How do public organizations budget their projects

Excursus: budget and finances

Page 1: Planning budgets, dealing with numbers

Plan budgets

Funding applications always include a part in which you have to present the budget of your project or a cost plan. This part is colloquially called the "financial part" of the application or simply the "number part".

You can represent the financial side of your project in different ways. Sometimes all you need to do is make a small table. In the case of more complex application processes, it can happen that you have to fill out tables of meters length in days of work. The rules that apply to drawing up the budget can also be very different. In some funding programs you can specify a large number of items and have a certain degree of design freedom. In other, more formally organized programs, donors produce thick manuals containing complex regulations.

For these reasons it is not possible to go into details in this chapter. I will limit myself to a few general comments and suggestions that will help you with your financial planning. The most important rule is: In case of doubt, the rules drawn up by the sponsoring institution always apply. If you are unsure about a point, then get in touch with your contact at the donor. Both sides benefit from correct planning and administrative handling of the project - your organization and the donor.

Experience shows that many committed people in the non-profit sector get a little nervous when it comes to dealing with "the numbers". For this reason, I consciously formulate the information in this chapter very simply and only occasionally add a few legal technical terms.

Good financial planning is important. You can be sure that the finances of your application will be carefully examined. With a well-thought-out budget, you can also avoid difficulties and stress in later project implementation.

When planning a project's financial planning, two worlds often collide: On the one hand, there are the people who are responsible for the design and implementation of a project (the project managers). In the non-profit sector, these are often creative or socially committed people who, to put it mildly, are less interested in dealing with balance sheets or taxes. This is offset by accounting, which is mandatory for any non-profit organization that reaches a certain level of sales. People work in accounting whose job it is to track down a difference of 50 cents in columns of numbers and to strictly monitor the application of the accounting rules.

To submit a major grant application that is financially correct, you will need the assistance of your organization's finance professionals. If you are one yourself or if you are familiar with both worlds, all the better. If, on the other hand, you belong to the creative group, then involve your financial experts in the preparation of the application. Listen to them patiently, even if your accountant sometimes uses words like "Fund Use Statement Reporting".

Don't be afraid of the numbers

If you are completely unfamiliar with this sort of thing, you may be a little impressed with the numbers that come up on a grant application. Suddenly you have to estimate expenses, draw up cost plans and move thousands of dollars back and forth on paper.

Keep calm, don't be impressed. There's a big difference between $ 100,000 that appears somewhere in a grant application and $ 100,000 that is in your checking account. The latter is a large sum of money. What is in a funding application are just numbers. Numbers that have to result in a coherent structure.

So adopt a certain serenity when it comes to the calculation. Have your arithmetic gimmicks checked out by someone who has the appropriate training.

Page 2: Project funding, budget

Project funding

A common misconception about grants is that organizations can apply for them and then spend them flexibly. For example, to finance their regular activities.

This assumption does not apply in most cases. As a rule, projects of organizations are funded by institutional donors, not the organizations themselves. In very few cases institutions benefit from institutional funding. Mostly it is a project funding.

You have to explain exactly what costs will be incurred in the planned project. The funds made available for a project may only be used to carry out the project. To nothing else. The financial plan of the application must be designed accordingly. Expenses that have nothing to do with the project have no place in the project's budget.

Should your organization benefit from institutional funding or receive some other financial injection that you can use as you see fit, then you should be pleased. That is rare.

What is a budget?

A budget is a plan of income and expenses. In the case of project funding, the income consists entirely or in part of the amount of money for which you are applying. This sum is also called a grant, financial aid, grant or grant.

You should also state what you will spend the money on. That's the expense.

For a tutoring project of a non-profit association, materials for the targeted support of children with reading and spelling weaknesses are to be purchased. The organization applies to a foundation. The budget of the project looks like this:

revenue
Funding requested from the Foundation1.000 €
Total revenue1.000 €
expenditure
100 textbooks (single price € 10)1.000 €
Total expenses1.000 €

For some funding applications, you can determine the budget of the project yourself (within certain limits). You could apply for € 1,000, € 10,000 or € 20,000 to a foundation that allows this - depending on what you intend to do. The foundation then checks whether the sum is appropriate for the content of the project.

Other institutions promote with a fixed sum, z. B. 5,000 euros. Then the (expected income) for the project is exactly 5,000 euros.

