Unspent grant funds: what to do at the end of a project

What to do with the money left at the end of a project

The project ends and there is a balance on the account. The temptation to spend it in the final week on something useful is strong, and that is exactly how most disallowances in a final report arise. Below: what counts as the balance, the lawful options, the deadlines and the documents.

The balance is more than the cash on the account

Donors treat as balance everything left over from the project, not just the figure on the statement:

Unspent funds on the project account and in the cash desk.
Interest credited by the bank on project funds.
Exchange gains, where the rate moved in the project’s favour.
Refunds from suppliers: overpayments, amounts for services not delivered, returned advances.
Unused materials and equipment bought with project funds.

All of this is disclosed separately in the final report. Interest and exchange gains are the easiest to overlook, and the quickest for an auditor to find: they are visible on the bank statement.

Four lawful options

Return to the donor. The default scenario. The deadline is usually thirty to sixty days after the end date, with the exact term in the agreement. The transfer goes to bank details confirmed by the donor in writing, with a payment narrative referring to the agreement number.
No cost extension. The period moves, the budget stays, and the balance is spent against the same budget lines. It must be agreed in writing before the end date, not after.
Reallocation between budget lines. Where one line underspent and another is short, the donor may allow a transfer. Most agreements permit movement within a set percentage without separate approval; anything beyond that needs written consent.
Carry over to the next phase. Possible where the donor continues funding and has said so explicitly in a decision. A verbal understanding does not count.

Everything except the return has one thing in common: the decision must be in writing and dated before the project ended.

What you must not do

Spend the balance on lines not in the budget. Even where the cost is useful and project related.
Buy ahead materials or services that will be consumed after the project ends. The donor looks at the delivery date, not the payment date.
Prepay next year’s rent, communications or subscriptions. The classic attempt to use up a balance, and one that is always disallowed.
Keep the interest without written permission.
Return the funds from another account without showing the movement through the project account. The donor needs to see the chain.

What happens to equipment

Equipment bought with project funds does not automatically belong to the organisation. Its fate is set by the agreement and confirmed by a written donor decision: transfer to the organisation, transfer to beneficiaries, return, or sale with repayment of proceeds. Without such a decision the equipment remains an open item in the final report.

You need: a list with inventory numbers, values and storage locations; a handover act; and the donor decision itself. Where equipment went to beneficiaries, an act with each recipient is required.

What the auditor checks

The reconciliation: received from the donor, less spent, less returned, and whether the result is nil.
The project account statement for the final month and the payment order for the return.
Dates: whether every cost of the final month belongs to the project period.
Interest for the whole period and how the organisation dealt with it.
Correspondence with the donor on extension, reallocation or the fate of equipment.
Whether any prepayments cover periods after the project end.

A plan for the final month

Thirty days before the end, calculate the expected balance and write to the donor if an extension or reallocation is needed.
Stop new purchases where goods or services will not be received before the end date.
Collect all acts and invoices for the final month immediately, without waiting for the report.
Ask the bank for a statement of interest credited over the whole project period.
Do the reconciliation and return the balance on time, keeping the payment order.

Can the balance be spent in the final week of the project

Yes, if the cost is in the budget, the goods or services were actually received before the end date, and supporting documents carry matching dates. Everything else is disallowed, even where the money left the account on time.

What to do with interest credited by the bank

Disclose it on a separate line in the final report for the whole project period. Most donors require it to be returned with the balance; some allow it to be spent on budget lines. The rule is in the agreement, and where there is no clause, write to the donor.

By when must unspent funds be returned

Usually thirty to sixty days after the project end date, with the exact term in the agreement. A late return is recorded in the audit report and damages the organisation’s record for the next application.

Who owns the equipment after the project ends

Whoever the donor named in a written decision. By default it does not become the property of the organisation. You need an equipment list, a handover act and the donor decision itself, otherwise the item stays open in the final report.

If you need a review

We have audited international technical assistance projects since 2000, and most problems in a final report are created in the last month. Tell us when the project ends and roughly what balance you expect, and we will say what can still be done before the end date. A proposal follows once we have reviewed the assignment.