A charity may start a project with an approved grant and a seemingly balanced budget, only to find itself covering additional expenditure from its general funds a few months later. Spending may be below budget, yet available cash may be insufficient to pay suppliers. An activity may even be delivered as planned, but the funder refuses to cover some of its costs because of eligibility conditions or inadequate documentation.
These situations may look similar, but they require different decisions. Rising costs differ from a delayed payment, and a disallowed expense differs from a contribution the charity deliberately agreed to make.
Here, losing money means that a project consumes resources the charity had not planned to allocate to it, or that its contribution exceeds the approved amount. Whether a deficit or loss is recognised in the financial statements depends on the appropriate accounting treatment.
To protect its resources, a charity needs to keep asking two questions throughout delivery: How much will it cost to complete the project? And will the available funding, given its conditions and timing, cover that cost?
First: Identify the Problem Before Looking for a Solution
Financial pressure during a project does not always mean the grant is insufficient. Distinguishing between the following situations helps the charity choose an appropriate response:
| Situation | What is happening? | What should the charity examine? |
|---|---|---|
| Funding gap | Required costs exceed the confirmed resources that can be used to cover them | The size of the gap, how it can be funded, or whether the project can be adjusted |
| Temporary cash flow shortfall | Funding is sufficient overall, but receipts arrive after payments fall due | The payment schedule and cash available to bridge the gap |
| Planned charity contribution | The charity has approved funding part of the cost from suitable resources | Whether it can afford the contribution and its effect on other commitments |
| Disallowed or disputed expenditure | The funder refuses to cover an expense or requests further supporting evidence | The reason for the objection, whether it can be resolved, and the agreement’s conditions |
| Commitments continuing beyond the funding period | Some contracts, services or closure tasks continue after the grant ends | The remaining cost and how it will be covered |
Several situations may arise within the same project. Rising prices may create a funding gap, while a delayed instalment causes an additional cash flow problem.
A charity’s contribution is not automatically a mistake. It may choose to deliver a project whose full cost is not covered by the funder because it supports its priorities, provided it understands and can finance its contribution. Guidance from the UK’s National Council for Voluntary Organisations (NCVO) explains that using other resources to meet a project’s costs should be a deliberate decision.
Second: Grant Restrictions Do Not Automatically Reduce Its Value
If a grant is restricted to an education programme, its value is not reduced simply because it cannot fund a health programme or the charity’s general needs. Its conditions may be entirely appropriate for its intended purpose.
The problem arises when a necessary project cost cannot be covered under the agreement, or when the permitted funding falls short of the actual requirement.
Suppose a grant of SAR 500,000 fully covers its approved budget items, but the project requires another SAR 50,000 in costs outside the grant’s scope. The grant is still worth SAR 500,000, but the total requirement is SAR 550,000. The charity needs a suitable source of funding for the difference.
It is therefore insufficient to examine the total alone. Each item should be linked to its funding source, spending limits, eligibility period and any approvals required for changes.
Savings may arise under one budget heading while another exceeds its allocation. Those savings cannot automatically be transferred: the agreement may permit adjustments within specified limits or require prior approval.
Third: Update the Forecast Cost at Completion
The original budget represents the approved plan, but it cannot, on its own, show the consequences of changing prices, delivery schedules or project requirements.
A more useful measure during delivery is:
Forecast cost at completion = Actual costs incurred to date + Estimated cost of the remaining work.
The estimate for the remaining work includes contractual commitments not yet recognised in actual costs, work not yet contracted, and reporting and closure requirements. Commitments should not be added again if they are already included in actual costs or the remaining cost estimate.
Update the estimate using current information: quotations, contracts, remaining quantities, staff time requirements and any changes to the delivery plan.
The initial full cost calculation should include direct resources and an appropriate share of support services. NCVO identifies this as the basis for preparing a realistic project budget.
A Worked Example: Identifying a Deficit Before the Project Ends
In this hypothetical example for learning purposes, a charity begins a project with an approved budget and grant of SAR 600,000:
| Original budget component | Amount |
|---|---|
| Direct activities and services | SAR 500,000 |
| Project management, monitoring and reporting | SAR 60,000 |
| Project share of shared support services | SAR 40,000 |
| Total | SAR 600,000 |
Assume the agreement permits these costs and the charity can meet the conditions for receiving the full grant.
Halfway through delivery, actual costs amount to SAR 280,000. Under the original plan, the remaining work was estimated at SAR 320,000. However, a review identifies an essential requirement costing SAR 40,000 that was not previously included and is ineligible for grant funding. It also identifies a SAR 30,000 increase in the prices of some remaining purchases.
Assume these additional amounts do not overlap, and that the price increase exceeds the original budget without being offset by usable savings elsewhere:
| Mid-project review | Amount |
|---|---|
| Actual costs incurred to date | SAR 280,000 |
| Remaining work under the original plan | SAR 320,000 |
| Additional essential requirement ineligible for grant funding | SAR 40,000 |
| Forecast increase in remaining purchase prices | SAR 30,000 |
| Forecast cost at completion | SAR 670,000 |
| Total confirmed grant usable for approved costs | SAR 600,000 |
| Gap before any additional contribution | SAR 70,000 |
The charity has spent less than half the budget, yet the forecast deficit is already clear. Waiting until expenditure reaches SAR 600,000 would delay its discovery.
If the charity approves an additional contribution of SAR 20,000 from resources available for this purpose, a gap of SAR 50,000 remains.
The simplified management calculation is:
Funding gap = Forecast cost at completion − Total confirmed funding permitted to cover those costs − Approved charity contribution.
