What do I need to include in an “expenditure responsibility” grant agreement?

An “expenditure responsibility” grant is a grant to an organization that is not a charity as defined in section 509 of the Internal Revenue Code, but that is made for a charitable purpose. An example would be a grant to a Rotary Club (a Section 501(c)(7) organization, which is not a charity) to be used for a fund drive to help families whose apartments burned down, which is a charitable purpose.

Expenditure responsibility regulations require a “written commitment” signed by the grantee organization. Agreements required in the contract include:

  • To repay any portion of the funds not used for the purposes of the grant
  • To submit full annual reports on how the funds are spent, and the progress in accomplishing the purposes of the grant
  • To maintain books and records, and make them available for inspection by the grantor foundation
  • To not use any of the funds:
    • To lobby or otherwise attempt to influence legislation
    • To influence the outcome of any specific public election or participate or intervene in any political campaign on behalf of any candidate for public office, or conduct, directly or indirectly, any voter registration drive
    • To distribute the funds to an individual for travel or study, unless the recipient is selected on an objective and nondiscriminatory basis pursuant to procedures approved in advance by the Internal Revenue Service, or to regrant monies to another noncharitable organization, unless the second grant also is made as an expenditure responsibility grant
    • To support any noncharitable purpose

A sound grant agreement might also contain:

  • A statement of the amount and purposes of the grant
  • A payment schedule
  • An attached copy of the budget for the project, with a provision that no changes can be made in the budget without foundation approval and a further provision that any funds not spent in accordance with the budget must be returned to the foundation
  • A provision that if the grantee‘s charitable tax-exempt status is changed or revoked by the IRS or the state attorney general, the foundation will be notified immediately and the grant can be terminated
  • A provision that if the project director is no longer working on the project for any reason, the foundation will be notified so that it can determine the effect on successful completion of the project
  • An agreement that if the grantee‘s organization fails to abide by the terms of the grant agreement, the foundation may terminate the grant and recover any unspent or improperly spent grant funds

An officer of the grantee who certifies that he or she has been authorized to execute the contract by the grantee‘s board of directors should sign the grant agreement.

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