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 fundsmanagement

• 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:

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

Reasonable

Schedule costCurrent 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:

Grant as income

Grant as liability

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.

contractorManagerial 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

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. 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. 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. 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 Fixed Budget: not modified for variation in actual activity and costs. 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

With a single bank account for multiple projects, interest apportionment for reporting to donor has to be made as per well defined method Interest apportionment not applicable for dedicated bank account 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 resultfinance and programme teams Periodic

NoBudget legalVariance/Deviation requirementAnalysis toby achieve

finance, resultprogram team and management review Timely

Flexiblecourse scopecorrection through realignment etc through addendum in grant contract.

Timely reporting-narrative and paymentsfinancial 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.