Apply the comparison to the whole project, including funding already used and funding remaining, and review it at budget-item level as well. Restricted funding should not be deducted merely because it is restricted, and management costs should not be deducted again if they are already included in the cost forecast.
Fourth: Review Cash Flow Separately
The calculation may show that costs are covered, while insufficient cash is available to make payments this month.
In a separate hypothetical example, a project has SAR 80,000 in cash at the start of a month, expects an instalment of SAR 120,000, and has payments of SAR 150,000 falling due.
If the instalment arrives on time, the forecast closing balance is SAR 50,000. If it is delayed, the project faces a cash shortfall of SAR 70,000 against the payments due.
The delay does not automatically add SAR 70,000 to the project’s cost; it creates a temporary cash shortage. However, if it results in charges, penalties or contract extensions, those additional costs should be included in the forecast cost at completion.
The cash flow forecast therefore needs to show instalment dates, payment conditions, amounts falling due and the certainty of expected receipts. The entire bank balance should not be treated as available, as some funds may be restricted to other purposes.
Any temporary use of the charity’s resources requires a permitted basis and appropriate approval. Where repayment is part of the approved arrangement, the charity should monitor the project’s ability to repay those resources.
Fifth: Understand Why an Essential Expense May Be Disallowed
An expense may be necessary for delivery but rejected by the funder for several reasons. It may fall outside permitted budget items or the eligibility period, exceed an approved limit, or require authorisation that was not obtained. The issue may instead concern supporting documents or procurement procedures.
Two questions should therefore be considered separately:
Does the project need this expenditure? And does it meet the conditions for funding under the grant?
If the problem is missing documentation that can be supplied in accordance with the rules, the response differs from that required for expenditure explicitly excluded by the agreement. An initial objection should not be treated as a final rejection without checking, nor should the charity assume every objection can be resolved.
When expenditure is definitively disallowed, review the charity’s responsibilities, how the cost will be covered, and any effect on amounts still receivable or funds that may need to be repaid. Update financial forecasts using the confirmed position rather than continuing to assume the expense will be funded.
Sixth: Monitor Compliance and Closure Costs
Grant management includes procurement procedures, record-keeping, reporting, approvals and audit follow-up. These tasks require resources, but their costs should not be added repeatedly if they are already included in staff time or support services.
The relevant question is whether the resources budgeted are sufficient for the actual requirements. If requirements increase or delivery takes longer, identify the additional work and its cost.
The review should extend beyond the final activity. Final reports, supplier settlements, audits, record retention or unfinished contracts may remain. A project may also establish a service that requires continued operation after funding ends.
Identify these commitments, their deadlines and funding sources, distinguishing between the end of activities, the end of the expenditure eligibility period and the final reporting deadline.
Retaining an asset purchased by the project does not automatically require the service to continue indefinitely. Review the agreement’s requirements, the charity’s plans and the commitments it can realistically meet.
Seventh: Turn an Identified Gap into an Early Decision
When a gap emerges, the project manager and finance officer need to review its cause, size, timing and likely effect on results.
If prices have risen, review remaining purchases and alternatives that meet the required quality. If an instalment is delayed, review its release conditions and the cash flow forecast. If a cost is ineligible, identify a funding source that permits its use or consider an appropriate project adjustment.
Before transferring funds between budget headings, reducing activities or changing schedules, check the charity’s authority and the agreement’s conditions. Obtain written approval where required rather than assuming that informing the funder afterwards is sufficient.
The response can be organised into five steps:
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Confirm the information: Establish the forecast cost, confirmed funding and reasons for the variance.
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Assess the options: Identify the services, beneficiaries and commitments affected by each option.
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Check approvals: Determine what the charity can authorise and what requires the funder’s approval.
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Approve the response: Secure additional confirmed funding, approve an affordable contribution, agree an adjustment, or combine these approaches.
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Update the delivery plan: Revise the budget, cash flow forecast, responsibilities and review dates.
A new grant application under consideration does not yet cover the gap. Reducing the scope may also create cancellation costs or affect commitments to beneficiaries and suppliers, so its implications must be assessed before approval.
Eighth: Track Measures That Reveal Variances
Management needs regular reviews suited to the project’s size and the pace of change. Reviews become particularly important before a major contractual commitment, following an instalment delay or when prices change.
| Measure | What it helps reveal |
|---|---|
| Forecast cost at completion compared with the budget | Expected overspending or savings across the whole project |
| Gap after confirmed funding and the charity’s contribution | The amount still without funding |
| Forecast cash flow and the timing of shortfalls | Commitments that may not be paid when due |
| Actual expenditure compared with delivery progress | Whether spending corresponds to work completed |
| Disallowed or disputed expenditure | Amounts the charity may need to cover |
| Contractual commitments and remaining work | Costs not visible in current payments alone |
| Charity contribution compared with the approved limit | The extent to which the project is consuming organisational resources |
| Closure work and post-grant commitments | Obligations remaining after activities end |
No single spending percentage establishes whether a project is financially sound. Buying equipment early may be part of the plan, while low expenditure may indicate delays in reaching beneficiaries. Figures must therefore be read alongside the nature and schedule of the activities.
Monitoring becomes effective when each significant variance has an owner, an action and a deadline, and decisions beyond the team’s authority are escalated to the appropriate level within the charity.
A funded project requires continuous financial management, rather than a budget filed away after the grant is signed. A charity can protect its resources by understanding the cost of completion, the conditions governing funding, the timing of cash receipts and the remaining commitments, then acting before a deficit becomes difficult to address.
A grant does not become a burden simply because it is restricted or paid in instalments. The burden arises when a charity takes on costs or risks it does not understand, or delays addressing them until its options narrow.
