Why Grant Oversight Matters: Protecting Your Charity’s Purpose & Reputation

Introduction

Government grants are a vital source of income for many Australian charities and not-for-profits, providing essential funds to support their ongoing work. However, this form of charity fundraising is not a simple donation; accepting a grant establishes a binding agreement that carries significant legal and financial responsibilities for the organisation.

For any charity, financial literacy and effectively managing charity money from grants is essential for upholding its purpose, protecting its reputation, and ensuring future charity fundraising success. This guide provides essential information on the core obligations involved in grant oversight, offering practical guidance to help not-for-profits handle their responsibilities and maintain compliance.

Understanding the Core Obligations of Your Charity’s Grant & Funding Agreements

Fulfilling Your Charity’s Contractual Conditions & Requirements

When your charity accepts grant money, it enters into a binding contract with the grant-maker. The grant conditions are the legal terms of that contract, and your organisation has a legal obligation to comply with them.

Before accepting any funds, it is essential to:

• Read all correspondence and attachments carefully
• Understand the full scope of your responsibilities
• Ensure your not-for-profit fully comprehends all requirements

Grant agreements typically include several key components:

Spending directives	Clear rules on how the grant money can and cannot be spent, including any restrictions on purchasing assets.
Project milestones	Specific deadlines by which certain project stages must be completed to demonstrate progress.
Reporting and acquittal	The frequency and format of progress and final reports, including financial statements to show how funds were used. Some agreements may require costly audited accounts.
Unspent funds	Instructions on what to do with any remaining money at the end of the project, which often must be returned to the grant-maker.
Insurance and liability	Requirements for holding specific insurance policies and understanding the consequences of breaching any conditions.
Intellectual property	Guidelines for the ownership and use of any materials, reports, or other intellectual property created with the grant funding.
Acknowledgement	Rules for recognising the funding body, such as the mandatory use of logos on promotional materials.

Upholding the Duties of Your Charity’s Responsible People

A charity’s Responsible People—the board, committee, or trustees—hold the ultimate responsibility for all charity fundraising activities, including the oversight of grants. This duty is a vital aspect of good governance and cannot be delegated, even when the day-to-day management of the grant is handled by staff or external agencies.

Responsible People must ensure the proper management of any money raised through charity fundraising. This involves several key duties:

• Maintaining a clear understanding of how all funds, including grants, are raised and managed.
• Ensuring that appropriate and lawful processes are in place for managing charity money.
• Guaranteeing that all funds are used to further the charity’s specific purpose and benefit its beneficiaries.
• Confirming that any expenses associated with the grant are reasonable and directly support the project’s objectives.

Ensuring Financial Accountability & Transparency for Your Not-for-Profit

Implementing Proper Financial Management & Internal Controls for Your Australian Charity

Once your charity accepts a grant, you must implement suitable administrative systems to manage the funds. The specific arrangements will depend on the size of your organisation and the grant requirements, but sound financial practices are essential for managing charity money and demonstrating accountability.

Effective internal controls are necessary to track spending, ensure transparency, and reduce the risk of mismanagement or fraud. To maintain a strong internal control environment for your charity fundraising and grant management, consider implementing the following measures:

Assign clear responsibility	Document and assign accountability for all grant-related activities to appropriate officers based on their skills and experience.
Segregate duties	Where possible, separate the roles of those who keep financial records from those who carry out the work. This simple step helps to minimise the risk of fraud.
Ensure proper authorisation	All grant expenditure should be approved in accordance with your board’s delegations of authority. The authorising officer must verify the legitimacy of the work or expense before giving approval.
Maintain an audit trail	Keep adequate documentation and records of all activities and transactions. This includes using a well-organised chart of accounts and ensuring information systems are reliable and accurate.

Meeting Reporting & Acquittal Requirements for Grants

The grant agreement your not-for-profit signs will specify all reporting and acquittal requirements. It is vital to understand these obligations from the outset, as they can range from a single final report to multiple progress reports throughout the project’s life.

These reports demonstrate to the grant-maker that funds were used as intended and that project outcomes were achieved. The acquittal process typically involves two key components:

Financial Acquittal	A set of financial statements, which may need to be independently audited, showing how the grant funds were spent. It provides assurance that the money was used for its intended purpose and in line with the agreement.
Performance Report	Details the extent to which your charity has met the outcomes specified in the grant agreement. It documents achievements, activities, and progress against the project’s work plan and performance measures.

Final reports are often more formal and detailed than progress reports. They typically include an executive summary, methodology, a discussion of outcomes, and an evaluation of the project’s impact.

Preparing for Audits & Verification of Government Funding

The audit and verification of grants are becoming increasingly common as grant-makers face greater pressure for accountability. An audit is an independent examination of records and activities to assess system controls and ensure compliance with policies and procedures.

Meticulous record-keeping is vital for any Australian charity to successfully pass such a review. Your not-for-profit organisation may face several types of audits related to its grants, including:

• An external audit of the organisation’s overall finances.
• An internal audit conducted by your own charity.
• A specific audit conducted by the grants body itself.
• An audit by the state or Commonwealth Auditor-General, particularly for large grants.
• A performance audit to measure the extent to which grant outcomes were achieved.

