Foundation Operations: Finance-> Grants Management
The Financial Basics of Grant Review
What can a budget in a proposal tell a grant reviewer? A budget, in a sense, is a management tool that depicts what an organization expects to spend over a certain time period. It is useful for understanding how much money will be needed for a major initiative and for tracking whether a project is on plan or not.
During the application process, grantmakers typically request the following financial documents from a potential grantee:
A budget is a financial plan listing all revenues and expenses for the organization. Budgets should be prepared in a simple format that conveys all necessary information. Some foundations establish maximum fringe benefits and overhead rates. Important questions to ask when reviewing the budget include:
Is the budget balanced? A budget that shows a deficit should throw up a red flag or at least prompt the grant reviewer to contact the potential grantee.
Does the budget look complete? A grant reviewer should be on the lookout for any budget that leaves out certain information – salaries or other administrative expenses, for instance. An omission may be a simple oversight or may indicate poor management on the part of the potential grantee.
Does the budget seem reasonable? The best way to reach an answer to this question is to use common sense. A glance at previous years’ budgets and financial documents can tell an important story; make sure expenses and revenues are comparable to previous years. If there seems to be a major discrepancy, review the other information the potential grantee provided or contact the organization directly.
The project budget isolates the revenues and expenses that pertain to the particular project for which the potential grantee is seeking funding.
Audited Financial Statements
Financial statements are used to determine the financial health of an organization and usually include the following documents:
Statement of Financial Position or balance sheet: shows financial position of the organization on a particular date/snapshot;
Statement of Activities or Income Statement of Revenue and Expenses: shows change in net assets;
Statement of Cash Flows: provides a picture of how the organization manages its cash; and
Statement of Functional Expenses: required for health and welfare organizations, outlines expenses in more detail than the Statement of Activities.
IRS Form 990
This form is the tax return for a nonprofit organization. The 990 is publicly available and contains financial statements including the statement of activities, statement of functional expenses, and statement of financial position. In addition, the 990 lists the organization’s board of directors and the five highest paid employees other than directors.
Lammers, Jennifer Ahern, Financial Review Basics for Grantmakers (New York, NY: Fiscal Management Associates, 2004). This primer provides an explanation of the information to look for in financial documents and offers tips for gleaning the important facts quickly and easily.
McLaughlin, Thomas A., Streetsmart Financial Basics for Nonprofit Managers (New York, NY: John Wiley & Sons, 2002). This handbook provides an overview of the important terms and concepts of financial management, explains how to read and interpret financial reports, shows how to analyze and control costs, and provides practical tips for budgeting.
The Cleveland Foundation provides examples of budget templates.
The Enterprise Foundation, Sound Financial Management http://www.practitionerresources.org/cache/documents/614/61437.pdf. This manual offers an overview of organizational financial management for nonprofits. The manual provides clear and simple explanations of nonprofit accounting basics, financial reporting, and using outside accounting services along with other financial topics.