The expense side of the project is more exciting and complicated: you list everything you need money for. Ready-made budget tables often differentiate between different categories of costs (such as personnel costs, material costs, fees), under which you can then list various items.

Page 3: Budget, overrun, zero sum, co-financing
Material costs
500 blank DVDs150,00 €
postage100,00 €
100 t-shirts1.000,00 €
Total material costs1.250,00 €
Fees
Website (design)750,00 €
Website (programming)1.000,00 €
Total fees1.750,00 €

The division into income and expenses may seem trivial to you. But it becomes useful as soon as a project is financed from different sources, i.e. as soon as they have to do with co-financing.

Project budgets can take many different forms - the example above is just one of them.

Exceeding the budget

The question is often asked: what if we have increased expenses as part of our project? Can't we just increase the project budget afterwards? The answer to this question is (in all cases I know of): No. The amount granted is also a fixed maximum amount. This must not be exceeded. If you spend more money, you are left with the additional costs.

The zero at the end

The donation you receive is equivalent to an income. The costs that arise in the course of the project are expenses. Most funders expect a zero to come out at the end. There are some exceptions such as B. funding by means of lump sums.

In other words: If you state in the application that you spend thousands of euros on office supplies, then you must also spend exactly thousands of euros on office supplies. You can't just spend eight hundred euros and put two hundred in your pocket. If you can only provide eight hundred euros, the donor will ask for two hundred euros back. In project practice, certain “shifts” within the budget are possible - but income minus expenses must result in zero. You must reimburse any funds that you did not spend.

For the same reason, it is important to be careful with additional income that arises during the ongoing project. Some financial instruments do not allow this. If you do generate income, the donation will be reduced by the corresponding amount. In this respect, this income does not bring you anything.

But there are also forms of donation where this is not the case. With fixed-amount financing, you receive a fixed amount (as the name suggests). You can keep it, regardless of whether you have higher income or savings. In some programs, one speaks of funding in the form of lump sums. The same applies here: you will always receive lump sums in full if you meet the agreed obligations.

Co-financing

(The following chapter is an advanced digression - if you are uncomfortable reading this, just skip this passage. However, if you are considering applying for EU funding, read the section.)

Co-financing means that the project must receive additional funding from other sources. Some grant programs have prescribed percentages for co-financing. In many cases you have to indicate in the application how the co-financing will be provided.

Co-financing appears on the revenue side when planning a budget.

What can be sources of co-financing? Examples are:

  • Foundations and other funding institutions,
  • Grants from state institutions,
  • Own funds of the applicant,
  • Donations and sponsorship.


Let's go back to the example of the teaching material above. You are applying to another donor. This requires co-financing of at least 10% of the total budget. Otherwise no funding can be applied for. Fortunately, there is a noble donor who will provide you with 100 euros for the project. The budget now looks like this:

revenue
Grant Requested900 €
Private donation100 €
Total revenue1.000 €
expenditure
100 textbooks (single price 10 €)1.000 €
Total expenses1.000 €


The funding you receive from the donor is € 900. The donor requires that you explain in the application how you will raise the co-financing (namely in the form of a donation; you enclose a letter of intent from the donor). Furthermore, during the project, the donor requires written proof that you have received this donation. Even crazier: when you settle the project, you have to prove that you spent € 1,000 - even though the donor only gave you € 900! This confuses a lot of people. Just make it clear to yourself that the co-financing belongs on the revenue side of the project.

The European Union is a sponsoring organization that demands such number games from you. The issue of co-financing is of central importance for EU applications.

The bad news is that in practice it leads to major organizational and administrative problems when the co-financing has to be proven in this way. Because this principle says: I will give you funds, but only if someone else also contributes something to the project. I also want written evidence of all of these events. That complicates things. Complicated things often lead to trouble: more can just go wrong. Imagine the donor decides differently after the project has been approved and yet does not donate. Incidentally, a declaration of intent does not give you any leverage.

The good news is that if you understood the composition of the two cakes in the graphic, then you understood the logic behind the budget of a large EU project.

