Nonprofit finance, plainly

How to track restricted grant spending against the budget

A funder gave you money for a specific purpose, and now someone, maybe the funder, maybe your board, wants to know how much of it you have spent and how much is left. If the honest answer is “let me get back to you,” this is for you. Tracking restricted spend comes down to one simple table, described below and kept current every month.

Start with the grant budget, not your operating budget

Your organization has a budget for the year. Each restricted grant also has its own budget, often attached to, or referenced in, the grant agreement. If you cannot find it, ask the funder for the approved budget. Those are two different documents, and mixing them up is a common source of tracking problems. When people talk about a restricted budget, they mean the second one: the line items the funder approved, such as staff time, supplies and travel, with a dollar amount on each.

Pull the approved budget and the grant agreement first. The agreement tells you the grant period, what the money may be spent on, and whether you can move dollars between lines. Read that last part carefully. Some funders let you shift money between lines freely, some set a limit, and some require written approval for any change. If the agreement is silent or unclear, ask the funder before you move a dollar, not after.

Build one table per grant

The tracking table has one row for each budget line and five columns: the approved amount, spent to date, remaining, percent spent, and a note. Spent to date comes from your books, which is why it helps to code every expense to the grant at the moment it is recorded. If your accounting system cannot tag spending by grant, that is the first thing to fix. A spreadsheet kept on the side works for a while, but it drifts away from the real books, and the gap shows up at the worst time.

Then add two lines at the bottom. The first is cash received so far. The second is cash received minus spent to date. Funders often pay in installments, so a grant can be on budget and still be short of cash, or flush with cash and well behind on spending. You need to see both.

A worked example with made-up numbers

Here is an illustration. Every figure below is invented to show the method and does not describe a real organization or grant.

A youth nonprofit receives a $48,000 grant for an after-school tutoring program, for the calendar year. The approved budget is $30,000 for tutor stipends, $6,000 for materials, $4,800 for transportation and $7,200 for the administrative share. The funder pays $24,000 in January and $24,000 in July.

At the end of June, halfway through the year, the books show these amounts spent against the grant. Tutor stipends are at $14,200, materials at $4,100, transportation at $1,900 and administrative share at $3,600. That is $23,800 in total, or about 50 percent of the grant at 50 percent of the year. On the surface that looks perfectly on pace.

The line-by-line view tells a different story. Tutor stipends are 47 percent spent, which is fine. The administrative share is exactly 50 percent. Transportation is only 40 percent spent, with $2,900 still available. But materials are 68 percent spent with six months to go, leaving $1,900. At the same pace, materials would need roughly $4,100 more by December, so that line is headed for a shortfall of about $2,200.

The cash view adds one more fact. The organization has received $24,000 and spent $23,800, so $200 of grant cash is left until the July installment arrives. Any grant expense in early July would be fronted from unrestricted cash until the July installment arrives, and that needs a plan before it happens.

Because the total looked fine, nobody would have caught the materials problem from a single number. The table caught it in June, when there is still time to act.

What to do when a line runs hot

A line that is running ahead of pace is a warning, not a violation. You have three honest moves. First, slow the spending on that line if the program can absorb it. Second, check the agreement to see whether you may move money from a line that is underspent, such as transportation in our example. Third, ask the funder for a budget revision before the money is gone. Many funders would rather hear about a budget change early, with the numbers in hand, than find a surprise in the final report. Whether they approve it is up to them and the agreement.

What you should not do is quietly shift costs to another grant, or recode them, without telling the funder or documenting it, so that the grant looks clean. If the funder will not approve a revision, covering the overage from unrestricted funds can be a legitimate choice, provided you have already raised it with the funder, leadership documents the decision, confirms unrestricted money is available, and the cost is kept off the grant. Check the agreement first. Hiding it turns a manageable budgeting issue into a problem that is much harder to defend. If you are already past that point, You spent restricted funds on the wrong thing. Now what? walks through the steps.

Make it a monthly habit

A good habit is to update the table at every month end, when the books are closed. Review it with whoever manages the program, because they know what is coming. Put a one-page summary in front of leadership, showing each grant with its percent spent and its percent of time elapsed. The same numbers are the backbone of your funder reports, so keeping them current makes reporting much easier. See Your grant report is due and you cannot produce the numbers for how that looks at deadline time, and The board asked for a financial report for how to present restricted balances to your board.

If you would like a second set of eyes on how your organization tracks restricted grants today, the Nonprofit Financial Health Check assesses it in writing, and restricted-fund tracking and per-grant spend-down reporting are two of the ten areas it covers.

Millennial M&C Co. provides nonprofit accounting and operational support. The figures in the example are illustrative only. Nothing here is legal advice; for questions about a specific grant agreement, involve your funder or your attorney.