Receiving funds

Guide to Financial Management

Receiving funds

Most NGOs are 50-100% dependent on donor funds (and donors are dependent on implementing partners!). Proper grant management and keeping donors happy is key to achieving objectives, and financial survival.

4 stages of grant management:

  1. Contact review and negotiation – do we want this grant? Can we meet the conditions?
  2. Implementation – Adapting systems and managing project funds to meet donor conditions.
  3. Reporting and monitoring – are we meeting donor rules and targets?
  4. Closing off – tying up loose ends and ensuring compliance

Who does what in Grant management?

There are very many different tasks involved in grant management, which relate to both programmes and finance. When finance and programme do not work well together as a team there is a big risk of some of these tasks being duplicated or some not being done at all.

Use our Who does what in Grant Management checklist to make sure that all the necessary tasks are allocated in your organisation.


Building relationships with donors

It can be useful to think about your relationship with donors from the donors' point of view.

Donors usually make grants to organisations that they have confidence in. All your dealings with donors should aim to build up their confidence in your organisation, for instance by:

  • Describing how you plan to use funds - through clear plans and budgets.
  • Demonstrating that you have proper controls in place, including good management.
  • Providing honest and accurate reports of your work.

Most donors have run into trouble in the past when funds have been mis-used. They know that they cannot rely on trust alone (just like in personal life). Donors also have to be careful with the funds they handle and account for how they have used them.

Above all, keep your donors informed - they do not like nasty surprises!

Contract review and negotiation

Most donors ask recipient organisations to sign an agreement (or contract) before giving them funds. This can provide an opportunity to build up a shared understanding about what you are trying to achieve and how you will work together.

Conditions - read them carefully

Some donors have very strict conditions, for example about precisely what expenditure they will allow and auditing or purchasing procedures. (The European Union and USAID are very rigid.) Other donors are more flexible. But they probably still have rules, for example about changing the budget and reporting requirements.

It is very important to check the conditions before you sign the agreement. Otherwise you may be left with big bills that the donor will not cover - for instance, they may declare some of your costs as ‘unallowable’ and fail to re-imburse you. Or the donor may ask for its money back.

Negotiation - be brave!

It is often possible to negotiate with donors about their conditions - if you feel certain conditions are unreasonable then do not be afraid to make your case.  It is better to negotiate at the beginning than sign the contract but fail to comply!

Budgets - cover your overheads

Make sure your budgets are as complete as possible, including a proper amount of core costs and staff time, before you submit them to donors.

Implementation - Tracking restricted funds

Restricted funds can only be used for the purposes agreed with the donor; they cannot be used to pay for any other costs. It is very important to track restricted funds separately and carefully.

This means (a) having a clear understanding of exactly how donors will allow you to spend restricted funds, and (b) tracking expenditure and income very carefully for each project that receives restricted funds. You can achieve these by using a tool called a 'funding grid' and detailed accounts codes.

Funding grid

A funding grid shows in detail how all of your income is allocated to spent on your overall budget. It needs to be carefully set up by finance staff who know the details of restricted grants.

Follow the links to see an example funding grid and for a more detailed explanation of how the tool works.

Coding system

A detailed coding system can categorise expenses to a cost type (Eg Travel expenses account) as well as to a specific restricted grant or cost centre (Eg Comic Relief funded water project).

See an example of a Chart of Accounts here including both account codes and cost centres.


Monitoring and reporting to donors

Donors usually like to have reports in a specific format and by a specified time. It is normal for there to be both narrative and financial reports, and it is important that they match and complement each other.

It is really important to try to meet donor reporting conditions as late or wrong reports reduce a donor's confidence in your organisation.
The key to easy reporting at the end of a period is setting up systems properly at the beginning!

Here are some simple steps:

  1. Set up your account codes (Chart of Accounts) in such a way that you can map from your own account codes to the donor’s codes if they are different.
  2. Identify and be sure to understand each donor’s reporting requirements.
  3. Set up a timetable with internal targets (eg bank reconciliation, advance accountabilities etc) so that the reporting deadlines can be met.

Grant closure

Often the end of a grant means the end of a project. Preparation for the closure should begin 3-6 months prior to the end date of the grant. Key considerations include:

  • accurately forecasting expenses and any adjusting entries that need to be made
  • ensuring maximum usage of remaining fund (on meaningful, beneficiary focussed activities!)
  • ensuring that all supporting documents are filed safely and securely, ready for audit
  • applying for ‘no cost extensions’ if appropriate
  • arranging for proper disposal of assets and equipment
  • making arrangements for departing staff
  • preparing the final donor report
  • organising the final audit

Want to learn more?

Mango’s training course Keeping your donors happy is a two day course for managers new to Grant Management.

Find out more about Financial Management