The best grants programs approach payments in a way that reflects the unique nature and goals of the program.
Payment systems need to achieve the basics - to transfer the money to where it needs to be securely, reliably and efficiently. Timely payments are critical to managing an effective grants program and building productivity and relationships, while badly timed payments not matched to the budget can contribute to project failures. But payment systems also need to reflect:
- the nature of grant relationships;
- the size of the grants involved;
- the management capacity and capability of recipient organisations;
- The level of fraud risk involved;
Payment systems can also reward and encourage good behaviour, and penalise bad behaviour. They offer opportunities to mark and celebrate milestones and to develop good administrative practices.
Payment systems should be closely linked to monitoring and reporting systems.
In developing and implementing a payment policy and system, you should consider these questions:
- Why are payments being made? Different purposes require different degrees of control by the grant recipient and entail different degrees of risk. For example, is the payment for the purchase of equipment or material, or for administration services, professional services, construction or creative tasks?
- Who approves payments and who makes the payments?
- How are the payments made - by cheque or direct credit into accounts?
- When are payments made - in advance, or upon presentation of receipts or invoices, or once milestones are reached? Does the approach vary according to the type of payment?
- What clawback clauses and processes operate in relation to failure to meet milestones or to expend funds on designated items?
- Who is responsible for investigating and responding when a grant recipient disputes the timing or amount of a payment?
- How effective is the interface between the performance monitoring and reporting system and the payment system? Are they part of one system or separated?
- Are there any payment incentives for organisations achieving outcomes on time or early?
- Are there any financial penalties for organisations failing to deliver outcomes on time?
- Is there a risk of the payment process contributing to payment delays? For example, are there too many links in the payment chain?
- Is there any recourse for grant recipients if payments aren't made on time?
- Do systems and delegations guard against internal fraud and corruption?
If your systems and governance arrangements allow, you may wish to put in place different payment processes for different grant recipients to reflect the size of the grants and the risk profile of the grant recipients.
SmartyGrants users: SmartyGrants allows users to create budgets and record allocations and payments against projects. The funding overview section displays what originally was budgeted, how much has been allocated and what is remaining. Learn more