Grant Carryover: An Ounce of Prevention

I have a short term assignment at a new district.  When working with grants that carry over year after year it is a great idea to check that the “carryover” amount is correct.  I did a quick check yesterday on two grants and found in fact the carryover was not correct on either of them.

For the novice, the first thing to know is that the grant carryover amount is the awarded amount (whether received or not) minus actual expenditures.   For grants that are earned when spent, it is not the fund balance. The fund balance every year is zero, since unearned revenue is reversed to a liability account.  Therefore you cannot just look at the balance sheet to see the carryover amount.

Carryovers are generally tracked on a worksheet. I show a hypothetical sample below for a federal grant that perhaps has been received by the district for many years.  It would be onerous to go back to the inception of the grant to ensure that a keying error was not made on the worksheet some time in the distant past.  However another fairly easy method is available to check the calculation.

Why is validation important?  It is because the amount you will distribute to schools and departments to spend in the coming year is the prior year carryover plus the new award.  If the carryover is wrong you may be allowing funds to be expended that don’t actually exist.

Here’s how to do it.

Say you want to calculate the carryover balance for Jun 30 2013.

Look at the most recent grant awards.  You want to track whether all payments have been received. You need to identify all awards where the donor has not yet paid the full award amount to you.

Say the award from 11-12 was $105,000 and $95,000 was received by the end of 12-13.  Write down the difference of $10,000.  What about the award for 12-13?  It was for $95,000 and $55,000 was received in cash in 12-13.  Write down the difference of $40,000.  What about the award for 13-14? Ignore that one since it is effective after the June 30 date you are validating.

So is my carryover $10,000 + $40,000 = $50,000?  Not so fast.  You must also add the June 30, 2013 unearned revenue accrual. I like to think of it this way.  Of the cash I did receive, was any of it left unspent?  If yes, it is going to be spent in the future, in addition to the committed but yet-to-be-received award amounts.

Say I booked $1,022.65 as unearned as of June 30, 2013.  My carryover is therefore $51,022.65.***  Compare that to the “year-over-year” spreadsheet.  If the sample above were the actual spreadsheet for this grant, you can see it must have contained errors at some point.  Carryover is overstated by almost $28K.

The correction is to adjust the worksheet by the difference and to distribute the lower amount as carryover in the coming year.

If you are new to a position that accounts for grants I recommend that you do this check on all carryovers so that you don’t unwittingly perpetuate an error.  I have witnessed a grant that ended and suddenly too much had been spent.  The accountant had set up a receivable, but the donor had already remitted everything they had committed to send us.  We had to write off a fairly substantial receivable. Try to avoid being the one who has to deliver this sort of news to the CBO, superintendent or board.

—-

***If you booked a receivable rather than liability, this represents cash you spent that you did not have yet.  This would be a deduction from future cash.