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Acceptance
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Paying bodies should require recipients to formally accept grant offer letters – including the terms and conditions – before any funds are released. This minimises the likelihood of future uncertainties and disputes and enables the recipient to be held accountable for its use of funds and its management of the grant-funded project.
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Additionality
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To ensure value for money, the paying body and the recipient should be clear about what extra things happen as a result of the grant (eg, new or expanded services, more beneficiaries participating, improved access to widen take-up). This entails being able to know the ‘baseline’ of how things stand at the beginning of any grant intervention. Demonstrating additionality is generally a mandatory requirement for projects receiving European funding.
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Application
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People or organisations seeking a grant need to make a formal written request to the paying body. They will set out their details and information about their project on the Application Form which will be assessed by the paying body for approval or rejection. An example application form is provided here.
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Appraisal
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As assessment of whether a bid or proposed project is worthwhile, considering its objectives, the various options available, their costs and benefits and the risks and uncertainties. This assessment has to be done before a decision to apply for (or award) grant is given as it helps ensure that:
- proposed projects meet the grant’s objectives;
- grant is actually needed for the project to go ahead;
- financial propriety over public money is observed;
- value for money and sustainable development will be achieved; and
- appropriate management arrangements are in place to deliver results and monitor progress.
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Approval
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Formal agreement by a person authorised to release all or part of a grant. Approval may be given in full or – if there are some aspects of the bid which need to be reworked or clarified – be given ‘in principle’.
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Assurance
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Relevant and reliable information concerning the recipient’s use of their grant. This may cover the amounts claimed and spent; what the grant delivered; and how the recipient managed the money. Grant-paying bodies need to decide which means of assurance are the most practicable bearing in mind the value of their grants; the track record of the recipients; the cost of auditors’/accountants’ work and the risks involved.
Sources of assurance include:
- certificates from the recipient (from their Project Manager, Finance Director or Senior Accounting Officer);
- the paying body’s regular contact with the recipient and project monitoring;
- the paying body’s use of its access rights to documents, information and explanation, and to inspect assets or service delivery (these access rights will be set out in the grant’s terms and conditions);
- use of internal audit (by the paying body or the recipient);
- reviews of progress reports and performance indicators.
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Bidding round
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Where grants are available for only a limited period and only a few of the possible projects are affordable, paying bodies may choose to invite applications by a fixed date which they will then appraise before deciding which ones will be supported. This process is often adopted for very new grants where support may be given for a few ‘pilot projects’ to enable their success to be evaluated before the scheme is expanded for others. Use of ‘bidding rounds’ helps paying bodies to manage their budgets and workloads as it matches awards to the funding actually available at a point in time.
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Brokerage
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Where a paying body is supporting a number of complex capital projects which may take many years to complete, it may opt to act as a ‘broker’ between recipients who need money early and others who will need it later. This means reprofiling money between recipients over several years. Bodies which receive additional money early (financed from the grant which would otherwise have been payable to the slower runners) then forego all or part of their award in later years to enable the paying body to make ‘catch-up’ payments to the slow runners. As brokerage is risky, it should only be used in compelling circumstances and not be used to compensate for deficiencies in the original award process.
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Capital programme
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The recipient’s list of planned expenditure on investment projects, such as for new construction work and major renovations, IT and other equipment and vehicles.
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Certification Instruction
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An instruction to the auditor certifying a grant claim or final statement issued by the Wales Audit Office. An example is provided here. The instruction is agreed with the grant-paying body before it is issued to the auditor, who will normally be the auditor appointed (or designated) by the Auditor General for Wales. The instruction sets out a programme of tests for the auditor to perform and it explains the key financial terms and conditions of the grant. It also informs the auditor of which form or statement should be used and the deadlines for the recipient body and the auditor to complete their respective certificates.
