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Leveraging a Budget to Build a Foundation-Grantee Partnership

May 31, 2013

(Steven Green is the director of grants management and administration for the Jim Joseph Foundation, which seeks to foster compelling, effective Jewish learning experiences for young Jews in the United States.)

Headshot_steven_greenIn many ways, a grantmaking relationship begins with a shared understanding of a budget. This is not to say that grant financials supersede programmatic goals; rather, they are essentially complementary: comprehensive financial reporting, accompanied by a detailed budget narrative, sets a roadmap for an organization's programmatic priorities.

When a funder and a grantee come together for budget reviews, it is an opportunity for them to explore how grantee management of the funding can support efficient implementation of the grant. They can think more strategically about how to achieve their shared goals. For the Jim Joseph Foundation, conversations about timing of grant payments and reporting on grant implementation are part of a relational funder-grantee dynamic. Four key factors, all related to financial practices, can provide the framework for a substantive foundation-grantee partnership:

Pay prospectively. By the time we award a grant to an organization, we have undertaken an extensive review of its mission alignment, fiscal health, leadership, strategy, and prior accomplishments. In addition, the grantee has already invested significant resources in advancing beyond the application process.

As grantees will attest, we request thorough documentation on the projects to be funded. From this information, we gain an understanding of the stages of a grantee's initiative and can anticipate when payments will be needed. We often agree to a payment schedule that provides part of the funding in advance of when expenditures are expected to occur. This practice supports an initiative's growth and progression, and it provides a sense of security for the grantee. Moreover, making selected grant payments in advance allows both parties to focus more on the actual initiative and less on the dollars. (Incidentally, we have a similar relationship with researchers, consultants, and independent evaluators. While we reserve a small payment to be made at the end of each contract, a majority of the contract awarded is paid prospectively. Reconciliation based on wages and expenses occurs at the end of the contract, when a final payment is calculated.)

Specify budget requirements and be willing to adapt. Along with specifying programmatic benchmarks, it is imperative that the grantmaker be clear about which financial reporting is necessary and avoid requesting documents that do not provide any critical information about the success of a grant or the financial well-being of an organization. Our goal is to gain a full understanding of the grantee -- how it has been operating and how it seeks to operate in the future. Over the past year, we standardized the questions that we ask in each of our internal systematic budget reviews of major grants. These questions, which help us formalize the items that we request as fiscal deliverables, include:

  • Are there any red flags in the most recent audited financials, including a citation in the management letter?
  • Is there a single/multiyear deficit in the program or organizational budget? If so, do we know why?
  • Are foundation payments consistent with actual budgeted payments?
  • Are actual revenues and expenses consistent through different iterations of the budget?
  • Are personnel costs appropriate? What are the FTEs?
  • Is carryover accounted for and consistent between years?
  • What percentage of the program/organizational budget does the foundation pay?
  • Does the organization have adequate cash flow/reserves?

Interacting with each grantee on an individual basis is paramount to developing a partnership. We understand that each organization is unique. Rather than requiring all grantees to conform to a specific percentage basis for overhead costs within the budget, we try to understand what the overhead relates to in each circumstance and ensure that the agreed-upon percentage is consistent across the grant period. And if we discover that expenses or revenues vary from the original budget projections, we are open to adjusting payments accordingly. We have even had cases where the organization changed its grant strategy midway through the grant period and we were able to adapt the grant.

Our goal is to move forward with grantees to achieve shared goals. Before issuing payments, we make sure to understand the reason behind a budgetary choice and confirm that the budgets come to the foundation with the formal approval of the grantee's board.

Schedule budget-related deliverables and payments collaboratively. The foundation coordinates payments to grantees based on when deliverables are submitted and approved. We have preliminary conversations with grantees regarding when budgets and related information (including audited financials, program and organizational budgets and actuals, and cash flow documentation) should be submitted to avoid redundant production of materials. Typically, cash payments are scheduled around the organization's board meetings, fiscal and program/academic years, and annual audits. It makes little sense to have a budget for an academic program operate on a calendar year simply because that was when a foundation issued the grant -- that would simply create an additional burden for the organization and more opportunity for mistakes in the budgetary process. Instead, by having this dialogue, we limit the need for an organization to create new budgets for the sole purpose of satisfying our grant reporting requirements in favor of those that are already created for the organization's board or other donors. In other words, as recommended by Project Streamline, we try to "align grant schedules with the grantee's timing," not our own.

Maintain communication with other funders. Funder communication is two-fold and centers on both reporting and funding. First, whether or not a grant began through co-funding, coordinating an organization's reporting among multiple funders can be timesaving, informative, and productive. In addition to the fact that foundation professionals can learn from one another about best practices for monitoring financials and program achievements, organizations' administrative workload is reduced when funders receive the same reports and communicate with one another. While we never share an organization's proprietary financial information with other funders, we encourage grantees that are co-funded to adopt more collaborative reporting practices.

Secondly, just as a foundation should communicate concerns about an organization's performance, it also is important for a funder to highlight the organizations that are good fiscal and operational stewards. While the grantmaking process is an opportunity to support a cause, it also is an opportunity to showcase a grantee or specific initiative to other foundations and help open up additional funding opportunities.

Budgets are more than just pro forma documents. They provide a roadmap for both the funder and grantee that depict the interaction of expenses, revenues, and project activities. When leveraged appropriately, budgets can be the "jumping-off" point for a productive partnership for both parties -- crystallizing goals and leading to positive long-term outcomes.

-- Steven Green

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