Sunday, January 10, 2010

What To Do When Your Nonprofit Doesn't Spend All of an Awarded Grant's Money....And Why....

It may seem contrary to logic, but sometimes, after a nonprofit receives a grant it cannot use all of the grant as the nonprofit described it would in the original grant proposal that it submitted to receive the grant. Sometimes there is leftover money from a grant that your nonprofit received. In this case, what would the nonprofit that you work or volunteer for do? I can recommend what you should do and explain, too, why it's the best way to proceed.

A good friend/colleague and I spoke this week, catching up on the holidays and work. She mentioned that the nonprofit that she works for recently discovered that they had a bit of 'extra money' after spending as much as they could of it on the specific project that it was awarded to the organization for. The amount was not big, it was $2,000 but, it was overage.

It may seem to an unsuspecting grant recipient nonprofit's leader like an easy situation to deal with. The unknowing nonprofit who has a bit leftover from an awarded grant may think to them self, '...well...this is a nonprofit... and we spent most of the grant exactly as we said we would in the grant proposal to the grant donor: it's only $2,000...I'll just spend that extra in this other program, that we have, that needs a little cash right now...' or maybe our pretend executive director thought, '...we spent the amount that we said and described needing, as a nonprofit, and they sent the extra or overage in the grant check...they must want us to use all of it any way that we can apply it to our mission statement...'. While are able to track the reasoning in these two pretend self discussions, they are examples of what a recipient nonprofit should not think if they find the awarded grant is larger than the actual program's expenses that they applied for the grant for. The fact is that there's actually more at play with grant overage situations than just unspent money, and it's really important that nonprofit leaders see this, but also understand the positive potential they set their organization up with for the future, if they deal with grant overage situations according to professional nonprofit best practices.

Let's say that you and I work, too, at the nonprofit that my friend does and that it's called Staples for the Hungry. Let's say that the organization serves the hungry in Portland, Oregon; and we applied last year in February for a $15,000 grant from the Portland Food Pantry Foundation for a summertime teen camp lunch program called Healthy Teens Eat Healthy. Let's say that we received a $15,000 grant from them in May 2009. Let's say, too, that in our grant proposal to Portland Food Pantry Foundation we described (in the Program Description portion of the grant proposal) how the program that we were seeking $15,000 for was a lunchroom program at one high school, Zefram Cochrane High School, in the City of Portland and the schoolroom lunch program was to operate over the duration of a specific summer camp's use of the school campus from June to September. Let's say that we found, by mid July, that Staples for the Hungry's camp program, Healthy Teens Eat Healthy was running smoothly, meeting program benchmarks and goals, and the grant was covering its portion of the program's expenses. Let's say, too, that just before the program ended in September we could see in our accounting ledger for the program that the whole grant from Portland Food Pantry Foundation may not get entirely spent (let's say that we thought, before the program began back in January 2009 (when the budgeting and final planning for the summer program was being finalized) that Staples for the Hungry would have to buy all of the baked goods used in our program, and that was part of the expense that we applied, specifically, to the Portland Food Pantry Foundation for). Then, in May 2009, we were gratified to discover that a local grocery store near the high school decided to donate all of the baked goods that the program would need for the month of August. This is how, despite our having planned and budgeted for the Healthy Teens Eat Healthy program correctly, in the end, we had an extra $2,000.

There was no poor budgeting, planning or bookkeeping; the program was a huge success in the end; and all spent items for the program were tracked and accounted for keeping which grant donor donated which portion of the spent budget in mind, as we spent and went through the program. The extra $2,000 doesn't demonstrate some accounting or management error or a problem with the program, itself. The extra $2,000 came from our receiving the baked goods donation unexpectedly.

You, me, my friend, and our executive director sit down to discuss our extra $2,000. Let's say that you and I don't know better and speak up right away saying how great it is to have the extra money in our coffers (especially in this economy), and that we know that another one of our organization's programs, our community food pantry, could use the money. My friend and the executive director each say, "hold on".

