How to ethically spend/allocate leftover grant funds?

July 28, 2015 8:29 AM

Hi. I work at a nonprofit organization, and we have a non-governmental grant that pays for my salary and program expenses. It's coming up on the end of the grant year, and I have leftover funds. I'm not sure I agree with a directive coming from my boss about how to allocate the leftover funds in the budget. I need some people with on-the-ground nonprofit experience to tell me if my ethical line is stricter than the general best practices one.

My understanding is that at the end of a grant, if there's money left over you spend it. Or you ask to carry it over beyond the end of the grant. I get it.

Last year, though, instead of spending, my boss said we will be keeping any leftovers. If you meet the grant outcomes and have leftover money, you keep it.

This year, I asked our financial person where to allocate the money, and she said to put it in salary, specifically towards a particular staff member. But this staff member didn't do anything for my grant. (This is where it seems weird to me. If this person didn't work on the grant, why can you say salary went to them?)

My boss came to me to talk about it, and he said that even if a particular person didn't work at all on my grant, that the rest of the money should just go to salaries. I said I thought that seemed off, weird, and really is that OK? His reply was "I used to think that way too when I started years ago, but it's not unethical at all. This is just how it's done."

If it matters, it's a question of about $3000 out of $120,000.

Is he correct? Is that really OK? Do you know where I could find a resource explaining what kind of numbers fudging is OK and what kind isn't?

posted by anonymous to Work & Money (12 answers total)

Is other person's salary usually covered by indirect costs from your grant?
posted by k8t at 8:35 AM on July 28, 2015

In our grant environment this type of thing is spelled out in the award letter. We definitely have had grants where "extra" funds can be allocated to other organizational needs as long as the project aims have been met as specified - but again, it's spelled out in the award letter. Can you get access to look at the letter without making your boss angry?
posted by Frowner at 8:36 AM on July 28, 2015

(Oh, that's a good question - does the other person support you or people who work on the grant? My salary comes from IDC even though I don't "work on" any grants, what with lacking the relevant pipetting skills, because I support those who do.)
posted by Frowner at 8:37 AM on July 28, 2015

This is something that should be covered by the terms in the grant letter from the granting organization. When we give a grant of that size you better believe we follow up with the grantee organization if their final report fudges the use of 3k. (and by follow up i mean we never give them money again)
posted by poffin boffin at 8:54 AM on July 28, 2015

Yes, depends entirely on the terms of the specific grant: it may be allowed, it may not be. There isn't a single, uniform definition of what all grants permit.

(Says the woman currently at work, managing six programmatic direct and indirect reports and coordinating with a legal team of five attorneys - all of us working on terms and conditions for the next phase of a state grant program.)
posted by teragram at 9:03 AM on July 28, 2015

What's more, someone at your organization is writing a report to the granting body to close out the award (unless this is some smallish, very idiosyncratic foundation - but $120,000 is a big award for a foundation so probably not). That person will be accounting for what was spent and they'll need either to assert that it was all spent on your salary and program costs or to explain that there was $3000 "extra" and it went to another area.

Who manages awards in your organization? Can you ask them? It's possible that your boss was just thinking "uh, the accountant said this was okay for reasons and I am not familiar with this 'award letter' business so I can't explain in more detail" and everything is perfectly fine.
posted by Frowner at 9:23 AM on July 28, 2015

At the non-profits I worked at, the general consensus was that if you didn't spend or find a way to somehow use what you got - in accordance with the terms of the agreement, of course - what you did was demonstrate that your organization doesn't actually need that much, thereby guaranteeing getting less the next year from the funder in question, and probably others, who would be referring to your annual report etc. in future applications. "Underspending" was seen as threatening the organization's long-term survival, given reliance on unpredictable sources; your boss subscribes to a pragmatic, consequentialist sort of ethics oriented around protecting the organization - and its end-users - over the long haul. Whether that's ok or not depends on your POV, I guess (and the terms of the grant).
posted by cotton dress sock at 9:58 AM on July 28, 2015 [1 favorite]

Grant awards have directions about how excess funds may be used. Those requirements specific to the award itself. Was the money granted to the agency's general fund or to a specific program? There are reasons to do it both ways - it really depends on the granting agency.