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Certify
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Completion of a certificate on a claim or statement. The claim or statement must always include a certificate from the recipient – normally that the figures are correct; that grant has been used only for the approved purpose and that no duplicate claim has been submitted. An example is provided here. If the claim or statement also requires an auditor (or independent accountant) certificate, then it is good practice for the auditor certificate to be included too – so that all certificates are on the same document as the figures they cover. However, lengthy claims and lengthy auditor certificates will mean that the auditor’s certificate will need to be on a separate paper which must accompany the claim or statement. Examples of the certificates given by public sector and private/voluntary sector auditors are given here and here.
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Claim Form
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The form issued by the paying body to the recipient which must be used for claiming grant. An example is included here. While small, simple grants may be made by a single payment, grants are normally paid in instalments either linked to the calendar (monthly, quarterly or annually) or to the key stages in a project’s progress. Most grants are paid in arrears – so the recipient is only reimbursed for the actual costs incurred – as a key principle is that recipients should not be paid ‘in advance of need’. However, it is not unusual for charities and community groups to be paid ‘quarterly in advance’ to help them with their cash flows. It is important that claims are made on the correct basis – the ‘income and expenditure’ (accruals) basis is normal although the ‘receipts and payments’ basis is sometimes specified in the grant’s terms and conditions. The ‘income and expenditure’ basis allows claims for goods and services received by the end of the claim period even if the suppliers are not paid until later on. This is the normal basis of accounting. But, under the ‘receipts and payments’ basis, recipients can only claim for the payments they actually made up to the end of the claim period.
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Claim preparation checklist
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A checklist used by the recipient as an aide-memoir when preparing and reviewing claims prior to their certification and submission. An example is given here. It helps ensure that claims are fully supported and free of basic errors and enables the recipient’s own certificate to be well founded.
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Conclusion
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As auditors’ work certifying grants is different in nature to their work on the accounts, auditors give a ‘conclusion’ rather than an ‘opinion’ as a result of their testing on claims and statements. The auditor’s conclusion depends on the level of assurance being sought by the paying body (see ‘Engagement letter’) but normally relates to the auditor stating whether the eligibility criteria have been met and/or grant monies were spent for the approved purpose.
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Defined procedures
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For grants to private/community sector recipients, the paying body may set out a list of procedures and tests for the recipient’s auditor or independent accountant to perform (see ‘Engagement Letter’) when certifying claims and statements. This lessens the scope for misunderstanding about the auditor’s work and the assurance it provides.
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Engagement Letter
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Where grants to private or community sector grants require a certificate from an auditor or an independent accountant, it is good practice for the paying and recipient bodies to set out the terms of the auditor’s engagement (by the recipient). This enables all three parties to clarify expectations, the scope of the auditor’s work and the agreed form of the auditor’s conclusion and report. If a paying body awards many similar grants, it may issue a ‘standard engagement letter’. An example of a tri-partite engagement letter is provided here.
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Evaluation
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This is similar to appraisal. Its main purpose is to ensure that lessons are widely learned, communicated, and applied when appraising future proposals for activities. Evaluation applies to both grant programmes and to individual projects. Where appropriate interim evaluation can be done while the project is in progress. Final evaluation takes place after the programme or project and looks at what actually happened. A programme will normally be evaluated by the funder alone but a project will often be evaluated by the funder as well as the grant recipient.
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Exit Strategy
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Most grants run only for a limited period. Both grant paying bodies and recipients should consider what will happen to secure future sustainability and development of the grant-funded activities when the grant winds down and ends. Mature projects may generate income to become self-financing or be able to access other grants. The credibility and strength of the exit strategy should be taken into account when projects are initially appraised. The strategy may also be termed a ‘forward strategy’ or ‘succession strategy’ – see ‘succession arrangements’ below. In some cases, a different organisation may need to be identified as a successor body or body responsible for continuing commitments such as document retention and asset inventories.
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External Funding Strategy
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The External Funding Strategy captures the purpose, direction, scope and depth of the recipient’s funding activities. As it should also describe the resources, protocols and procedures to be used for fund raising, it should serve as the single most important reference point for any one considering pursuing a grant – all external funding applications should be assessed to ensure they correspond with corporate priorities. The strategy should help officers to apply for funding in a consistent and collaborative way.