Supplying professionally audited financial information is often a requirement when applying for government grants. It demonstrates financial capacity and helps convince the funding body that the grant money will be used wisely, thereby improving the chances of securing future funding.

Mitigating Risks & Protecting Your Australian Charity’s Reputation

Avoiding Breaches of Grant Agreements & Repayment Demands

Failing to comply with the conditions of a grant or funding agreement constitutes a breach of contract, which can expose your charity to significant financial and legal risks. Proper management of charity money is crucial to prevent these issues.

Major cost variations that are not identified early can erode grant funds, potentially leaving a project unfinished and requiring the money to be returned due to poor financial management.

Common failures that lead to a breach of a grant agreement include:

Not using funds as directed	Spending grant money on activities or items not specified or approved in the agreement is a direct violation of the terms.
Failing to return surplus funds	Grant agreements often require any unspent money to be returned to the grant-maker upon completion of the project.
Neglecting reporting requirements	Not providing progress or final reports on time and in the required format can trigger a breach.
Non-compliance with external laws	Failing to adhere to other relevant legislation or regulations that are stipulated as a condition of the funding.

The consequences of breaching a grant agreement can be severe and long-lasting for a charity. Depending on the terms of the contract, these can include:

• The grant-maker may cease all further payments, halting the project mid-stream.
• Your organisation may be legally required to repay all or part of the grant money it has already received.
• A breach can seriously damage your charity’s reputation with grant-makers, making it difficult to secure future funding.
• Your organisation may become ineligible to apply for other grants from the same or different funding bodies.

Safeguarding Public Trust & Donor Confidence in Your Charity

Transparent and responsible management of funds is fundamental to maintaining a positive public image and the trust of donors. Donors are primarily concerned with the effectiveness and transparency of a charity’s operations.

When a charity demonstrates that it is managing its money responsibly to advance its mission, it can bolster donor confidence and support for its charity fundraising efforts.

Conversely, mismanagement of funds or questionable fundraising tactics can have serious consequences:

• Damage to your charity’s reputation
• Erosion of public goodwill
• Negative impact on future fundraising efforts
• Increased regulatory scrutiny

The Australian Charities and Not-for-profits Commission (ACNC) may intervene if there is significant damage to public trust and confidence in a charity. This makes safeguarding your organisation’s reputation a critical aspect of governance and risk management.

Complying with Australian Charities and Not-for-profits Commission Regulatory Standards for Charities & Not-for-Profits

Adhering to the Australian Charities and Not-for-profits Commission Governance Standards

Charities must ensure they do not mislead the public about how funds from charity fundraising are used. For instance, a charity should not claim that ‘100% of contributions will benefit those in need’ if a portion is allocated to administrative costs. Making false or misleading statements may contravene Australian Consumer Law, which can lead to a breach of the ACNC Governance Standards.

The ACNC has the power to investigate a charity that fails to meet its obligations. The proper management of charity money is essential, as certain issues related to grants and fundraising can trigger ACNC intervention.

These issues include:

• Failing to protect and properly account for all funds raised
• Having inadequate oversight of the charity’s activities or resources
• Engaging in commercial or fundraising arrangements that do not comply with the law or are not in the charity’s best interests
• Not properly managing conflicts of interest, particularly when fundraising involves related parties
• Exposing the charity to risks through serious or frequent failures in fundraising conduct
• Any criminal activity, such as fraud or theft, which indicates misconduct or mismanagement in the charity’s administration

Meeting External Conduct Standards for Overseas Funding & Operations

For Australian charities and not-for-profits that operate internationally, an additional layer of compliance is required through the ACNC External Conduct Standards. These standards govern how a charity must manage its activities, funds, and other resources outside Australia. They apply to any registered charity that operates overseas, even if it is only a minor part of its work or involves sending a small amount of money abroad.

The External Conduct Standards apply in addition to the ACNC Governance Standards and are designed to promote transparency and ensure resources are used for legitimate charitable purposes.

There are four standards that cover key aspects of overseas operations:

Standard	Core Requirement
Standard 1: Activities and control of resources (including funds)	Focuses on how a charity manages its overseas activities and controls its finances and resources to ensure they are used correctly.
Standard 2: Annual review of overseas activities and record-keeping	Requires a charity to obtain and keep sufficient records of its overseas activities on a country-by-country basis.
Standard 3: Anti-fraud and anti-corruption	Mandates that a charity must have processes in place to combat fraud and corruption and to manage any conflicts of interest in its overseas operations.
Standard 4: Protection of vulnerable individuals	Requires a charity to take reasonable steps to protect the vulnerable people it works with during its overseas operations.

Conclusion

Properly monitoring grants and government funding is a fundamental requirement for any Australian charity, encompassing everything from fulfilling contractual obligations to ensuring robust financial accountability. This diligent oversight is essential for complying with regulatory standards, mitigating risks, and ultimately protecting your organisation’s mission and reputation.

Understanding the complexities of grant management requires specialised knowledge and careful planning. For trusted not-for-profit legal expertise in managing your charity’s legal and financial obligations, contact LawBridge today to ensure your organisation remains compliant and secure.

Frequently Asked Questions