When a grant is given to a nonprofit it is a donation. As is true with all donors, including grant donors, nonprofits that develop relationships with their donors focusing on the reason that the donor gives to your specific nonprofit and their interest in the nonprofit's work as the way to engage the donor (or potential donor) and then once engaged, keep them interested in (valuing and supporting) your nonprofit over time. The reason that developing relationships with donors is a professional nonprofit best practice is because it ensures for a nonprofit a sustained donor base (who give regularly) and it also ensures repeat donations. A relationship provides for any nonprofit that forms solid ties with its donors, to receive a donation now but also again and again in the future. A relationship that a nonprofit develops with its donors by explaining what their donated dollars did, how it helped the community, what the current programming goals are, and what success is expected through those current goals instills trust, confidence, a feeling of contributed, and gratitude to the donor (when communicated to them consistently in a way that is not annoying or unprofessional). This developed relationship is an invaluable way to maintain cash flow and community loyalty over time.

Given this nonprofit best practice in developing relationships with donors, it is wise, then, to see the extra money from the grant donation from the grant donor's point of view, always. They gave the grant (in good faith with your nonprofit) because your nonprofit stated (in its grant proposal) how, why, and form whom (or what) the grant, if received, would be spent. A nonprofit only has its reputation, success rate, and potential to stand on when soliciting any donations (including grants). If your agency has received a grant but then decides to spend some of the money in any way other than how your nonprofit stated in the grant proposal it would be spent, then your agency has opened itself up to being discovered to be the dishonest, poorly run, and perhaps even stealing nonprofit that it could appear to be (and this misuse of funds can in fact get back to donors through gossip, annual reports, and a nonprofit's own accounting (which is open to public scrutiny in its tax reporting), or other ways). A nonprofit's reputation takes a long time to both develop and share among its community, but once its established an excellent reputation can raise more money more often (as well as new excellent volunteer, board, and staff recruits) quicker than anything else.

If, during our meeting, we decide that the executive director will give the donor a call, explain the situation, and leave it up to the donor whether they wish to let our nonprofit keep the overage, or if they would rather have it back; then we have decided to do the correct thing according to professional nonprofit best practices. Remember that "best practices" are considered such because they have been tried over and over again by other different types of nonprofits and always work to the nonprofits' advantages. By giving the donor the information (the truth) about the leftover grant money, we are including them in the situation and providing them (as the donor) with the power to use that as yet unused portion of the money that they gave. Sometimes grant donors will say, 'thank you so much for disclosing this overage to us and being honest with us, please keep it and spend it where it's needed'. Other times, they will say, 'thank you so much for disclosing this overage to us and being honest with us, please return that extra money back to us,'. This is what my friend said the grant donor told their nonprofit's executive director, in this instance.

The organization that my friend works for returned the extra (or unspent) $2,000 to the grant donor. One can imagine, especially today in this economy, that all grant donors have considered what they can do to help nonprofits, given the economy. We can imagine that the $2,000 was requested back because maybe the grant donor knew of a situation where $2,000 would help another nonprofit stay on its feet, or get up and running, or keep one more person safe and warm this winter.

What's more is the relationship that the nonprofit demonstrated to the grant donor will only instill confidence among the donor in the nonprofit: the nonprofit's leader was proactive and contacted the donor, they were honest and explained the overage, and they gave the donor the power to do what it thought was best, and then they listened and complied with the donor's wishes. If you don't see that the grant donor will now have the highest regard for this nonprofit (and give again to them in the future) then you are missing the point. Don't miss the point of the relationship a nonprofit can establish and have with its donors, including its grant donors. Imagine that my friend's nonprofit will apply again to this particular grant donor (and they will). Imagine, too, that (as they have before) the amount requested will be in the tens of thousands of dollars. Isn't it worth developing a good relationship with a donor to give them back their (unused) $2,000 to increase the likelihood that our nonprofit will get $15,000 or maybe even $35,000 the next time that we need support? Of course it is.

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