In particular, it should:
- provide direction and guidance for the recipient body to apply grants and other external funding (eg, private sponsorship, Government and EC initiatives, lotteries, trust funds, developers’ contributions, capital receipts) to projects over a medium term;
- identify key issues (aims) which need addressing and the methods by which they will be met; and
- identify actions and responsibilities to ensure the aims are met.
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Funding Manager
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An individual (or a Working Group) whose roles include:
- giving all of the recipient’s management input into what is needed from the External Funding Strategy, and ensuring that everyone’s interests are included;
- keeping a database of current and proposed projects using external funding;
- keeping a database of external funding sources which can be used;
- giving appropriate training to colleagues responsible for preparing applications, developing projects and managing/monitoring projects;
- providing a strategic overview of external fundraising and co-ordinating progress to secure it;
- proving input into bids by using best practice, personal knowledge and resource efficiency to ensure the recipient makes the best of every opportunity presented;
- collating and recording details of all funding applications and monitoring progress; and
- monitor project implementation and the impact of funds, ensuring that exit strategies are applied as appropriate.
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Grants Co-ordinator
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A nominated point of contract at the recipient body for liaison between the auditor and senior accountants/project managers in the event of any difficulties met in the course of the auditor’s work or ay delays in claim preparation.
The Grants Co-ordinator should:
- obtain details of all grant schemes claimed by the recipient;
- maintain the Grants Database;
- plan when claims and statements will be prepared and certified so as to meet respective deadlines;
- share correspondence between the recipient and paying bodies with the auditor;
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Grants database
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Register used to manage grants awarded or received. It should record:
- names of the schemes or projects;
- start and end dates of grants;
- names of the paying or receiving bodies;
- the Project Manager and Senior Accountants responsible for them;
- the due dates for claims to be prepared;
- if auditor certification is needed, the auditor deadlines; and
- the dates that claims were submitted and certified.
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Grants protocol
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Written procedures and respective responsibilities for grant recipients and their auditor. It provides them both with a framework of grants administration and the control of claims requiring auditor certification. A model protocol is provided here.
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Grants Specialist
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As many grants can be very complex, auditors may wish to use a Grants Specialist to certify particular schemes. This enables the auditor to have in-depth knowledge and experience of the requirements for each scheme, particularly on what is or is not eligible, and of any bespoke IT systems used to administer grants (eg, Housing and Council Tax Benefits, work-based learner data).
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Mainstreaming
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Mainstreaming is about the grant recipient making grant-funded activities part of what it will do normally in future. It may include any or all of the following:
- reallocating existing resources to target the aims of a grant programme;
- reshaping services to reflect particular needs locally;
- joining up services, particularly through inter-departmental working and multi-agency delivery; and
- learning good practice from pilot projects.
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Match-funding
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Many grants, including those from European Structural Funds, will meet only part of the full project cost. This means that the remaining costs have to be met from other sources, the ‘match funds’, and it will the recipient’s task to secure these. Potential sources of match funds include:
- other Government programmes and grants;
- grants from local authorities and other statutory bodies;
- contributions from the voluntary sector, including donations from charities and trusts;
- contributions from the private sector; and
- loans from various organisations.
Match funding can include ‘contributions in kind’ as well as cash – examples would be the use of the recipient’s paid staff on the project, volunteers, and accommodation.
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Milestones
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Key events, with dates, set out at the planning stage marking a clear stage of progress towards the final outcomes (‘targets’).
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Objective
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The grant’s objectives will be the supported activities which will deliver the changes the grant is meant to bring about. The objective needs to be set when the grant is first designed and it should fit in with the funder’s own strategic objectives. This then enables the application forms and bid evaluation scheme to be written.
