Understanding Restricted Funds: Managing Complexity Across Grants

You get a £15k grant from a trust: "For youth employment training, 12 months." That £15k is restricted. You can only spend it on that program.

If you have five grants, you have five restrictions. Track them wrong and you violate grant agreements. Track them right and funders love you.

Restricted vs unrestricted: the basics

Unrestricted

You decide how to spend it. Earned income, general donations, unrestricted grants. Freedom.

Restricted

Funder says: "Spend on X." You cannot move it to Y, even if Y is urgent. Rules are rules.

Real example: charity with three grants

Grant 1: £10k for youth mentoring (March-Feb)

Funder: Local council. Purpose: 50 young people get mentoring. Reporting: quarterly.

Grant 2: £8k for women's support group (June-May)

Funder: Trust. Purpose: 30 women attend 12-week program. Reporting: annual.

Grant 3: £5k for admin capacity (Jan-Dec)

Funder: Foundation. Purpose: hire part-time coordinator. Reporting: final report.

Now your charity is operating on three different fiscal years with three different rules. Welcome to complexity.

Setting up restricted fund tracking (month 1)

Step 1: Create a funds register

Spreadsheet with columns:

• Fund name (Grant 1: Youth Mentoring).
• Funder name.
• Amount received.
• Funding period (start and end date).
• Purpose statement.
• Reporting frequency.
• Balance (amount remaining).

Step 2: Tag all expenses

In your accounting software (Xero, Wave, etc.), create a "Fund" category. Tag every expense with the fund it belongs to.

• Staff salary (mentoring) → Grant 1.
• Mentor training course → Grant 1.
• Coordinator salary → Grant 3.
• General office rent (split % across grants) → Grant 1 (70%), Grant 2 (20%), Grant 3 (10%).

Step 3: Track spend monthly

Update your spreadsheet: Fund budget - Cumulative spend = Balance

Example: Grant 1 (£10k for 12 months):

• Month 1 spend: £800. Balance: £9,200.
• Month 2 spend: £850. Balance: £8,350.
• Pace check: at current rate, you will spend out by January (on track).

Monthly reconciliation (30 minutes)

1. Export transactions from bank by fund tag.
2. Compare to grants register.
3. Are there orphan transactions (tagged wrong or not at all)?
4. Fix them.
5. Update balance in spreadsheet.

Quarterly reporting to funder

What funders typically ask

• Expenditure to date: how much have you spent?
• By line item: salary, training, materials, etc. (varies by funder).
• Percentage of grant spent: 25%? 50%? 100%?
• Variances: if you planned to spend £3k but only spent £2k, explain why.
• Impact to date: how many people served? Progress on outcomes?

Pro tip: pre-built report

Create a template report for each funder showing the above. Update quarterly. Most funders accept simple Excel files.

Common problems and solutions

Problem 1: "We mixed up fund spend"

You spent £2k of Grant 1 (youth program) on admin (Grant 3) by mistake.

Solution

1. Acknowledge to funder: "We mistakenly spent £2k of youth funds on admin."
2. Fix it: reallocate an equal amount of unrestricted funds to admin.
3. Tell funder: "We corrected the error. Youth funds are now accurate."
4. Implement: change your tagging process to prevent recurrence.

Problem 2: "We will not spend all the restricted money by the deadline"

Grant 1 ends Feb. You will only spend £9k of £10k by then.

Solution

1. Check the grant agreement: do you have to return unspent money?
2. If yes: plan to spend the £1k by deadline (buy mentoring materials, extend program to March, etc).
3. If no: request extension from funder (often approved). "Can we extend youth mentoring program to March to fully deploy the £10k?"

Problem 3: "We want to reallocate between two restricted grants"

Grant 1 (youth mentoring) has £2k leftover. Grant 2 (women's group) is short £2k.

Solution

1. Check both grant agreements: do they allow reallocation?
2. If both say "for youth" and "for women's groups" (purposes), you cannot move money.
3. If both say "for programming" (broader), you may be able to reallocate. Ask funder.

End-of-year reconciliation

1. For each grant, reconcile: Amount received - Total spent = Surplus/Deficit.
2. Is there a surplus? Funder approval may be needed.
3. Is there a deficit? Never. You should not have overspent.
4. Report to auditors/independent examiner.
5. Update charity accounts (restricted vs unrestricted split).

Restricted funds are not complicated; they just need discipline. One clear system and you are fine.

Pro tips

• Color-code funds in your spreadsheet. Visual clarity prevents errors.
• Set a monthly reminder to reconcile (every 1st of month).
• Ask funders upfront: "What are your reporting requirements?" Do not guess.
• Keep grant agreements in a shared folder; link from spreadsheet.

This guide is part of our Charity Finance hub, where you can explore every practical guide in this area.