The rules for co-financing and how to prove it can vary widely. The following is important for the preparation of the application:

  1. Find out if co-financing is required, and if so, how much.
  2. Clarify what type of co-funding will be accepted.
  3. If you have to provide evidence of co-financing, make sure that this co-financing is available in good time.
  4. Particularly important: It is essential to clarify in which administrative form the proof of co-financing will be provided.

Take the topic of "co-financing" very seriously and seek competent advice if necessary. Numerous larger project applications fail and ongoing projects run into great difficulties because proof of co-financing causes problems. In any case, consider yourself lucky if you do not have to provide evidence of co-financing in your application.

Page 5: Budget table, eligible costs, reallocations

Create your own budget table

Regardless of whether it is a complex or rather simple project: It is advisable to set up an internal budget independently of the budget planning in the application document and to calculate the entire project on this basis. A spreadsheet program can be used for this. Compare the income (= funding) with the expenditure. If you don't have a spreadsheet program, try pencil and paper - this is often more than enough.

The »internal calculation« helps you to prepare the budget in the project application. You can also integrate information into this table that cannot be found in the application document. Perhaps you can state in the application document that you are holding an event for 1,000 euros, but not how these costs are broken down (e.g. 300 euros for a speaker, 300 euros for renting the room, 400 euros for drinks and food) . The latter in particular is an important organizational question for you. You can skip this in such a table.

Which costs are eligible?

Eligible costs are those recognized by the donor. Funding institutions usually publish information about which costs are recognized and which are not. Only eligible costs should be included in your project budget. If the donor does not assume any personnel costs, then logically no personnel costs may appear in the application.

An example: In the funding guidelines for the Lifelong Learning program of the European Union, it is indicated for the respective project types which costs are eligible and which are not. By the way, the English terms for this are eligible and non-eligible. For example, the costs incurred in preparing and creating the project application are never eligible. Also ineligible are, for example, exchange fees or losses that arise when one currency is exchanged for another.

It sounds a little mundane, but a good budget should contain only eligible items whenever possible. Otherwise, your application will either be rejected or, what can also happen, the application will be approved, but the ineligible items will be canceled without further ado.

Reallocations

The question of reallocations only becomes relevant during the implementation of the project. But it shows foresight if you think about it in advance. Sometimes you have to submit a very extensive and detailed financial plan with the application. Experience teaches that this is planning
is overtaken by reality during the ongoing project. Your flyer cost five hundred euros less than planned, but you could use these five hundred euros to pay a lecturer a fee. Even if you plan carefully, such changes and adjustments are inevitable.

Find out in advance to what extent such reallocations or "shifts" are possible. The good news is that most donors know and allow the budget to be adjusted as the project progresses. There are usually more or less precise regulations for reallocations. Shifts up to a certain percentage are often possible without prior request. Keep in mind the following rule of thumb: Any changes that have an impact on the finances or the quality of a project must be reported to the funder immediately - unless the funder explicitly defines exceptions to this rule.

How is billed?

In the budget of your project application, you state what you want to spend a grant on. If you receive a grant, the sponsoring institution will make this sum of money available to you. At some point the giver will check that you have actually spent the money as you planned and announced. You have to provide this proof, colloquially one speaks of the billing. Accountants have other terms for it, such as B. Evidence of the use of funds and the like.

You should already consider the topic of "billing" when designing your project and thus also when preparing the application. Complicated accounting procedures can cause major problems during the course of a project. Accounts are usually checked very carefully by the donors.

People who deal with accounting issues will have a few stories to tell you on the subject. They are, for example, about project employees who ask: "Did we have to keep the receipts?" Or about project managers who at some point bring over a shoebox with unsorted receipts that have accumulated over the past three years. Or from missing signature lists.

Note: Anyone who already thinks about billing when planning the budget is acting farsightedly.

There are two simple forms of billing that are often found in practice: billing of lump sums and billing based on receipts. The administrative names can vary. However, you won't have a hard time figuring out what form of billing is involved. In some projects several forms can be found at the same time.

a) Settlement of flat rates

Financing through flat-rate contributions means: You carry out a certain activity and have to prove that it has taken place. You will receive a certain amount of money for this. You do not have to submit a receipt to the funding agency. The content is checked, not a financial check (but be careful! You will certainly need receipts for internal accounting within your organization).

