Managing the contract, reporting and close-out

1Compliance

• Eligibility of expenditure: within the contract period, provided for in the budget, actually incurred, supported by original documents.
• Procurement: the donor's thresholds and procedures (number of quotations, tender), procurement committee, no conflict of interest.
• Sanctions list screening for suppliers and partners, in line with donor requirements.
• Visibility: required logos and acknowledgements, except where security calls for a low profile (to be negotiated in writing).
• Sub-grants: the donor's rules also apply to partners; provide for a written agreement, a capacity assessment and financial monitoring.

2Budget monitoring and amendments

Every month, compare actual expenditure with the budget (budget versus actuals report, BvA) line by line and calculate the burn rate against the time elapsed. Donors generally allow transfers between lines up to a certain percentage (often 10 to 20% depending on the contract); beyond that, a written amendment approved before the expenditure is required.

If the project falls behind schedule, request a no-cost extension well before the end date, often at least one month beforehand depending on the contract, explaining the reasons and the new timeline.

3Reporting, audit and close-out

• Narrative reports: results against indicators, explained variances, stories of change, challenges and lessons learned.
• Financial reports: expenditure by line, consistent with the accounts and the narrative report.
• Audit: file supporting documents by budget line from the start; an audit is prepared every day, not the day before.
• Close-out: final payments, inventory and transfer of equipment according to the donor's rules, final report, refund of unspent funds, archiving of documents for the period required by the contract (often 5 years or more).

4Starting a grant: the compliance matrix and the kick-off meeting

Most costs disallowed at audit originate in the first few weeks: a contract rule that nobody read, a procurement procedure unsuited to the donor's threshold, a salary charge decided without a timesheet. Starting up a grant is therefore an operation in its own right, with its own outputs and owners.

Step 1: read the contract in the order of precedence of the documents

A grant agreement is made up of several documents: the special conditions, the general conditions, the description of the action (the approved proposal), the budget, and often annexes on procurement, visibility, reporting or data protection. The contract specifies the order of precedence in the event of a conflict; the special conditions generally take precedence over the general conditions. Read the special conditions first: they contain the negotiated derogations, the dates, the amounts, the payment arrangements and the special conditions.

Step 2: build the compliance matrix

The grants officer extracts all the obligations into a single table, shared with programmes, finance, logistics and human resources. Each obligation has an owner and a deadline.

For US funding, these obligations derive largely from the Uniform Guidance: prior approval of transfers between direct cost categories when their cumulative amount exceeds 10% of the total approved budget and the federal share exceeds the simplified acquisition threshold; the recipient may make a one-time extension of up to 12 months without prior approval, unless excluded, to be notified at least 10 calendar days before the end date; closeout and liquidation of obligations within 120 days of the end of the period of performance; retention of records for three years from the submission of the final financial report, with some exceptions.

Step 3: set up the systems

• Project code and budget codes in the accounting software, with a mapping table between the organisation's chart of accounts and the donor's budget lines.
• Grant file, electronic and physical, with a fixed folder structure: contract and amendments, correspondence, reports, budget and monitoring, procurement by file, staff, partners, audit.
• Procurement plan covering the whole duration, grouping needs together so as to apply the correct procedure and avoid splitting orders.
• Recruitment plan and staff contracts aligned with the project dates; charging percentages communicated to each person.
• Calendar of obligations built into the team's diary: reports, monthly reviews, inventories, amendment deadlines.

Step 4: the kick-off meeting

It brings together the project manager, technical leads, finance, logistics, human resources, MEAL and the partners for half a day. Standard agenda: presentation of the intervention logic and targets; walk-through of the compliance matrix; line-by-line budget review with the owners of each line; procurement and recruitment plans; monitoring plan and reporting calendar; risks and mitigation measures; partners' roles and rules flowed down to them; open questions to clarify with the donor. The signed record of the meeting goes into the grant file.

A rule that has not been explained to the base logistician is not applied. Compliance is won or lost in the field, in procurement, timesheets and distribution lists, not in the grants officer's office.

5Monthly budget monitoring, forecasting and contract modifications

A budget versus actuals report is only of value if it comes with a forecast to the end of the project and a decision. A table that records variances without projections or action is an archive document, not a management tool.

