipient = Prime = main grant holder

      structure.

    • Sub-recipient = does substantive project work

      Data.
    • Chart

      Vendorof =accounts.

    contractor
    • Managerial support.
    • Formal process for goods/services
      formulation.

    What

    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

    • A Line-item budget presents the budget under broad heads
    • It lists income and expenses by category
    • Major donors like USAID, European Commission prefer to have their budget templates by line items.
    • It helps better tracking for trends in major cost categories

    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

    • Separate word document to explain the budget nos.
    • For each line item and activity, provide complete details so that it can be referred for direction and validation during implementation.
    • Provides narrative clarification of each budget item demonstrating the necessity of the costs and how they relate to the program activity Provide justification of the calculation of the estimated costs. Note that the estimation should be based on real costs

    Balanced, Surplus and Deficit budgets

    A balanced budget is a Contract: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:

    • Record

      Bindingactual agreementexpenditure forversus goods/services

      budget estimates at the line/activity level in books
    • Measure

      Specificvariance outcomes

      using a budget variance report to ascertain positive/negative devotions
    • The

      Paymentworkplan baseddelivered onhelps deliverables

      budget monitoring at a particular point of time
    • Tally software can setup budget and record expenditure. So, the Variance report is real time.

    What

    Budgetary Control is the process to:

    • Evaluate results of budget monitoring i.e. actual income and expenditure versus original/revised (realigned) budget through variance report
    • Deviation/tolerance triggers action
    • Budgetary control ensures timely action/approvals i.e. budget realignment, reallocation, NCE

    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

    • Staff cost for shared HR in a grant should be allocated and charged to donor grants as per project grant in line with common cost allocation policy
    • Monthly salary register/sheet with salary allocation of staff to donor projects, deductions/adjustments, variance versus previous month with reasons and banking streams for payout. This is required for donor verification and audit
    • Payment of salary out of FC and local funds
    • Applicability of time sheets in donor contracts

    Robust Grant Monitoring System

    Grant monitoring is a Grant: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:

    • Complete

      Assistanceunderstanding of terms and conditions of Grant contract

    • Budget and LFA clearly known to achieveboth result
      finance and programme teams
    • Periodic

      NoBudget legalVariance/Deviation requirementAnalysis toby achievefinance, result

      program team and management review
    • Timely

      Flexiblecourse scopecorrection through realignment etc through addendum in grant contract.

    • Timely reporting-narrative and payments
      financial reports as stipulated in grant contract

    Grant Contract - General Conditions

    • MOU versus grant contract/agreement distinction
    • Recitals/Preamble
    • Definitions
    • Grant amount and purpose (including prohibited/disallowed use)
    • No Pledge
    • Complementary funding
    • Designated contacts-for various aspects of the grant
    • Conflict of interest and ethical conduct
    • Confidentiality
    • Term and termination

    Grant Contract - General Conditions

     

    • Notice of Changes
    • Compliance with laws 
    • Indemnity
    • Publications and Licenses
    • Visibility, Publicity
    • Force Majeure
    • Relationship of parties
    • Governing Laws
    • Notice 
    • Waiver

    Grant Contract - General Conditions

    • Severability-any clause not enforceable does not make other clauses non enforceable
    • Assignment/Delegation
    • Acknowledgement-understand and consent
    • Counterparts
    • Entire agreement
    • Arbitration
    • Jurisdiction
    • Remedies-injunctive relief from court

    Grant Contract - Operational Conditions

    • Scope of Work
    • Deliverables
    • Budget
    • Eligible Costs
    • Grant Disbursement/Reimbursement
    • Log Frame and Work Plan
    • Basis of accounting
    • Separate Books of Account for the project
    • Separate Bank Account for Grant Funds
    • Bills and Voucher separately and defaced with mention of project
    • Limit on Cash Expenditure.

    Treatment of interest

    • Procurement rules
    • Program/Financial reporting-Often there are templates for interim and final reports
    • Input Tax credit
    • Monitoring/Evaluation Audit
    • Recovery
    • Treatment of Fixed Assets-templates in case FA are not allowed to be retained automatically
    • Income generated from project activity
    • Sustainability
    • Closure of Grant:

      • Ensure all closure provisions met

        grant
      • Record

        Submitand final program & finance reports

      • Closure report + fund reconciliation

      • Final donor acknowledgment of NO DUES

      Tips for effective Grant Management:

      • Build trust

      • Meet targets without under/overspend

      • Spend capital budget early

      • Timely donor reports

      • Maintain files

      • Avoid surprises

        retention

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