You are organizing an event and for each participant you will receive a lump sum of 100 euros from the funding agency. If ten participants show up, you will receive 1,000 euros. The funding agency checks whether the event took place and whether a list of the participants' signatures is available. Then you get the money. It is your decision whether you invest this money in catering for the guests, in fees for lecturers or in renting rooms.

Lump sums have the advantage that they are uncomplicated when it comes to billing. You have a certain freedom in carrying out the project activities. If you operate efficiently, you can use part of the funds raised where they are needed in the project. Of course, this assumes that the project activities are of a quality that everyone involved is happy with. To return to the above example: If you hold a sponsored event in the broom closet of your organization and the catering is limited to dry bread and tap water in order to save costs, participants could complain to the sponsor. Then you have a problem.

Sometimes a flat-rate administration fee can be provided in projects, which amounts to a few percent of the total budget.

Page 7: accounting, personnel resources

b) Reimbursement of costs against receipt

In the comic book "Asterix and the Copper Kettle", Asterix and Obelix rob a Roman tax collector. He calls after the Gauls desperately: “A receipt! Sign me a receipt! ”This example may illustrate the importance of receipts.

Often times, you need to submit receipts when making expenses on the project. For example, if you are going on a trip as part of the project, you need to keep the train tickets. If you hold an event with a freelance worker, you must get an invoice for the fee or conclude a fee contract. The same applies if you rent premises or make purchases (material resources).

If the costs are billed against receipts, the following applies: No reimbursement without receipt. If you mess around with an invoice or can't show a receipt for an expense, that's simply lost money.

This also explains the desperation of the tax collector.

If your receipts do not match what was spent, sooner or later you will be held accountable not only by the donor but also by your own organization. Caution is also advisable with documents that cannot be recognized by the funding agency because they do not meet certain criteria. This applies in particular to handwritten invoices, receipts with vague meaningfulness or receipts with incomplete information. If in doubt, you should ask your accounting department what a proper invoice should look like.

Receipts must be presented to the donor at the time of settlement. If the donor does not ask for evidence, you are in any case obliged to keep the receipts so that, in the event of an audit, you can prove that you have used the funds properly.

Application for staff funds

Personnel costs occupy a special position. They often form the most important and complicated part of projects in the social field. Project funds are used to finance employees. These are then employees of your organization with an employment contract. You must also provide evidence of this to the funding agency, although the evidence can take various forms. For example, in the form of a corresponding employment contract, pay slips or even time sheets, in which project workers document the scope of the activities performed in the project.

The forms of billing "flat-rate costs" and "reimbursement against receipt" are still quite easy to use. At the latest when you create personnel positions with project funds, there are a multitude of legal, tax and organizational aspects that you have to take into account. That means: You have to plan the personnel shares of the project in close coordination with the HR managers and the accounting department of your organization. If your organization does not have both, you may not be able to submit a grant application in which your organization appears as an employer.

Page 8: Double proof of billing

Billing on two fronts

As mentioned earlier, you cannot spend and use funds as you see fit. You must report on the use of the funds. So you have to take into account when planning the project budget that you have to correctly settle the funds received.

When you settle subsidies, you will later have to deal with requirements from two different directions:

  • On the one hand, the funding agency gives you regulations on how you are allowed to spend money and what kind of evidence should be kept,
  • on the other hand, there are regulations, rules and procedures within your organization.


The evidence must be correct in both directions so that everyone involved is happy at the end of a project.

An example: You work in a non-profit association and have successfully applied for project funding for it. By using a few lump sums sparingly, you will have 500 euros left over at the end of the project. You have successfully completed the proof to the funding provider and to the satisfaction of both parties. Everything is settled here.

Are you allowed to book a wellness holiday from these 500 euros in order to recover a little from the exertions of the project? If you plan to do this, you should contact the accounting department of your organization. Because this is subject to z. B. a tax and auditing. Using the association's funds for a private vacation is likely to cause problems. You will find it difficult to explain to your accounting department and your superiors that the association is pursuing charitable purposes.

The wellness example may sound absurd. Perhaps you are also thinking: From the small surplus, we can finally treat ourselves to the much-needed projector. That would actually be a sensible acquisition that is clearly related to the field of activity of the organization. However, here too there are a large number of tax rules that your organization must take into account when purchasing equipment. For example, purchased devices have to be "written off" over a longer period of time. Let us advise you, the world of tax law is complicated and full of pitfalls.