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Offer letter
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Letter from the paying body to the recipient which confirms that the bid or application for grant (including any delivery plan) is acceptable and that funding is awarded. The offer letter gives full details of the grant, including:
- the name of the recipient (and any wider partnership being funded);
- the eligible activities approved for funding;
- types of eligible expenditure (and anything else which is ineligible);
- the maximum amount of grant to which the recipient will be entitled;
- the nature of the grant (capital, revenue);
- the rate of grant support and the maximum eligible project cost (if grant is less than 100 per cent);
- the period of the grant, showing the project start and end dates and the last date for claims;
- the outputs to be delivered, showing milestones and the final targets;
- the terms and conditions and any other guidance; and
- a claim form (and any outturn statement).
The letter should include a requirement for the recipient to return a formal letter of ‘acceptance’.
‘Offer letters’ can also be referred to as ‘funding agreements’.
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Payment
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Payments to organisations will normally be made on the basis of claim forms submitted by the grant recipient. However, grants to individuals are normally made in full once the application is accepted by the grant-paying body (although the terms and conditions will set out circumstances in which all or part of the grant can be recovered).
Payment of grant is conditional on compliance with the terms and conditions and on satisfactory progress being made against milestones towards the end objectives and targets.
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Performance Indicator
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Project progress should be measured against agreed key indicators which are Specific, Measurable, Accurate, Robust, and Timebound (‘SMART’). Progress should be monitored against these and measured.
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Procure
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Purchasing may be a more suitable option than a grant for making high-value payments for purposes very specifically defined by the paying body where a ‘contract-relationship’ will be established with the recipient of the money. There will often be very formal procedures to follow (such as obtaining several written quotations or tenders) and regard will have to be paid to the Public Sector Contracts Regulations (SI 5/2006) if the purchase is over a ‘threshold’ value.
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Qualification
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When the auditor or independent accountant finds an error in the claim being certified (which the recipient will not agree to correct), or some issue where there is uncertainty (eg, as to the amount involved, the eligibility of expenditure, or an aspect of project delivery), the auditor will set out the facts alongside their conclusion. The grant-paying body will then need to consider the auditor’s qualification carefully and decide how to respond to it.
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Retention
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Grant-paying bodies may choose to protect their position by holding back a small proportion of the grant which the recipient would otherwise be entitled to. The retention is then released upon final completion of the project if all is well and, where an auditor’s certificate is required, receipt of that certificate without any qualification.
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Scheme Guidance
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Guidance which the grant-paying body issues from time to time on matters of procedure such as the preparation of bids, project delivery plans, partnership working, project appraisal and approval or financial administration concerning the operation of a specific grant programme.
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Slippage
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The recipient is responsible for delivering the project so that milestones and targets are met on time. However, delays in project delivery can arise (perhaps difficulties arose with staff recruitment or building works) which also means that grant will be spent later than expected and, maybe, only part of the amount offered will actually be taken up. If the project and the recipient remain a ‘going concern’, these issues can be addressed by granting an extension of time, virements, approving other activities meeting the grant’s policy objectives, reprofiling funds between financial years, or by reducing the grant offer. If, however, there are serious doubts about the continued viability of the project or the recipient, grant may need to be suspended, terminated or recovered.
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State Aid Limits
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State aid is broadly defined as aid from public funds which potentially distorts competition and trade within the European Union by favouring one commercial undertaking over another. There is no official definition of state aid, but it includes direct state grants (for example, grant aid to attract inward investment), tax exemptions, loans at reduced rates of interest, guarantees or indemnities on favourable terms, sale of land below market value or writing off debts. State aid is normally provided to private businesses but may also include charities, voluntary organisations and public sector bodies that trade commercially.
As a general rule, state aid is illegal under European law unless it has been authorised by the European Commission. The Commission has adopted guidelines, frameworks and block exemptions to clarify its state aid policy. For example, it has established specific rules, including exemptions, for areas such as research and development, protection of the environment and training.
These regulations are complex but they must be complied with to ensure that aid is legal. Recipients of illegal aid risk being held responsible for the cost of any penalty applied by the EC and any actions for damages from third parties.