The monthly review cycle

1. D+5 after month end: monthly accounting close, all expenditure posted, including that of field bases and partners where possible.
2. D+8: finance produces the report by line: total budget, expenditure for the month, cumulative expenditure, burn rate, commitments (purchase orders issued but not paid), balance.
3. D+10: the project manager and each budget line owner complete the expenditure forecast to the end, month by month, based on the actual workplan.
4. D+12: budget review meeting (programmes, finance, grants officer): analysis of variances, decisions, need for amendments.
5. D+15: record of decisions and update of the cash flow plan.

Indicators to monitor

Comparing physical delivery with financial burn is the most revealing check: 80% of a line's budget spent for 40% of outputs delivered signals an underestimated unit cost, losses or incorrect charging.

Choosing the right response to a variance

Writing a convincing modification request

• The finding: what has changed, with data (prices, access, timeline, needs).
• The effect: on activities, targets, budget and timeline.
• The proposal: the precise changes, line by line, with a table showing the original budget, revised budget and variance, and the revised logframe if necessary.
• The measures already taken to limit the effect.
• The requested effective date, always after approval for new expenditure.

Donors do not like surprises. A variance flagged early, with an analysis and a proposal, is almost always accepted; the same variance discovered in the final report becomes an ineligible cost.

6Full example: the month 8 budget review and decisions

Context: the cash and WASH project of the fictional NGO "Terre Commune" in Kalembo (direct budget of USD 695,250 over 12 months, presented on day 2) reaches the end of month 8, i.e. 66.7% of the time elapsed. The (fictional) contract allows transfers between headings without prior approval up to 15% of the amount of each heading, provided the total and the objectives remain unchanged; any extension request must reach the donor at least one month before the end date.

The facts of the quarter

• The three rounds of cash transfers are complete (months 3 to 5): the heading is 100% spent, as planned.
• The statutory increase in the minimum wage in month 5 led to an 8% increase in the national staff salary scale.
• The price of fuel has risen by 30% since month 3 (from USD 450 to USD 585 per vehicle per month).
• The first contractor rehabilitated only 4 of the 10 boreholes; its contract was terminated for non-performance, in accordance with its clauses. A new contractor, selected through a tender, quotes USD 6,800 per borehole instead of USD 6,500 and undertakes to finish in month 11.
• The hygiene kits were bought for USD 19 instead of USD 22 thanks to a consolidated tender.

The budget versus actuals report with forecasts (USD)

The analysis

• The overall burn rate of 80.8% for 66.7% of the time elapsed is not in itself a cause for alarm: transfers, which account for 46% of direct costs, were concentrated in months 3 to 5. Excluding transfers, the burn rate is (562,070 − 318,150) / (695,250 − 318,150) = 243,920 / 377,100 = 64.7%, consistent with the time elapsed.
• Staff (+6,400): effect of the 8% statutory increase for national staff from month 5. An external cause, documented by the official text.
• Transport (+2,700): effect of the fuel price increase. Calculation of actuals: rental 2 × 8 × 1,800 = 28,800; fuel 2 × (2 × 450 + 6 × 585) = 8,820; warehousing 8 × 400 = 3,200; total 40,820. Forecast: rental 14,400, fuel 2 × 4 × 585 = 4,680, warehousing 1,600, total 20,680.
• WASH (−2,700): saving of 4,500 on the kits (1,500 × USD 3) partly absorbed by the extra cost of the new contractor (6 × 300 = 1,800). The burn rate of 54.9% is explained by the delay in the boreholes; the forecast (6 boreholes at 6,800, i.e. 40,800, plus 2,700 for committee training and 800 for water testing) assumes that the new schedule is kept.
• Main risk: not financial but programmatic. If the boreholes are not completed by month 11, the water access indicator will not be achieved and part of the WASH heading will remain unspent.

The review's decisions

Projection after decisions: staff 163,600 (+3,600, i.e. +2.3%), transport 56,730 (−2,070, i.e. −3.5%), WASH 101,400 (−2,700, i.e. −2.6%), other headings unchanged. Projected total: 701,650 − 2,800 − 4,770 = USD 694,080, i.e. USD 1,170 under the direct budget. All variances remain within the 15% limit per heading and the total is not exceeded: no budget amendment is needed, but the transfers will be explained in the final report. Indirect costs, calculated at 7% of actual direct costs, will be in the order of 694,080 × 0.07 = USD 48,585.60.