Both the funding agencies and the tax office are no joke when it comes to accounting issues. In contrast to project content, where you enjoy a certain degree of freedom, you are bound by strict rules when it comes to finances. Be careful even with the smallest transactions ("Why did you spend € 7.40 on mailing a piece of mail on July 10th? We ask for a written explanation!")

Serious blunders and rule violations can seriously damage your organization. Take finance very seriously.

Page 9: Simplicity, Appropriateness, Economy

Keep it simple

One principle to keep in mind when planning your budget is: Simplicity - keep it simple. Always try to use the simplest method when creating financial plans and budgets. Simple means: rules that are as simple as possible, as few documents as possible, as little effort as possible. Even billing a small project worth several thousand euros can drive project managers crazy (I speak from experience).

An example: in the case of a subsidized youth trip, the young participants should cater for themselves. You can choose one of two methods to settle the costs. Your accounting department has indicated its approval of both procedures:

  • Version 1: They agree on rules about how much money the participants can spend per day. The young people spend the money when they buy something to eat and are obliged to organize a proper receipt for each expenditure (e.g. for two pizzas plus soft drinks). You will reimburse the money to the young people at regular intervals if they provide you with the receipts. You settle the collected receipts with your accounting department after the journey.
  • Variant 2: Every young person receives a one-time meal allowance on the first day of the journey (e.g. € 10 per day times ten days = € 100). The young people will sign an acknowledgment of receipt that you have drawn up in consultation with your accounting department and that serves as proof.

You probably won't find it difficult to imagine which rule is easier to use - namely the second. The first rule also has the practical disadvantage that you will likely have to take an extra suitcase with you to carry the receipts home.

A strategic note: accountants who work in an organization do not necessarily think about how much effort a process means for whoever has to handle it. In case of doubt, the most important thing for the accounting department is that the regulations are adhered to and, in the end, "the numbers are correct". This is your job. In this respect, you as the project manager should take the initiative and propose a simple procedure. Your accounting department will be grateful for this.

Appropriateness and economy

When designing the budget, you must take into account tariffs, fees and prices that are customary in the industry. In the case of public funding, for example, you have to take the relevant administrative regulations into account. One example is the prohibition of betterment anchored in budget law: You are not allowed to pay employees on a project better than public employees.

Basically, you should start from the rule of thumb: choose the most cost-effective option that will allow you to get the result you want. One also speaks of the principle of economic efficiency. No funding agency will allow you to invest half of your material costs in buying an expensive fountain pen. You can also sign your documents with a ballpoint pen without changing the result.

Incidentally, which calculations are "appropriate" is not just a legal question, but a thoroughly subjective category. Even if there are no explicit regulations, you can assume that the experts and the donor's employees will check the content of the expenditure to determine whether the expenditure is within the framework of "the usual". What is usual is defined by the giver, not you. The donor's employees have a margin of appreciation when assessing this question. Sometimes you can bargain a little too.

Page 10: Fees, subcontracts, balance

Fees and subcontracting

The subcontracting or the payment of fees to third parties must be announced in the application. Such a transfer of funds is often only accepted to a certain extent - if at all. I mention this explicitly because there are organizations that come up with the following idea: »We want to create an innovative web service. As a coordinating organization, we would like to have 5,000 euros for this. We then give 30,000 euros to the programming agency, which takes on the technical implementation. «Perhaps this is the most sensible way of realizing the project. For many funders, this division violates the principle of balance. They expect the budget to be »implemented« by the applicant organizations. These should do the main work in the project. Subcontracting is limited to limited tasks that require special expertise that the partners in the consortium do not have.

The funding agency concludes a contract with the applicant organizations. On the basis of this agreement, the donor can control the applicants and, if necessary, hold them accountable. The recipients of subcontracts, on the other hand, are not selected and controlled by the funding agency, but by the grant recipients themselves. For example, you. For this reason, the donors ensure that the orders to third parties do not exceed a certain level - whereby, if necessary, it must be clarified with the donor what a "certain level" is.

