Working Well With Funders

A funder relationship is more than the exchange of money for an activity or set of results. At its best, it is a working relationship based on shared aims, clear expectations, honest communication and respect for the different responsibilities of each party.

Funders can include independent trusts and foundations, public bodies, community funds, corporate funders and other charities. Funding may take the form of an unrestricted or restricted grant, a service level agreement or a contract – sometimes formally procured, or often through open competitive processes. The legal and financial terms differ, but many of the same relationship principles apply.

The organisation brings knowledge, experience and relationships with the people and communities it serves. The funder brings financial resources and may also bring knowledge, contacts or influence. Neither contribution should obscure the organisation's purpose or the needs and views of the people affected by its work.

Start with shared purpose

A good relationship starts before an application is submitted. The board and senior leadership should be satisfied that any proposed application for funding supports work that will deliver on the organisation's purposes and strategy. Available funding can create useful opportunities, but it can also pull an organisation away from its priorities or encourage it to take on work it cannot sustain.

It is reasonable for a funder to set priorities and decide what it will support. It is equally reasonable for an organisation to decide that a funding opportunity is not right for it. The ability to say no is an important part of good governance.

Protect the organisation's independence

The board is responsible for the organisation and must remain able to make its own decisions. For a Scottish charity, the charity trustees must act solely in the charity's interests, seek to achieve its purposes, manage conflicts of interest, and act with the care and diligence that is reasonable in the circumstances.

A funder will normally agree outcomes, conditions and reporting arrangements. However, it should not seek to take control of the organisation, require it to act outside its purposes, or expect its staff and officers to overly-influence the board. Similarly, trustees must not allow a funder to exercise undue influence on the organisation’s operations or governance, even when the organisation depends heavily on that funding.

Relationships need particular care where a funder asks to attend board meetings, appoints a trustee, or has close personal or organisational connections with trustees or staff. Any conflicts of interest should be declared, managed and properly recorded.

Understand the commitment before accepting funding

Congratulations if you are successful on being awarded funding! But before accepting an award, the organisation should read the funding agreement carefully and understand what it is committing to. The level of board involvement should be proportionate to the value, duration, complexity and risk of the funding. Significant or unusual commitments should come to the board, even where applications are normally delegated to staff.

Strategic and delivery considerations

Does the proposed work clearly support our purposes, strategy and values?
Are the outcomes, activities and timescales realistic?
Does the funding cover the full cost of the work, including management, administration, premises and other shared costs?
Is the money restricted, and are the restrictions clear enough for us to account for it properly?
What information, evidence and personal data will we have to collect or share?
Are there any specific conditions relating to how the funder wants its investment showing in the accounts?
When will payments be made, and can we manage any effect on cash flow?
Can the agreement be changed if circumstances or costs change?
What happens if targets are not met, money is unspent, or the funder ends the arrangement early?
Will the work create continuing commitments to staff, premises or service users after the funding ends?
Are there ethical, reputational or independence concerns about the source or conditions of the funding?

These questions are not barriers to funding. They help both parties begin with a realistic and shared understanding of the work.

Who should manage the relationship?

The organisation should present one coherent relationship to the funder. Responsibilities and authority should be clear internally so that the funder receives consistent information and staff do not make commitments they are not authorised to make.

The board

The board provides governance oversight. It should consider strategic fit, approve significant commitments, monitor financial and delivery risks, and satisfy itself that the funding continues to serve the organisation's purposes. It should receive enough information to understand important successes, problems and changes without taking over routine contact with the funder.

The chief officer or senior leadership

Senior leaders connect the funding relationship to the organisation's strategy, finances and operations. They should ensure applications and reports are accurate, negotiate realistic expectations, coordinate communication across teams, and bring significant risks or proposed changes to the board. They should also protect staff from unplanned demands or pressure to promise more than the organisation can deliver.

Staff

Staff will often manage day-to-day delivery, monitoring and reporting. They should understand the funding conditions, keep suitable records and raise problems early. They need clear authority to discuss operational changes, alongside clear boundaries about decisions that require senior leadership or board approval.

Communicate openly and avoid surprises

Constructive relationships depend on regular and honest communication. Reporting should explain what has happened, what has been learned and what may need to change. It should not become an exercise in presenting only good news.

Organisations should tell funders early about material delays, cost pressures, safeguarding concerns, changes in demand or difficulties meeting an agreed outcome. Early discussion gives both parties more opportunity to find a proportionate solution. Equally, funders should give reasonable notice of decisions, payments, changes in requirements and future funding intentions. If the work or budget needs to change, the agreement should be checked and the funder's consent obtained through a conversation or email where required. Important changes should be recorded in writing rather than left as informal assumptions.

Recognise power and financial dependency

Funding relationships are not always relationships between equal parties. A funder is likely to be able to withdraw more easily than an organisation can replace the income, particularly where jobs or essential services depend on it. This can make organisations reluctant to challenge unreasonable requirements or speak openly about difficulties.

Boards should recognise this power imbalance rather than assume that goodwill will remove it. They should monitor how dependent the organisation is on individual funders, consider the effect of funding decisions in their risk and reserves planning, and avoid quietly subsidising underfunded work unless the board has understood and accepted the consequences and agrees that the investment is necessary and within budgets.

Fair Funding: SCVO describes fair funding as long-term, flexible, sustainable and accessible. It includes timely decisions and payments, inflation-based uplifts, proportionate monitoring and reporting, and partnership between grant-makers and grant-holders.

When a relationship becomes difficult

A difficult relationship does not necessarily mean that either party is acting improperly. Problems often arise from unclear expectations, changes in staff, financial pressure, unrealistic targets or different understandings of success. Warning signs can include:

pressure to conceal problems or present evidence selectively;
late decisions or payments that place services and jobs at risk;
a funder attempting to direct matters the decision-making for which belongs to the board or senior leadership;
staff agreeing changes without the necessary authority; or
the organisation using reserves or unrestricted income to sustain work without a clear board decision.

Concerns should normally be raised through the agreed contact and escalated when necessary. The organisation should keep an accurate written record, return to the funding agreement, and decide what outcome it needs. Serious concerns about legality, safeguarding, financial loss or trustee duties may require specialist advice.

Plan for funding to end

All time-limited funding should be treated as time-limited, even where renewal appears likely. The board and senior leadership should understand what will happen when the award ends and should not make continuing commitments on the assumption that new funding will be found.

Planning should consider communication with staff, volunteers and service users; any redundancy or contractual obligations; the return or approved use of unspent restricted funds; ownership of equipment, information or intellectual property; and how learning and results will be shared.

A well-managed ending can protect people, preserve trust and leave the door open to future collaboration. An organisation should also be willing to end a relationship itself where the work no longer supports its purposes, the conditions have become unacceptable or the financial risk is too great.

Checklist for boards

Boards can use the following questions when reviewing important funding relationships:

Does this funding still support our purposes and strategy?
Do we understand the agreement, restrictions and true cost of delivery?
Are we receiving clear information about progress, finance and risk?
Is responsibility for communication and decision-making clear?
Can staff speak openly about problems and unrealistic expectations?
Is the funder influencing decisions that properly belong to us?
How dependent are we on this funder, and what would happen if the funding reduced or ended?
Are the experiences and views of the people affected by the work reaching both us and the funder?
What are we learning, and what needs to change?