Return of Unexpended Funds to Foundations
I. Return of Unexpended Funding
Foundation awards frequently include terms which require the return of unexpended foundation funds. When this is the case, the award is managed as a sponsored project agreement in a separate WBS. This requirement is most commonly communicated through inclusion of an end date for the period of performance of the approved project, however, terms vary significantly.
Some examples of these award terms which require the return of unexpended funding are:
- “Grant funds may only be used for the Project. Any grant funds unexpended or uncommitted at the end of the Grant Period must be promptly returned to the Foundation.”
- “The Grant Amount will be used for the Purpose of the Grant over the period xx/xx/xx through xx/xx/xx.”
- “The Grantee Organization agrees to return any unexpended funds that remain at the end of the grant period.”
Foundations may provide written approval for retention of an unexpended balance in response to a specific written MIT request. The recommended approach will vary depending on the completion status of the approved project, the commitment of continuing foundation funding for the approved project, and foundation administrative practices. Following are three examples:
- Request for no-cost extension of the approved project: When the progress on the approved project has been delayed, but is continuing, and no additional project funding is anticipated from the foundation, a no-cost extension of the original performance end date may be requested. If the foundation provides written approval for a no-cost extension of the period of performance, the unexpended funds will be retained and the existing WBS will be extended through the end date of the approved extension.
- Request for carryforward of unexpended funding for a continuing project: If renewal funding for the project is awarded and foundation administrative practices require separate accounting for the renewal funding (common foundation practice), MIT may submit a written request justifying how the next phase of the project will be enhanced by use of the funding remaining from the earlier period. If the foundation provides written approval to add unexpended funds to the subsequent foundation award, the final financial report for the earlier award will be submitted and the unexpended funds will be retained and transferred by VPF in the WBS close-out process to the WBS for the new award.
- Request for use of unexpended balance: If foundation administrative practices permit consideration of requests for retention of funds beyond the project period of a completed project, MIT may submit a written request justifying how the completed project will be enhanced through continued use of remaining foundation funding. If the foundation provides written approval for retention of the unexpended balance for the project without designating an expiration date for use of the unexpended funds, the final financial report will be submitted, the unexpended funds will be retained and the existing WBS will be extended for as long as the approved project work continues. However, many foundations would treat this as a no-cost extension of the grant, modifying grant terms with a new end date for performance.
While it is uncommon that foundations approve requests to apply unexpended funding to foundation awards for unrelated purposes or for retention of unexpended funding for discretionary use, foundation practices vary if balances are very small.
All foundation approvals for retention of unexpended funding will be described in Kuali Coeus via an extension of the end date of the period of performance or via a Fiscal Report comment indicating the WBS to which approved carryforward funds should be transferred or indicating the approval to retain funds until expended.
II. Interest Income
Some foundation award terms require that interest income on award payments be applied to the approved project. RAS may make requests during the award negotiation process to remove such terms from the award. However, if such requests are rejected, MIT must comply with the award terms through use of an invested WBS (3xxxxxx) in the award project structure.
Some examples of these award terms which require the commitment of interest income to the project are:
- “Grant funds shall be deposited in an interest-bearing account. Any grant funds, and income earned thereon, not expended or committed for the purposes of the grant, will be returned to the Foundation.”
- “Interest accrued to the grant should be applied to the Project and reported in the grant’s final financial report.”
In these cases, it is desirable to have the invested WBS as the Level One WBS in the project structure. If the project is for research activity, a research child WBS must be created for all project expenditures—only foundation revenue and interest income revenue (no expenses) will be posted to the Level One WBS. If the project is for non-research activity, the Level One invested WBS may be used for expenses as well as foundation and interest income revenue. The Authorized Total of the WBS where expenses will be incurred must be periodically updated by RAS to reflect payments made by the foundation and interest income posted to the invested WBS.
Unless the foundation award terms designate the use of interest income to limited project purposes (rare), interest income is commingled with foundation revenue and used for all allowable project expenses.
Because the award terms required that both grant payments and interest income be expended for the approved project, at the end of the project period of performance, the unexpended balance of the total of foundation revenue and interest income will be returned to the foundation unless retention of unexpended funding is approved in writing by the foundation (see examples above). For the purpose of calculating the project unexpended balance to be returned to the foundation, foundation revenue and interest income are not distinguished from each other unless the terms of the agreement specifically state otherwise.
Following is an example of foundation language which specifically authorizes retention of unexpended interest income: “The Foundation requires you to report the amount of any interest or other income generated by the grant funds. Any interest must be used for the Project. At the end of the Grant Period, any remaining Interest must be applied to support activities complementary to the Project or to another of your Foundation–funded projects (current or under consideration).”