Without a doubt, all of us would like to get “free money,” not just for ourselves, but for the organizations we work with as well. But, is there really any such thing as “free money?”
Grant funding is often viewed as “free money.” As a matter of fact, board members or others associated with the organization might say, “just get some of that free grant money.” All organizations need to understand grant funds are not “free money” and come with strings attached.
Maybe you understand grants are not really free; they require a lot of work to obtain and perhaps even more to keep. I sometimes hear organizations think that grant funds can be used for whatever the organization needs. Or, some well-meaning board member will say, “well we have grant money in the bank, let’s just use that.” Except for operating costs awards, grant funds can only be used for the requested and intended purpose.
Government grants have clear regulatory requirements, program regulations, and standard assurances. Failure to comply with all legal statutes, regulations, policies, guidelines, and requirements can result in legal action against the organization. Upon submission of a government grant, an organizational official is required to sign an acknowledgement accepting and agreeing to these requirements. The organization will not pass the initial technical review of the grant application without agreeing to the requirements. In most cases, a grant cannot be submitted electronically without agreement.
However, foundation grants are often not as clear on their expectations and requirements. Generally, there is an expectation that organizations applying for foundation funding will use any funds received for the purposes they were requested and subsequently awarded. In the event funds are not used for the purposes as intended, they can be revoked.
For instance, a judge required an Oklahoma hospital to reimburse $1 million dollars donated by Garth Brooks after failing to construct the women’s health center. In this case, the judge ruled the use of funds for other projects was a breach of contract. A simple google search brings up numerous examples of both foundation and government funds that were required to be returned due to misuse.
While most organizations may never face a lawsuit for failure to use grant money as indicated, it is important to note the following:
- The grant proposal becomes a legal document upon submission. As such, it is a written agreement by the organization to fulfill the project as described in the grant proposal.
- Some foundations also require a signed agreement upon receipt of the funds indicating funds will be used for the purposes for which they are awarded.
- Failure to use grant funds for which they were requested can lead foundations to deem the organization ineligible for future funding. Thus, the impact of a poor decision can be felt by the organization for years, if not indefinitely.
Further, organizations that use funds for purposes beyond the scope of the request could be misappropriating funds. Funds awarded based on a grant proposal are essentially designated funds. These, then, become permanently designated for that purpose. Just as donors can designate where their funds are to be used within the organization, so it is with grant funds.
In the event grant funds are not used for the intended purposes, an external auditor will discover and note the issue in an audit or financial review. Such a note could lead funders to decide against awarding the organization funds in the future.
Finally, to ensure your organization is never deemed to have misappropriated funds or faced a lawsuit or angry donors, using grant funds for the purpose for which they were designated is a sound business practice. Essentially, a grant proposal becomes a promise to do what we said we would do. Thus, our commitment to use grant funds for the purposes for which they are designated, even when it is difficult to do so, becomes a testament to the mission and integrity of the organization.