For Australian not for profits (NFPs), grants can provide vital funding for programs, services and community initiatives. But receiving the money is only the beginning. When funding comes with conditions, your NFP needs a clear process for tracking how it is used and reporting back to the funder.
This is where restricted funds and grant acquittals come in.
Restricted funds are money that can only be used for a specific purpose. A grant to deliver a community program, for example, may only cover approved program expenses. A grant acquittal is a report showing the funder how the money was spent and whether it was used according to the agreement.
With good financial processes, managing both does not have to be stressful. Here are practical steps your NFP can take.
1. Understand the grant conditions first
Before spending any grant money, review the funding agreement carefully. Identify:
- What the funding can and cannot cover
- The approved project dates
- Eligible expenses
- Reporting and acquittal deadlines
- Required supporting documents
- Rules around budget changes
- What happens to unspent funds
Requirements vary between funding programs, so there is no single acquittal process that applies to every Australian NFP. The grant agreement should always be your starting point.
Create a simple summary of the key requirements and share it with anyone responsible for approving or recording expenditure.
2. Keep restricted funds clearly identifiable
Restricted funds do not necessarily need to sit in a separate bank account. What matters is being able to identify how much is available for each purpose and what has been spent.
Your accounting system should allow you to track funding by grant, program or project. This helps you distinguish restricted money from funds available for general use.
The Australian Charities and Not-for-profits Commission’s (ACNC) National Standard Chart of Accounts includes categories for restricted cash and provides guidance on tracking funds according to their purpose.
3. Create a budget for each grant
Treat each significant grant as its own financial project. Set out the approved funding and expected expenses, then compare actual spending against the budget regularly. Depending on the grant, costs may include wages, program materials, venue hire or travel.
Regular budget reviews can flag overspending or underspending early, while there is still time to discuss issues with the funder. Bookkeeping services for small businesses and NFPs can help maintain accurate grant-related transactions and reports.
4. Reconcile throughout the grant period
Do not wait until the acquittal deadline to work out where the money went. Monthly or quarterly reconciliations can identify missing invoices, incorrectly coded transactions and expenses that may not meet the grant conditions.
Regular reviews are particularly useful for grants spanning several months or financial years. They give management and the board a clearer view of how funding is tracking. Outsourced bookkeeping services in Sydney, for example, can take care of regular reconciliations to give your team more time to focus on the NFP’s work.
5. Keep supporting documents organised
An acquittal is much easier when the evidence is already in place. Keep the grant agreement and relevant financial records together, including:
- Invoices and receipts
- Payroll records where relevant
- Purchase approvals
- Bank and accounting records
- Budget reports
- Progress reports
- Correspondence with the funder
- Approved changes to the grant
- Records of unspent funds and repayments
The ACNC requires registered charities to keep appropriate financial and operational records for seven years, including details of grant payments and acquittals. A central digital folder or grant register can save considerable time when documents need to be located later.
6. Review expenses before submitting the acquittal
Before sending an acquittal, compare the final expenditure against the approved budget and funding conditions. Check for:
- Costs outside approved categories
- Missing supporting documents
- Differences between accounting records and the acquittal
- Unspent amounts
- Unapproved budget variations
If something is unclear, contact the funder before submitting the report. Clarifying an issue early is usually easier than correcting it later.
7. Have a clear approval process
Set responsibilities for approving expenditure, recording transactions, reviewing balances and signing off the final acquittal. For ACNC-registered charities, Governance Standard 5 requires Responsible People to take reasonable steps to ensure the charity’s financial affairs are managed responsibly.
Clear approval processes can support both grant compliance and broader financial governance. Working with professional accounting firms in Sydney can help NFPs review their approval procedures and strengthen financial controls.
8. Deal with unspent funds promptly
An underspend is not necessarily a problem, but it should not be ignored. Your funding agreement may specify whether unused money must be returned, can be carried forward or requires approval for another use.
If you expect to have funds left over, communicate with the funder before the grant period ends. Do not assume unspent money can automatically be redirected to another project.
9. Make your accounting system work for your grants
Grant management becomes easier when everyday financial records are set up to support reporting. Using project or grant codes can connect individual transactions to the relevant funding source. This reduces the need to reconstruct expenditure when an acquittal is due.
It can also give your board a clearer view of how individual grants are performing rather than simply looking at total income and expenses. For smaller NFPs, accounting services for small businesses and not for profits can support reconciliations, reporting and financial record keeping.
10. Get professional help when needed
Some grants involve multiple funding streams, detailed performance requirements or complex reporting obligations.
The accounting treatment can also depend on the terms of the arrangement. Australian Accounting Standards including AASB 1058 Income of Not-for-Profit Entities and AASB 15 Revenue from Contracts with Customers may apply depending on the circumstances.
Professional support can be valuable when grant arrangements become more complex. For example, accountants in Sydney with relevant NFP experience can assist with financial reporting, grant-related accounting and broader compliance needs. Outsourced CFO services in Sydney can offer strategic financial guidance when an NFP needs more than day-to-day bookkeeping support.
Need Help Managing Grants and Restricted Funds?
Keeping Company is a multi-awarded outsourced accounting services in Sydney that provides practical bookkeeping, accounting and financial support to help NFPs maintain accurate records, manage reporting requirements and gain greater clarity over their finances.
Whether you need ongoing bookkeeping, financial reporting or strategic CFO services for small businesses and NFPs, the right external support can take pressure off your team and strengthen your financial processes.
If your NFP needs help with grant tracking, reconciliations, reporting or broader financial management, contact us to discuss how our services can support your organisation.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice, and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
Ryan Miller is the founder of Keeping Company, May 2011 – Present. A tie-loathing, people person with an entrepreneurial spirit. Ryan’s drive to modernize the accounting industry coupled with his desire to help people succeed saw the birth of Keeping Company. Focusing on the SME space, KeepingCo. empowers business owners by providing high-quality end-to-end accounting and business advisory services.
Ryan took his first Accounting role working at KPMG. He went onto further refine his skills as a Chartered Accountant taking the role of Director of a Chartered Accounting firm in Erskineville.
Ryan is a fully qualified Chartered Accountant and a member of the Institute for Chartered Accountants Australia and New Zealand. He is also a Registered Tax Agent and holds a Bachelor of Commerce from the University of South Australia.