Grants:APG/Policies/Underspending and operating reserves

Previous proposal reviews have highlighted a few areas where clarification has been needed. Operating reserves and underspending are two areas that needed such clarification. Inputs and consultations were held over several months in order to set these policies.

Operating reserves

Background

The FDC makes fund allocations that are general support, i.e. funding to support an organization’s overall annual plan to achieve mission objectives that supports both programmatic and administrative costs. It became clear that it was necessary to establish a policy about grantees using FDC funds to create and replenish operating reserves. The WMF team supporting the FDC conducted research about practices in current grantee countries, conducted financial analysis to determine potential effects, and solicited input from the grantees and the FDC. The following policy has been set by the WMF Chief Financial Officer, in line with the fiduciary duties in overseeing movement resources.

Operating reserves policy

For all organizations in the Annual Plan Grants program, funds may be applied to unrestricted operating reserves, only if the total amount of the organization’s operating reserves at any given time does not exceed three months of the organization’s staffing costs (calculated based on the average monthly rate of actual expenditure over the six most recently completed months of operation for which financial data is publicly available, as distinct from budgeted rates of expenditure). This applies over the course of the organization’s fiscal year, whether in the form of an underspend from the previous Annual Plan Grant or a request to add APG funds to operating reserves in the current APG proposal.

Each organization using FDC funds to add to their operating reserves must publish a policy on operating reserves on Meta, or linked to from Meta. Funds unused at the end of the funding period exceeding this maximum amount will be returned to WMF according to WMF’s instructions and the terms of each organization’s grant agreement.

In accordance with this policy, reporting forms for Annual Plan Grant forms will be adjusted so that organizations may report on the state of their reserves and on the use of any reserve funds annually, and reporting requirements related to reserve allocations will be added to the APG grant agreement. The proposal form has been adjusted so that entities may clarify the state of their existing and proposed reserves at the time they are presenting their budgets to the FDC, and also to clarify where FDC funds will be used to develop or replenish those reserves.

Underspending policy

Funds not spent by the grantee during the term of the grant need to be returned to WMF. The APG grant agreement currently reads: “Excessive funds: grant funds that are unexpended ninety (90) days after the Grant Term will be returned to WMF or otherwise transferred or deployed as directed by WMF.” This timing coincides with the deadline for the final impact report. The policy for underspending is below, as developed with the FDC:

The FDC encourages organizations to spend movement resources prudently, and has been pleased to observe organizations doing so. Grantees that spend wisely and maximize their financial resources are to be commended. It is anticipated that organizations will reprioritize activities and spending throughout the year of the grant, adapting to circumstances as needed.

Annual plan grants are made based on the annual plans submitted to the FDC. These grants are currently for a one-year period. Once that period has completed, organizations report on their financials several months later. At this time, grantees will need to identify any portion of FDC grants that was not spent during the grant term.

As outlined in their grant agreement, organizations that have funds remaining from their FDC grant after the one-year grant period closes will have those funds rolled into future disbursements or returned to the WMF, as agreed by the WMF and the grantee. Grantees are able to track any over or underspending because of the requirement in the grant agreement to deposit and account the FDC grants in a separate bank account.

One possible exception to this policy may be held for organizations that experience unanticipated events, causing them to drastically change their plans and not apply to the FDC again in the cycle which they had originally done. In this case, if the WMF and the entity both agree, an extension to their grant may be possible for several months. After the extension ends, if funds remain unspent, they will also need to deducted from future disbursements or returned to the WMF.