Financial risk # 6 – failure to comply with the terms and conditions of funding contracts

Failure to comply with the terms and conditions of funding contracts

We have recently witnessed the good, the bad and the extremely ugly when it comes to meeting (or not meeting as the case may be) the terms and conditions of funding contracts! Although funding contracts may be many pages long and full of “legalese”, the implications of failing to comply with the small print can be devastating:

  • The funder could demand that funds already received (and even spent) are repaid.
  • You may not be able to access and receive all the funds expected in terms of the contract, even if you have already spent other money whilst awaiting the receipt of the funds.
  • The organisation’s reputation may be seriously damaged and other potential funders may not be prepared to fund you.  (Funders talk to each other!)
  • You may not be able to meet your obligations to your stakeholders, including staff, beneficiaries, other funders, etc.
  • The organisation and/or its officials could be sued by the funder or other parties for damages.

Please read and understand funding contracts (not just the main clauses but also the appendices and the budgets)!

Some of the terms/clauses of a funding contract that should be carefully considered include:

  • The dates of the contract – no expenditure can be charged that was incurred prior to the start date or after the end date.
  • The process for requesting the transfer of funds – special forms, dates, timing and any other conditions.
  • How the funds provided should be held and what should happen to any interest generated from the funds and/or any surplus arising at the completion of the contract.
  • Reporting requirements – formats, dates and deadlines.
  • Audit requirements – by way of annual financial statements and/or special audit on the use of the funds provided, on the project income and expenditure and/or the finances of the organisation as a whole.
  • Restrictions and limitations – related to the objectives, activities, other sources of funds, spending, etc.
  • The approved budget and related clauses – particularly what variances may (or may not) be allowed and what to do if the budget needs to be changed.

The last point is particularly important   – see our next financial risk alert (#7) on risks relating to budgets in funding proposals and contracts.

We were recently impressed by the approach of one organisation whose management team, including programme and finance staff, met with the representative of the funder to ensure that all elements of the funding contract were clarified and understood. Even if you do not meet with a representative of the funder, it is good to meet internally to ensure that the contractual conditions are understood before expenditure commitments are made with the relevant funds and that all actions required have been assigned (such as responsibility for project initiation and delivery, for narrative and financial reporting etc.).