What the example shows: a projected overspend is dealt with through documented management decisions taken four months before the end, not through year-end charging. The review also identified that the real risk was programmatic, which a simple burn rate table would not have revealed.

7Managing sub-grants and implementing partners

When an organisation passes part of its grant on to a partner, it remains legally accountable to the donor for all the funds. An ineligible cost at the partner becomes an ineligible cost for the lead organisation. At the same time, localisation commitments require the partner to be treated as a fully-fledged actor, not as a subcontractor. Managing sub-grants means holding these two requirements together.

The sub-grant cycle

1. Partner assessment before signature (see day 1) and risk rating.
2. Sub-grant agreement that flows down the donor's obligations in writing ("flow-down" clauses): eligibility, procurement, visibility, sanctions screening, safeguarding, fraud reporting, reporting, audit, record retention, right of access for the donor and its auditors.
3. Partner budget, with its overheads and its own budget narrative.
4. Joint kick-off meeting to go through the rules with the partner's finance and logistics team.
5. Disbursement in tranches linked to the liquidation of previous expenditure and to the cash flow plan.
6. Financial and programmatic monitoring proportionate to risk.
7. Closeout: final report, reconciliation, refund of balances, transfer of assets, audit if planned.

Making controls proportionate to risk

These frequencies are indicative; they follow the logic of the HACT approach and of the country-based pooled funds, which adjust tranches, reporting and controls according to the risk level.

The financial monitoring visit

It lasts one to two days and follows a checklist: reconciliation between the project general ledger, bank statements and the latest financial report; checking a sample of expenditure (original document, approval, compliance with procurement rules, correct charging, proof of receipt); checking timesheets and payslips of charged staff; physical inventory of equipment; cash count in the presence of the cashier; review of distribution lists and cross-checking against narrative reports; discussion of difficulties. The visit report lists the findings, recommendations, owners and deadlines, and the next visit starts by checking them.

A partner that has not accounted for an advance for two quarters does not receive the next tranche until a visit has established the situation. Continuing to disburse so as not to block activities turns an administrative delay into a financial risk for both organisations.

What a good partnership requires of the lead organisation

• Pay tranches on time: late disbursement by the lead organisation is a frequent cause of delays at the partner, and then of irregularities.
• Fund the partner's overheads, in line with the 2022 IASC guidance, and do not impose requirements on the partner that are heavier than the donor's.
• Involve the partner in exchanges with the donor and acknowledge it in reports.
• Agree with the partner on a capacity-strengthening plan aimed at direct access to funding, and measure progress.

8Reporting, audit and closeout: method and timeline

The final report: consistency above all

The narrative report and the financial report are read together. An auditor or a programme officer systematically checks: that activities reported as completed have corresponding expenditure, that underspending is explained by reduced activities or documented savings, that targets achieved are consistent with the quantities purchased and distributed, and that variances flagged during the project are carried through. The figures in the financial report must be reconciled with the accounts, and every transfer between headings must be explained.

The closeout timeline

The exact deadlines depend on the contract. For US funding, final reports are submitted and obligations liquidated, in principle, within 120 days of the end of the period of performance. For the European Union, the agreement sets the deadline for submitting the final report and the record retention period, which runs from payment of the balance.

Preparing for and going through an audit

• Before: reconcile the financial report with the general ledger; check that each item of expenditure has complete supporting documents (purchase request, quotations, minutes, purchase order, delivery note or goods received note, invoice, proof of payment); gather timesheets, contracts, signed distribution lists and asset registers; prepare a list of known variances with their explanations.
• During: designate a single point of contact, a room and a log of the auditor's requests with response dates; hand over only copies, keep track of documents provided; answer factually.
• After: respond to the draft report within the deadline, point by point, providing new documents where they exist; draw up an action plan for each recommendation, followed up by senior management.

The most frequent audit findings

A disallowed cost is repaid by the organisation from its own funds. A portfolio of several grants can thus generate a significant debt that threatens the survival of a national NGO without reserves.

Fraud and reporting

All major donors require prompt notification in the event of suspected fraud, corruption, diversion or sexual exploitation and abuse. For the European Union, the European Anti-Fraud Office (OLAF) can investigate Union funds; for US funding, the Uniform Guidance requires timely written disclosure to the agency and its Office of Inspector General of credible evidence of certain violations. Good practice: a written policy, a protected reporting channel, an internal investigation conducted by trained people independent of the department concerned, preservation of evidence, and notification of the donor as soon as there is a well-founded suspicion, without waiting for the conclusions.

