Recent Sorp guidance makes sure that charities account for donations by making clear whether they are for restricted or unrestricted income. This information protects donors or grant givers by ensuring that monies are held until spent on the correct projects. For private donors who give with no strings attached or who require specific performance outcomes, this is a useful, if crude, control.
However, there has also been a trend, especially among public sector grant givers, towards far more onerous performance criteria and explicit reporting requirements. This gives funders much greater control, but they have also retained or even strengthened their demands for grants to be categorised as restricted income.
The word 'grant' is in itself misleading because it can mean different things to different people, but in an accounting sense it is either a gift or a contract. Grants that are conditional on performance fall into the latter category. (The main principle remains spending the money on the issue or project the donor thought that he or she was contributing to.)
Contract income is not a donation, and charities should be able to have the same commercial freedoms that private sector contractors enjoy, such as being able to make surpluses, if they are awarded contracts.
So public sector grant givers exert more control by moving towards contracts but still insisting on charities treating their contracts as if they were gifts. My own practice at Action for Blind People has always been to treat contracts as unrestricted funds and to argue the case with any funder that claims otherwise. Sometimes we do give ground because it is the only way that we can get the money.
The Charity Finance Directors' Group publication Know Your Cost Base, Know Your Charity warns of the problems caused by misunderstanding the facts relating to restricted and unrestricted funds. I encourage charities and their auditors to help rebalance things by ensuring that placing restrictions on contract income is the exception and not the norm.
- Chris Harris is finance director at Action for Blind People.