The Funder Calls the Tune
By: Debi Peverill
Tags: Governance, Board, Productivity, Meetings, Funder

If an organization receives funding, then it is the funder who tells the organization what to do with the money. An organization cannot take the funding and then not follow the wishes of the funder.

An organization has a choice — take the money and do what has been asked of you or don’t take the money and do what you want.

This is a stark division. It is possible that there is some negotiation back and for the between the funder and the fundee about how the funding could be deployed. If the funder is giving money to the group, there is a reason. There is some objective that the funder wishes to see achieved.

An example — when a service group gives money to a food bank, they would expect that the money goes to the operation of the food bank. If management of the food bank can show a relationship between the money being spent and the operation of the food bank then all is well. The wages of the food bank employees, the rent paid to the landlord where the food bank is located, these are examples of expenses that the funder would allow. What if the employees are being paid by the food bank but they are working on some project other than the food bank. What if the organization does a number of things besides the food bank, what if they run a drop in day care for children and for seniors and also provide employment counselling? The funder would need to be clear about whether they are funding the food bank or the organization that runs the food bank.

This type of confusion can lead to serious charges. If the funder intends for the money to be used for the food bank and only for the food bank, then the organization will need to be able to prove that. They will be asked to show that their books indicate that the food bank costs are at least as high as the funding received. If the books do not show that, and the money was spent, then an allegation of misappropriation of funds could be made. The group took the money and spent it on something else.

You can see the issue for the board. The board members must make sure that there are policies and procedures in place to allow them to supervise the spending of this money. How can they tell from their review of the financial statements that grant money is being properly spent? Does their financial system give them the data that they need? Have they made it clear to management the requirements that must be followed, as explained in the funding agreements?

Board members duty of care, will require them to ask the questions about funding agreements and to be sure that they understand any requirements in the agreement. Management should be able to explain the terms. There are some funders who, although they will pay for training events, they will not pay for alcohol. Including alcohol on the list of expenses would be a breach of the agreement and that could lead to loss of funding, which no organization wants to see.

For most organizations keeping their funders happy is a key aspect of success. Without funding objectives cannot be achieved. Board members and management should take care to understand the rules in the funding agreements to be sure that they can show they have complied.