It may or may not be dodgy. To know you need to research the specific terms of the grant.
posted by 26.2 at 12:18 PM on July 28, 2015 [1 favorite]

Mod note: Update from the OP:

Hi all,

Some clarification: I had to make this question pretty vague given the small community of nonprofits and funding sources in the US. Some of the details have been obscured or changed for that reason.

The award letter says that the funds must be returned if they are not used toward program expenses. It is extremely vague. There are some things we can't spend on, and we have not spent on that. In the case that there are "significant" variances from the way we said we would spend the funds, we need to explain. Usually that means shifting some costs from line item to another line item. Like, if a project staff person took unpaid leave for three months, we'd use that salary for professional development or the like.

There is some indirect in the grant, but at a pretty low percentage. I am the one who writes the reports, but this pressure not to spend on new things and to allocate things we have already spent money on like salaries makes me need to get permission from above at the end of the grant year. When I can see a link between my project and the expenses that we are scrambling to allocate under existing line items, I have no problem. Like, if we had put in to buy X units of Item, but then we turned out to need X+3, I wouldn't worry. But just adding it to salaries seems weird. The employee in question did not record any hours in the last year on the project, and at most they would have spent 10 hours over the course of the year doing things related to the project.

I suppose I was wondering if there's a resource online or in a book about how to draw these lines.

poffin boffin, it looks like you work from the other side of the funding equation. I'd love to get more info from you. I created a throwaway: [e-mail]

posted by LobsterMitten (staff) at 2:56 PM on July 28, 2015

I just turned down a well-intended offer that would have required me to put a salary that was administrative into the operational side to look better budget wise with the granter's knowledge, but that was just - it didn't feel right ethically, because they're not the only donors, and it would misrepresent our finances to the other donors, so I get what you mean about the huh, queasy feeling. On paper it works, everyone's doing it, but it's just - not quite right.

I got to do that because I have the board and personal networking ability to say no. If you're doing the reporting and you don't have access to the original grant documentation or contacts with the grant makers, then it becomes much more difficult. Is there someone over your boss? What's the fallout if you contact the staff who originally got the grant to ask for details? This line from your boss is somewhat worrying: "I used to think that way too when I started years ago, but it's not unethical at all. This is just how it's done." That's someone who knows it's crossing a line but doesn't really care.

Is there absolutely nothing else you can see to direct the $3000 towards? Any other salaries of people who provided indirect support to you and the project? Your HR, custodial etc? Something you can justify ethically and your boss is happy with, and makes for a decent compromise? If you can find an alternative, then you can go to your boss and say "Oh this is what the $3000 should go to, btw" and avoid the mess.

Otherwise you have to decide if this is worth a possible/likely confrontation.
posted by dorothyisunderwood at 4:57 PM on July 28, 2015

Former grant program officer here. This is a question for your grant's program officer, and any change from your written contract (i.e. funded grant proposal + any grant agreement issued by the funder) is normally required to be approved in writing before you spend the extra funds. It's not unusual for a program officer to approve the purchase of additional program supplies that can help the project continue after the grant period in cases like these.

A grant proposal becomes a legal contract once funded and accepted. Under the terms of the contract, you are obligated to spend the funds in the exact way your proposal stated you would.

The other thing to know is that most organizations are more interested in their grant funds being spent toward their mission (i.e. toward the goals of your grant project) than being returned to them. Only your grant program officer can help you here - give them a call, ask your questions, and follow up your call with an email to get the information in writing.
posted by summerstorm at 10:54 PM on July 28, 2015 [2 favorites]

I will say that I know people who have worked at small nonprofits where what you describe goes on - spending excess project funds on operational costs, for instance. I think it is pretty common in small nonprofits, and I expect that there's some informal recognition of this by granting bodies. From people I know, I've never heard of the money being used unethically - for personal stuff or for something that does not harmonize with the project - and I recognize that because foundations give so little in indirect costs (unlike the state, where you actually get enough IDC to support some operations) there's a lot of pressure on the nonprofits. I tend to think that this kind of problem is an artifact of our screwed up funding situation, since I don't think it's ideal for a foundation to give, say, $50,000 for a project but very little to keep the lights on while the project is going on.

Basically, I think that if it's against the terms of the agreement you shouldn't do it, but that it's not immoral in the same way that embezzling is immoral.
posted by Frowner at 6:21 AM on July 29, 2015