The Restricted Grant and the Helpful Program Officer
You direct a community health nonprofit with a USD 900,000 annual budget. A foundation grant of USD 300,000 is restricted to “direct service delivery for the mobile clinic.” Mid-year, the foundation's program officer emails that the foundation wants USD 45,000 moved to “organizational capacity” to cover a new finance hire, saying “it's all the same money and we trust you.” The grant agreement requires written approval for budget reallocations over 10% of any line. The mobile clinic is projected to underspend by USD 60,000 because a vehicle is delayed. Your finance manager says unrestricted reserves are only USD 40,000 and payroll is due in three weeks. The foundation has been a loyal funder for six years.
1. How do you respond to the program officer?
Read the worked answer
I would be warm and explicit: thank them, confirm interest, and separate trust from authority. The email may reflect intent, but the grant agreement requires written approval from an authorized signatory for a reallocation above 10% of a line. A program officer's email may not be that approval.
Response content:
- Confirm the amount and purpose: USD 45,000 from direct service to organizational capacity.
- Ask for a formal written amendment or approval letter, signed by the foundation's authorized grants officer, before any funds move.
- Explain the timing: payroll is due in three weeks, so a decision by a specific date is needed.
- Offer an alternative if formal reallocation is slow: the foundation could make a separate capacity grant, or we could use the projected USD 60,000 underspend to accelerate the mobile clinic launch once the vehicle arrives.
I would not spend restricted funds on the finance hire based on “it's all the same money.” Restricted funds are not a bookkeeping label; commingling them can create repayment, audit, and trust damage. The relationship is best protected by making the request clean, not by acting on an informal assurance.
2. What options do you present to your board, and what do you recommend?
Read the worked answer
I would present the cash position honestly: USD 40,000 in reserves, payroll due in three weeks, a USD 60,000 clinic underspend, and a USD 45,000 restricted reallocation request that lacks formal approval.
Options:
- Formal reallocation request: ask the foundation for a signed amendment. This is the cleanest path if it arrives before payroll. Risk: timing.
- Bridge payroll from reserves or a short-term line of credit, then repay from the eventual underspend or a separate capacity grant. Risk: thin cushion and financing cost.
- Separate capacity grant: ask the foundation to fund the finance hire outside the restricted grant. Risk: new approval cycle.
- Accelerate eligible clinic spending once the vehicle arrives, which uses the underspend for its intended purpose rather than freeing it by default.
Recommendation: pursue option 1 and option 3 in parallel, with option 2 as a short bridge only if the board approves a written repayment plan. Do not spend restricted funds before written approval. I would also disclose the near-miss to the board and add a grant-compliance checklist to prevent future informal reallocations.