Money that comes with conditions
The terms are in a letter. The books do not know.
Some money arrives with conditions attached, and the conditions live in a letter nobody else reads.
Not every business has this problem, and some should leave it alone.
Most of these can be handled better. Whether it's worth doing is a separate question. What follows is one common form of the problem, described in general terms, because your version will differ. These are possible challenges, not a description of your business, and some should be left exactly as they are. If it sounds like your week, that's worth a conversation.
Watch: The Decision Nobody Wrote Down
Sound familiar?
- The terms of a grant or agreement are in one person's files.
- Nobody could list which conditions have been met.
- The report is due and the numbers have to be rebuilt.
- An auditor asks for a summary that does not exist.
What it looks like
Money arrives with strings attached: a grant with milestones, a payment tied to a result, funds that may only be spent on one thing, or money that has to be returned if something does not happen.
The conditions are written in an award letter or an agreement. The money lands in the accounts like any other deposit. The link between the two lives in the head of whoever signed the paperwork.
What it costs
Conditions are easy to lose track of. A milestone date passes. A spending limit is crossed. Nothing in the accounts flags it, because the accounts never knew.
Every report is rebuilt. When the funder or auditor asks, somebody pulls the letter, reads the terms again, and reconstructs what has happened since.
The person who knows may leave. Their notes are the only summary.
Where it goes wrong
- Terms are not summarized. The full letter is filed. Nobody has pulled out the dates and conditions.
- Spending is not tagged. Money spent against the condition looks like any other spending.
- Met and not met are not tracked. Nobody records when a condition was satisfied, or by what.
- The summary is made at audit time. Under pressure, from memory.
What a better version looks like
Each source of conditional money gets one plain entry: where it came from, what the conditions are, the key dates, and whether each condition has been met, with a note of what shows it. The entry is kept current as things happen, not rebuilt at year end.
The entry is written for the auditor or advisor to rule on. It does not decide how the money should be treated.
What still needs a person
An auditor or advisor decides how conditional money should be treated in the books. A person who knows the program decides whether a condition has been met. The register holds the facts they need, in one place.
Questions worth asking about your own operation
- Which money you receive comes with conditions?
- Where are those conditions summarized, outside the original letter?
- How would you show that a condition has been met?
- Who would know all of this if the person who handles it left?
If this sounds familiar
Bring me the version you actually have. I'll learn how the process really works before I suggest anything. If it isn't worth changing, or isn't a fit for me, I'll say so. Talk through a problem