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When an organisation receives government grants, it is important to engage your finance team throughout the entire cycle of the project.
Their continuous involvement ensures not only financial compliance but also contributes to sound planning, efficient budgeting and strategic decision making.
However, many organisations often overlook the following key elements:
- Project budgets are not established in consultation with the finance team;
- Budgets are not reviewed by the finance team which may result in all costs (including overheads), not being considered or quantified;
- Budgets may not include contingencies or provisions to allow for cost increases, especially where projects are to be undertaken in the future or where multiple year projects are undertaken;
- Ensuring that funding is applied for once works have been fully costed, reviewed and are within the financial capabilities of your organisation. Consider the potential financial implications before applying or accepting funding, regardless of the importance of the works;
- Grant applications and scope of works may not align with the core objectives and activities of the organisation;
- Ensuring that the organisation has, or will have access to, the necessary resources to undertake the project. Resources may include personnel, information technology, equipment and materials. Consideration should be given as to whether work will be undertaken by existing staff, new staff or contractors;
- Where funding is one-off or has a limited term, ensuring that costs are as fixed as possible;
- Where projects are incurring cost overruns or an inability to deliver the required works, having the courage to discuss this with your funding body immediately. This may involve preparing an updated business case or project budget (in consultation with your finance division) to request additional funding, especially where the scope of works has changed or where original costing assumptions are no longer valid. If required, consideration should be given to withdrawing from the project so as to not financially disadvantage your organisation;
- Information is not provided to the finance team to enable them to undertake their necessary assessments for financial accounting purposes (for example if the grant is to be treated under AASB 15 Revenue from Contracts with Customers or 1058 Income for Not-for-Profit entities) as this can impact on the financial result of the organisation for the year depending on the accounting treatment adopted. For financial accounting purposes, grants are often recognised either as cash on receipt of funds, or recognised over a period of time. For additional information refer to What is a Sufficiently Specific Performance Obligation? | RSM Australia; and
- Regular review of actual costs to budget throughout the project.
As the end of the financial year approaches, it’s not uncommon for government to distribute funds to organisation on an unsolicited basis. While this may seem like a welcome windfall, it’s crucial to approach these opportunities with the same level of scrutiny and strategic planning applied to other funding sources. Failure to do so can result in unintended consequences to your organisation.
While government grants are provided for the ultimate benefit of the community and are vital for ensuring that services are provided, unfortunately poor project management and governance has led to a number of not-for profit organisations becoming unsustainable, requiring them to either seek mergers, enter voluntary administration or liquidation.
To avoid these risks, it’s essential to involve your finance team throughout the entire project cycle. From initial budgeting and compliance checks to strategic planning and financial monitoring, their expertise ensures resources are allocated efficiently and risks are managed effectively. Their continuous involvement not only helps in efficient resource allocation but also strengthens stakeholder confidence.
FOR MORE INFORMATION
If you would like to learn more about the topics discussed in this article, don’t hesitate to get in touch with your local RSM auditor today.
