Returning unspent grant money to a funder

How a non-profit works out what it owes a funder when a grant ends underspent, records the amount as a liability, pays it and closes the grant's accounts.

By Achekam · 11 October 2026 · 5 min read · For Non-profit businesses in South Africa, Nigeria, Kenya

The project ended on time, the community it served is better off, and the final report is nearly done. There is only one awkward line left: the grant was underspent. A training cohort was smaller than planned, a vehicle cost less than budgeted, and the funder's agreement says unspent money goes back.

Returning money can feel like admitting failure. It is not. Many funders think better of an organisation that spends carefully and returns the balance promptly than of one that rushes to spend everything in the final month. What damages trust is a refund that is late, wrongly calculated or recorded so loosely that nobody can later show where the money went.

This article walks through the return from the agreement to the closed accounts.

Start with the agreement's clause on unspent funds

Agreements handle unspent money in different ways, and the wording decides everything that follows. Look for:

• Whether a refund is required at all. Some funders allow the balance to be kept for the same purpose or carried into a follow-on grant, usually only with written approval.
• What counts as unspent. The difference between money received and eligible spending, and sometimes interest earned on the grant money as well.
• What happens to disallowed costs. If the funder's review rejects some spending as ineligible, that amount may be added to the refund.
• The deadline and the method. How soon after the grant ends the refund must be paid, to which account and with which reference.

If the clause is unclear, write to the funder's grants officer before calculating anything. Ask whether they would consider a no-cost extension or a reallocation instead of a refund, if there is genuine work still to do. The answer must be in writing either way.

Working out the unspent balance

If each grant has its own accounts, the calculation comes straight from the books. The trial balance shows each account for all time, for a period or at a date, so run it for the grant's accounts across the whole grant period:

1. Total money received from the funder for this grant.
2. Total eligible spending charged to the grant's expense accounts, including any agreed share of shared costs.
3. Add interest earned, if the agreement requires it to be returned.
4. Add any costs the funder has disallowed.
5. The result is the amount to return.

If your organisation held the grant as a liability and released it to income as it was spent, the remaining liability at the grant's end date should already equal the unspent amount, before interest or disallowed costs. That makes a useful cross-check: if the two figures differ, find out why before telling the funder a number.

Prepare a one-page schedule showing the calculation, with references to the accounts and periods it came from. You will send a version of it to the funder, and your auditor will ask for it.

A liability for the amount to return

Once the amount is agreed, the books should show that the organisation owes it. Your ledger starts from a standard chart of accounts, and you can add accounts, so add one such as "Literacy Fdn 2026 – Refund payable".

Then post a manual journal moving the amount into that liability:

• if the grant was held as a liability, debit the grant's received-in-advance account and credit the refund payable account;
• if the grant was recorded as income, debit the grant's income account, or the account your accountant prefers, and credit the refund payable account.

Every journal must balance, and one dated in a closed month is refused. A posted journal is corrected only by reversal, so if the funder later revises the figure, reverse the journal and post the corrected amount.

Some organisations prefer to route refunds through payables, so the payment follows the same approval as other outgoing money. Supplier bills are recorded line by line, a bill without a purchase order waits for approval before it posts, and a bill can be paid in full or in parts from a chosen bank account. Agree with your accountant which route you will use, and use the same one every time.

Sometimes the amount is not yet certain: the funder has not finished its review, or the eligibility of a cost is in dispute. Whether to record an estimate, and how to describe it in the financial statements, is a judgement for your accountant. The IFRS Foundation's summary of IAS 37 on provisions and contingent liabilities explains how such uncertain obligations are defined and what must be disclosed about them.

The payment and its bank line

Pay the refund from the grant's own bank account if it has one, using the reference the funder asked for. Keep the bank's payment confirmation.

When the bank statement is imported, the payment appears as a line. Bank lines are matched by suggestion and a person accepts each match; a line not yet in the books becomes a suggested journal that a person approves. Make sure the payment settles the refund payable account, or the bill if you used payables, so the liability is cleared rather than duplicated as an expense.

If the refund is paid in more than one instalment, as some funders allow, each instalment reduces the liability until it reaches nil.

Closing the grant's accounts once settled

When the refund is paid and the funder has confirmed the grant closed:

1. Run the trial balance at the closing date and confirm every account for the grant, including the refund payable account, shows a nil balance.
2. File the final report, the refund schedule, the funder's confirmation and the payment confirmation in the grant's folder in Document Centre, a folder-based store that keeps earlier versions when a new one is added.
3. Switch off the grant's accounts, so nothing can be posted to them by mistake and they cannot be reused for a future grant.
4. Note the grant as closed in your fund register.

For how grants held in advance are released month by month, see grant money received before it is spent; for the account layout that makes this calculation simple, keeping restricted funds apart in your chart of accounts.

Look at every grant ending in the next six months, estimate its likely unspent balance now, and talk to each funder early rather than at the deadline.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.