Every organisation funded by grants eventually learns that a donor audit is not a statutory audit with a different cover page. The standards differ, the scope differs, and the consequences of getting it wrong are more immediate — a qualified acquittal can delay or reduce the next disbursement.

Restricted funds are the whole problem

Money received for a specific purpose is not general income. It must be tracked separately, spent only on what the agreement permits, and reported on in the funder’s own format. Where an organisation runs several grants alongside its own unrestricted funds, the accounting has to keep them apart at transaction level — not reconstruct the split at year end.

The most common finding we see is expenditure charged to the wrong grant because two projects share staff, vehicles or premises and the allocation basis was never documented.

Eligibility is judged against the agreement, not the ledger

A cost can be perfectly legitimate, properly authorised and correctly recorded, and still be ineligible. Grant agreements routinely exclude categories of expenditure, cap administrative overheads, require prior written approval above thresholds, or set procurement rules stricter than an organisation’s own.

Read the agreement before spending, not before reporting. By the time an auditor is reading it, an ineligible cost is already a recovery.

Procurement is where acquittals fail

Most donors require competitive procurement above modest thresholds, with evidence: the request, the quotations received, the evaluation, the approval and the delivery. Retrospective quotations obtained to satisfy a file are usually obvious, and they convert a documentation problem into an integrity one.

What to have ready

A general ledger with restricted funds identifiable by project code. Budget-to-actual comparisons in the donor’s own line format. Signed agreements and every variation. Timesheets supporting allocated staff costs. A complete procurement file per threshold purchase. Fixed asset registers identifying grant-funded assets and where they physically are. Bank reconciliations for any dedicated project account.

The underlying discipline

Treat every grant as if it will be audited by someone who has never met you and will read only the file. That is, in practice, exactly what happens.

This article is general guidance and not advice on any particular set of facts. If you would like to discuss your organisation’s grant reporting, our audit team in Blantyre will be glad to help.