It’s that time of year again—glittery solicitations from many worthy (and some not so worthy) nonprofits are piling up like snowdrifts in my mailboxes, both physical and electronic. Like it or not, fundraising for charitable organizations is a competitive sport, and the end of the year can feel like the Winter Olympics! Meanwhile, here at the Hewlett Foundation program staff await end-of-year financial reports from our current grantees, and the suspense around whose report will be ‘naughty’ and whose will be ‘nice’ is palpable.
Believe it or not, we do review these financial reports. Carefully. What are we looking for? Put simply, we want to be reassured that the grant dollars we are providing are being put to good use. This means that we are looking to see whether grantees are spending the money on the staff, activities, and other material support proposed in their grant budgets and that the pace of spending is more or less consistent with the timeline they had laid out for themselves. Of course, we understand that even the best laid plans sometimes need to change as organizations get to work implementing their programs. Lots can, and does, happen, and we find that organizations that are able to anticipate, adapt, and change course in response to challenges are often the most effective organizations at achieving their goals. On the other hand, when we see lots of underspending or redirection of grant budget, it’s sometimes an early signal that an organization misdiagnosed the problem or solution, or that their capacity to deliver is low.
Throughout the year, and now especially, we get questions from our grantees about financial reporting requirements, formats, and how to (successfully) request a no-cost extension. As a program officer, I am often surprised how long our grantees wait to communicate with us about problems they are encountering, and more importantly, how few are proactive about proposing course corrections (and where necessary, requesting a budget modification to allow them to redirect their resources and energies).
So here, in the spirit of this gift-giving season, is a bit of advice for better managing your communications about budgets and financial reporting with us, and probably most of your funders.
First, when you sign a grant agreement, have your finance team review the document thoroughly and then arrange a time to ask questions about the level of detail required (or not) in your financial reports. Most funders provide some guidelines in the grant agreement letter about funds management procedures—that is, what you should do if you need to reallocate funds between line items, request a no-cost extension, and the like. Before the ink on the grant letter is dry, ask questions and clarify any requirements you don’t understand.
Second, make sure you have internal systems in place for tracking your spending, and anticipate well in advance when you will need the next disbursement of funds from the donor. One of our most frequent frustrations with grantees is receiving urgent requests for funds disbursement or budget modifications. Urgent as in, “if you don’t send us funds in the next few days, we won’t be able to [FILL IN THE BLANK—make payroll, carry out activities that our communities are expecting, hold an important event with officials, etc].” This lack of financial planning sends the wrong message about your management capacity and bank transfers take time, even when we’re calling in favors to expedite them. Please: Plan. Don’t panic and pray!
Third, if you find that your project expenditures vary from the budget, report the ACTUAL expenditures. Where there are variances from the approved budget, calculate and report differences in a separate column by line item. We are always surprised how often grantees make calculation errors, neglect to report zero expenditures, or do not show variances in their financial reports. Working on the consistency and accuracy of your financial reports is a good way to build donor confidence that your organization is indeed a good steward of grant funds.
Fourth, if you are having difficulty spending, or need to make course corrections, by all means get in touch. But before you do, take another look at your grant agreement letter so that you can start the conversation well-informed.
Rather than shooting off an “urgent” email, arrange a time to talk with your program officer to clearly lay-out the changes you anticipate and why. This will provide an opportunity for both you and the funder to get questions answered, clarify any additional information needed and agree on next steps and deadlines.
When possible, communicate these types of changes in your activity reports or regularly scheduled check-ins with your program officer. A short and concise (1-3 paragraph) description in the project report of anticipated changes is sufficient, and much appreciated. (We can always ask for more information if needed). Use the cover email when you submit a report to call the donor’s attention to any proposed changes, as well as any questions you might have. Remember that we don’t always read reports immediately, so make it easy for us to spot requests or information that is time-sensitive and don’t hesitate to follow-up if needed.
Finally, keep in mind that less really can be more. It is important to be clear and concise and follow the level of detail that the funder requires when it comes to financial reports. Providing more detail than necessary can complicate your financial communications, raising red flags and diverting the funder’s attention from the great work that you are doing. Make no mistake, all donors will assume and expect that you have good financial systems and controls in place to back up your financial reports, but we don’t want to wade through details we haven’t asked for.
Improving and streamlining your financial communications and reporting isn’t glamorous or glittery. But it can bring solid gold returns. Getting new grants is hard enough! Following these practices could well increase your organization’s chances of getting grant renewals from funders that you have worked hard to build relationships with, which ultimately is what can sustain your work over the long haul.