Most funding providers do not want the funding to form a transitory item with you as a contractual partner and end up directly with commercial providers. In the example above, the question arises: Why did this subcontractor not become a project partner when he is doing so much work in the project?

balance

In a project in which several organizations are involved, the budget shares of the partners should be in a balanced relationship to one another. Of course, a partner can also get a larger budget if he takes on more responsibility in the project or more complex activities. Some funding agencies publish rules and regulations on this issue. Most of the time, it is a matter of common sense whether the distribution of a budget is balanced or not.

An example: A project is about the equal exchange of content between five European organizations on a specific topic. In this case, it needs to be explained if the coordinating organization claims 70% of the budget for itself and the other four organizations are allowed to share the rest.

Page 11: Money control instrument, written information

Money is power

If you submit a larger project application in which several cooperating institutions are involved, then an important question arises: Who gets the money or who is allowed to manage it? Because: Money is an instrument of control and discipline. Often times it is the only effective tool available to you in a project.

Just imagine these two scenarios:

  • At the beginning of a project, three project partners each receive a third of the project budget and commit themselves to cooperation.
  • As a lead partner, an organization receives the total budget. It has the task of paying out the shares of the two partner organizations at regular intervals when they carry out the agreed project activities.


It is not difficult to imagine that the working relationships of the partners in the project are heavily influenced by the flow of funds. In scenario A, the partners have an equal role. This may work until conflicts arise.In scenario B, the »lead partner« bears greater responsibility. He incurs a considerable amount of additional work. But he can manage the project better because the other institutions are dependent on him. If an institution does not meet its obligations, the lead partner can sanction this and withhold the project funds.

Some organizations in the non-profit sector come up with the idea of ​​managing project funds jointly, on an equal footing and "democratically" in a project with several actors involved. Better say goodbye to this idea right away. More complex projects benefit when a competent organization takes on the role of coordinator and also watches over the fulfillment of the respective obligations of the project partners. Whoever manages the funds can significantly underpin the hierarchy among the partners.

Obtain information in writing

It may happen that your project budget contains items for which it is unclear whether the donor considers them to be eligible or not. Then the discretion of the processor takes effect.

Now it can happen that the clerks who process your application or check the billing of your project change. Sometimes the person who was previously your contact disappears, never to be seen again. In their place there is a new employee who “first has to familiarize herself with the topic”. The successor may interpret the guidelines and procedures a little differently. Then you have a problem.

A small aid: Discuss unclear points with the person responsible when submitting the application. Make sure that you receive important verbal commitments in writing ("I'll send you this again in the form of a short email. Could you please confirm whether I have understood it correctly?"). Please keep the reply to the e-mail in a safe place.

If there is a change in responsibility, you can refer to this answer for contentious questions. »Dear Ms. Müller, you objected to the payment of the fee of 196.22 euros for our lecturer Ms. Meier. This surprises us - we had arranged the payment of the fee with your predecessor Mr. Müller and he had given his approval (see attached e-mail). "

Incidentally, the documentation of such a statement is neither evidence nor a free ticket. The people who work in funding institutions can also be wrong. Rather, consider my proposal as an argumentative aid that is particularly useful when the clarification of a question depends on the discretion of those involved.

Open a project account

Finally, a little tip for informal groups or citizens' groups who want to apply for a project but do not have an association or company account. You will make your life easier if you open your own project account for the project. Opening a checking account is cheap and quick these days. This has the advantage that you and your fellow campaigners can more easily see the incoming accounts, the expenses made and the account balance. A separate account also makes billing easier for you.

If you manage funding through your private account, there is a risk that you will eventually lose track because the relevant information is lost in the multitude of your private transactions. In addition, the tax office might want to know from you what kind of incoming money it is. Is it personal income that you would have to pay tax on?

If you don't want to open an account at first because you don't know if you will receive the funding, here's another tip. Some donors agree that you open an account after approval and only then provide the account details.

  • Page 1: Planning budgets, dealing with numbers
  • Page 2: Project funding, budget
  • Page 3: Budget, overrun, zero sum, co-financing
  • Page 4: co-financing
  • Page 5: Budget table, eligible costs, reallocations
  • Page 6: accounting
  • Page 7: accounting, personnel resources
  • Page 8: Double proof of billing
  • Page 9: Simplicity, Appropriateness, Economy
  • Page 10: Fees, subcontracts, balance
  • Page 11: Money control instrument, written information
  • Page 12: project account
Show everything on one page