Grants Management Manual Chapter 3 - Compliance ReviewExpenditure Responsibility (ER) Grants

Expenditure Responsibility (ER) Grants

With very limited exceptions, by law Expenditure Responsibility ("ER") must be performed on all grants sourced from OSI and FPOS to entities that are not 501(c)(3) public charities and public charities that are classified as Type III "supporting organizations" that are not "functionally integrated". (Because the current procedures recommended by the IRS for determining if a supporting organization is Type III and/or "functionally integrated" are so onerous, the General Counsel's office has instructed that Expenditure Responsibility be performed on grants to any "supporting organizations unless it clearly states on the organization’s determination letter or on the IRS website that the organization is not a Type III supporting organization that is not “functionally integrated”.)

Expenditure Responsibility grants must be for purely charitable purposes. The bifurcated budget cannot be used as a safe harbor for ER grants; the grantee must guarantee that all grant funds go to non-lobbying, charitable activities. Also, general support grants are more difficult to make under ER, although a grant that accomplishes the same goals of general institutional support can usually be issued. Grantees receiving ER grants must segregate the grant funds in a separate fund or account (technically other 501(c)(3)private foundations are exempt from this requirement, although we generally leave this requirement in grant agreements with other private foundations).

Program staff must complete the Organization Description, Project Description, Rationale For Funding/Recommendation, and Executive Summary fields on the proposal record, which will be used as the Pre-Grant Inquiry (PGI) before the grant letter is produced. The PGI is a legal requirement for all ER grants. The PGI is generally the same as a docket write-up, but it must clearly describe the charitable purpose of the grant, how the organization will be able to achieve the charitable purpose, and how it will be able to report back on the use of the funds.

The body of the ER grant letter informs the grantee that they must submit annual reports no later than three months after the end of the calendar year, detailing the use of the grant funds in the preceding year.

Expenditure Report type grantee report records should be created for all grants that are structured under ER, as this information is included as part of the 990-PF tax return. Reports should be scheduled to account for every calendar year in which the grantee will retain or expend grant funds, as well as in the year that the grant is awarded; scheduled due dates should be March 31 of each year (the final ER report can be scheduled three months after the end of the grant). The “Year Expended (This Report)” field should correspond to the year for which the grantee is providing a report.

Grant expenditures should only be recorded in the “Amount Expended (This Report)” field of the Expenditure Report type grantee report records for every year of the grant term.

Grantees need to continue to provide reports until all funds are expended, so grants should be extended accordingly, otherwise grantees must return unused funds.

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