Reporting fraud is not an admission of failure but proof that the control system works. Donors penalise concealed fraud discovered by others much more severely than fraud that has been reported and dealt with.

9Variations by context and the auditor's perspective

Common mistakes in contract management

• Spending fast at the end of the project to avoid repaying: large purchases in the final month are a prime target for auditors and programme officers.
• Requesting an extension too late: a late request may be refused, and activities not completed become unmet commitments.
• Making changes without formalising them: agreement given orally or by informal message by a programme officer does not protect the organisation; obtain written confirmation that refers to the contract.
• Forgetting the partner: its unverified expenditure is the organisation's expenditure.
• Narrative and financial reports written separately: inconsistencies trigger questions and delays in payment of the balance.
• Scattered archives: the departure of an accountant makes an audit impossible if documents are not filed by transaction and by line.

What the auditor or programme officer looks at

• The audit trail: can an item of expenditure be followed from the budget line to the supporting document and to the final recipient?
• The segregation of duties in each significant transaction.
• End-of-project expenditure, equipment bought late, large cash payments.
• The consistency between outputs and expenditure: quantities purchased, distributed, in stock.
• The follow-up on previous recommendations: a recommendation not implemented from one audit to the next is a serious warning sign.
• Compliance with safeguarding and accountability commitments: complaints register, handling and response times.

10Interview questions and key references

Interview questions

1. "You have just received a signed contract. What do you do in the first week?"

A strong answer describes reading the special conditions and then the general conditions, building a compliance matrix with owners, setting up the accounting codes and the grant file, the procurement and recruitment plans, and the kick-off meeting with all functions and the partners. It mentions the points to be clarified in writing with the donor.

2. "In month 8 of 12, 80% of your budget has been spent. Is that a problem?"

The candidate does not answer yes or no: they distinguish planned one-off expenditure (transfers, bulk purchases) from regular spending, ask for the end-of-project projection by line, compare it with physical delivery and propose documented decisions. They cite the contractual flexibility and the threshold beyond which an amendment is required.

3. "A partner has not accounted for an advance for six months. What do you do?"

Suspend further disbursements, organise a financial monitoring visit, establish the facts (administrative delay, capacity problem or irregularity), set a plan with deadlines, inform the donor if there is a risk of loss and activate the reporting procedure if fraud is suspected. Also analyse the lead organisation's share of responsibility (late disbursements, insufficient support).

4. "An auditor disallows USD 35,000 of expenditure. How do you react?"

Analyse each finding, provide additional documents where they exist, contest unfounded disallowances in writing, accept the others and plan their repayment from own funds, then put corrective measures in place to prevent recurrence, followed up by senior management. Never charge the disallowed amount to another grant.

5. "How do you prepare a no-cost extension request?"

Describe the early decision based on the projection, compliance with the contractual deadline, a reasoned request (documented causes, measures already taken), a revised workplan and budget showing that the remaining funds cover the additional period, and the update of the compliance matrix and staff contracts.

6. "What documents must a compliant procurement file contain?"

Approved purchase request, procedure matching the threshold, quotations received, evaluation grid and committee minutes, declarations of no conflict of interest, sanctions list check, purchase order or contract, delivery note or goods received note, invoice, proof of payment, and entry in the asset register where applicable.

Key references

• General conditions and model grant agreement for European Union humanitarian aid, annexes on procurement and visibility: ECHO.
• US Code of Federal Regulations, Title 2, Part 200 (Uniform Guidance), in particular the provisions on budget revisions, procurement, closeout, record retention and mandatory disclosures.
• Country-Based Pooled Funds Global Guidelines and operational accountability framework (audits, spot checks, monitoring): OCHA.
• Harmonized Approach to Cash Transfers (HACT) framework and guidance on assurance activities: United Nations agencies.
• International Standards on Auditing (ISA) and the standard on agreed-upon procedures engagements (ISRS 4400), used for expenditure verifications.
• Core Humanitarian Standard on Quality and Accountability (CHS), commitments on the responsible management of resources.
• IASC Guidance on the Provision of Overheads to Local and National Partners (2022) and Grand Bargain commitments.
• PMD Pro guide: chapters on project implementation, monitoring and closeout.