Multi-year unrestricted grants and lighter reporting
What trust-based grantmaking is, and how a non-profit's books and budgets should change when a funder gives multi-year unrestricted money.
By Achekam · · 4 min read · For Non-profit businesses in South Africa, Nigeria, Kenya
For most small non-profits, every grant comes with a budget the funder approved line by line, a reporting template, and a rule that money moves between lines only with permission. The finance officer spends as much time reconciling grants to their own templates as running the organisation's books.
Then a foundation offers something different: a grant over several years, with no restrictions on how it is spent, and a conversation instead of a quarterly report. It sounds like a gift with no strings, and in a sense it is. But unrestricted money brings a responsibility of its own, because the decisions the funder used to make now fall to the board. This article explains the thinking behind trust-based grantmaking and how to set up the books and budgets so that freedom does not turn into drift.
Six practices of trust-based grantmaking
The Trust-Based Philanthropy Project lists six practices it calls trust-based grantmaking:
- Give multi-year unrestricted funding.
- Do the homework on prospective grantees.
- Simplify and streamline paperwork.
- Be transparent and responsive.
- Solicit and act on feedback.
- Offer support beyond the cheque.
These are practices for funders. But a non-profit that understands them is better placed to recognise a trust-based funder, to make the most of the relationship, and to show it was right to trust.
What unrestricted, multi-year money changes
The Project says multi-year unrestricted funding lets grantees decide where grant money is most needed. That might be salaries, which project grants often underfund; an accounting system; a reserve to smooth out late payments from other funders; or a programme no project funder will touch.
Multi-year is as important as unrestricted. A grant that is known for several years lets an organisation employ people on proper contracts, plan programmes that take time, and stop reapplying every year for money it already relies on.
The other side of that freedom is accountability to your own board. The National Council of Nonprofits says boards have a fiduciary duty to ensure a non-profit's assets are used in support of its mission and in line with donors' intent. With a trust-based grant, the donor's intent is broad: support the mission. The board has to turn that into specific decisions, record them and check they were followed.
Lighter paperwork, and a funder that does its own homework
The Project says non-profits spend an inordinate amount of time on funder-driven applications and reports, and that streamlined, dialogue-based approaches can reduce it. Under its "do the homework" practice, it says it is the funder's responsibility to get to know prospective grantees, rather than making non-profits jump through countless hoops just to be invited to submit a proposal.
For the finance officer, lighter reporting does not mean lighter record-keeping. The funder may be content with a conversation and the annual financial statements, but your board still needs to see how the money was used, and the auditor still needs to trace it. The time saved on templates is better spent on clear internal reports.
Keeping unrestricted income separate in the chart
Unrestricted money is easy to lose sight of once it is in the bank. Mixed with restricted grants in a single income account, it becomes impossible to say how much of the organisation's freedom has already been used.
Each organisation in Achekam has its own double-entry ledger with a standard chart of accounts created when the books first open, and accounts can be added, renamed or switched off. Use that to separate the streams:
| Account | What goes in it |
|---|---|
| Restricted grant income, one per funder or project | Money tied to an approved budget |
| Unrestricted grant income, trust-based funders | Multi-year unrestricted grants |
| Unrestricted donations | Individual giving and other general income |
Expense accounts stay organised by nature, such as salaries, rent and programme costs, so the board can see what the unrestricted money is paying for. How to set up restricted funds in the chart in more detail is covered in restricted funds in the chart of accounts.
Budgets for money the board allocates
The most important step is for the board to decide, at the start of each year, how the unrestricted money will be used, and to put that decision into the books.
In Achekam, an organisation can set a budget per account and period and compare it with the actual figures from its ledger. When the board resolves that this year's unrestricted grant will fund two programme salaries, a finance system and a contribution to reserves, enter those amounts as budgets against the matching expense accounts, month by month. The comparison with actuals then shows, during the year, whether the money is going where the board decided.
Management accounts show an income statement for a chosen period beside the period before, and a balance sheet at period end, exportable as PDF or CSV. Together with the budget comparison, that is a short, honest report a trust-based funder will often welcome in place of a template. Note that the year-to-date preset starts on 1 January, not on your own year start, so set the dates yourself if your year ends in another month.
For project grants that keep their line-by-line budgets, grant budget against actual explains the reporting.
A checklist for the first year
- Record the grant agreement's terms, including its years and any reporting the funder still wants.
- Set up an unrestricted grant income account for it.
- Have the board resolve how this year's portion will be used.
- Enter those decisions as budgets per account and period.
- Review budget against actual at each board meeting, and share the summary with the funder.
Learn the practices
The Trust-Based Philanthropy Project's page on the six practices explains each one from the funder's side. Share it with your board, and before the first payment arrives, agree how the unrestricted money will be allocated and reported.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