Where a grant programme or a project uses public expenditure (including EC structural funds) to provide benefits to the commercial undertakings, the assistance provided will normally need to conform to the EC State Aid regulations and be formally notified to the EC (though there is a de-minimis below which aid need not be notified).
Guidance is published on the UK Government’s website, click here to view.
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Statement
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Some grants may be claimed on estimates (eg, where charities are paid quarterly in advance) and others may not need to have every claim certified by an auditor or independent accountant. In these circumstances, it is usual to have the recipient prepare an ‘out-turn’ statement showing the actual income and expenditure incurred (for the year, or for the whole project period). This will normally require certification by an auditor or independent accountant.
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Succession arrangements
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Succession planning is important if projects are to continue once grant ends (see ‘exit strategy’). Recipients should consider what they want to sustain; who should do it and how. There is a risk that key staff may be lost and that valuable assets might be lost. Options which can be considered are transferring staff and assets to:
- the local authority;
- a partnership;
- a charity; or
- a community investment company or a company limited by guarantee.
In some cases, the grant-paying body will set terms and conditions which continue to give it a say in how assets are used or disposed of; how records are retained; and how future income should be applied or shared.
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Sustainable development
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Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It emphasises the importance of a balanced and integrated approach in our response to social, economic and environmental needs and aspirations. It also emphasises the importance of the balance between the developed and developing parts of the world.
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Systems work
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Auditors should integrate their work on grants with that on the recipient’s accounts, to avoid duplicated effort and minimise costs. There is scope to do this for capital grants and for revenue grants which are heavily dependent on central accounting systems (examples for local government would be the Housing Benefits and Council Subsidy claims and the returns for National Non-domestic Rates and Teachers’ Pensions contributions.
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Targets
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The agreed project outputs (eg, number of jobs created, or number of people trained obtaining jobs) which the recipient must deliver as specified in the offer letter. Targets may be set as ‘maxima’ and ‘minima’ or just as ‘minima’. Again they should be ‘SMART’ (see performance indicators’).
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Terms and conditions
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Issued with the offer letter (or contained within it), these set out what the paying body requires the recipient to do in return for funding. The terms and conditions need to be specific to the grant being awarded and they should be checked by a solicitor before issue.
However, examples of the matters covered by terms and conditions include:
- requirement for the recipient to abide by the terms and conditions;
- management, accounting, banking, record-keeping and partnership arrangements;
- method and timing of grant payments and accounting/banking;
- use of the grant for agreed purposes only;
- additionality;
- agreement needed to change scope or detail of project;
- eligible beneficiaries; and
- any geographical or other limits to activities;
- provisions for underspends, virement and slippage and granting any extension of time;
- match-funding and state aid requirements;
- taxes, eg,Value Added Tax, stamp duty;
- monitoring arrangements by the paying body and by the recipient;
- submission of formal progress reports;
- progress review points;
- evaluation; and
- misrepresentation, concealment, withholding of information;
Provisions for suspension, termination and claw back of grant:
- insurances;
- publicity;
- non-agency;
- diversity, equal opportunities, Welsh and other language issues, disability discrimination,
- environmental matters/sustainable development;
- copyright and intellectual property rights;
- assets (acquisition, custody, changes of use, disposal);
- procurement;
- succession arrangements; and
- certification (including that by auditors or independent accountants).
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Value for Money
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Recipients should use grant monies as carefully as their own resources. They should ensure that grants are spent in a way that minimises costs (economy), maximises outputs (efficiency), and fully achieves the intended outcomes (effectiveness). One key aspect is ‘additionality’.
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Virement
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A transfer of the grant offer from one activity (or expenditure type) to another, giving the paying body and the recipient flexibility to deal with over and underspends. As virements will amend the figures set out in the offer letter, they will normally be agreed in writing by both parties though the terms and conditions may allow small virments (say up to 10 per cent of the grant awarded) to be made by the recipient ‘as of right’ so long as the change is notified to the paying body.
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Wales Audit Office
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Means the Auditor General for Wales (Jeremy Colman) or the members of his staff (the Wales Audit Office).
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