What is the difference between restricted and unrestricted funds?
Restricted funds come with a condition. The donor says what the money is for, where it may be spent, and often by when. A grant for a nutrition programme in two districts is a restricted fund.
Unrestricted funds have no such condition. Examples are individual donations without a purpose, membership fees and some core grants. You choose how to use them, within your governing rules.
Some organisations also use a middle group, often called designated funds. Your board sets this money aside for a purpose, but the board can change its mind. The donor did not set the limit.
The line matters because breaking a restriction is a serious problem. It can mean a refund, a failed audit or a lost relationship with the donor. Check your local rules on how to present these funds in statutory accounts.
Why does tracking them separately matter?
Cash does not carry a label. One bank account may hold money from five donors. Without a fund record, nobody can say how much of the balance belongs to whom.
Tracking by fund lets you answer three questions at any time:
- How much of this grant have we spent?
- How much is promised to suppliers but not yet paid?
- How much is still free to spend before the end date?
If you answer only the first question, you risk spending money twice. Our article on the budget vs actual review shows how to compare these numbers with the plan.
How do you set up fund tracking?
Use these steps. They work in a spreadsheet or in software.
- Make a fund list. One code per donor grant, plus codes for unrestricted and designated money. Keep the list short and stable.
- Record the terms. For each fund, note the purpose, the start and end dates, the budget, and any limit on costs such as overhead.
- Tag each entry. Every income and expense entry carries a fund code when it is posted. An untagged entry is an error to fix on the same day.
- Tag income too. When a donor payment arrives, record it against the correct fund so the balance starts right.
- Split mixed costs. If one invoice serves two funds, split it by a stated rule before you post it.
- Report monthly. Show each fund’s income, spending, commitments and available balance.
What should a fund report show?
A simple table is enough:
| Line | What it means |
|---|---|
| Funds received | Money the donor has paid in |
| Spent | Costs posted against the fund |
| Committed | Orders and contracts approved but not yet paid |
| Available | Funds received minus spent minus committed |
Add the grant budget and the end date beside the table. A positive balance close to the end date is a warning, because the money may go unspent. A negative balance is a warning too, because another fund may be paying the gap.
What should you do when funds run short?
It happens often. A grant payment is late, or a cost lands before the money does.
- Do not move costs silently. Charging a restricted cost to an unrestricted fund, or the reverse, without a record hides the problem.
- Write a borrowing rule. Say who can approve a loan between funds, the maximum amount and the date it must be repaid.
- Log each loan. Record the lender fund, the borrower fund, the amount and the approver.
- Review open loans monthly. An old loan is a sign that a grant is underfunded.
What mistakes should you avoid?
- Using one fund code for several donors “to keep things simple”.
- Tagging costs at month end from memory.
- Leaving out commitments, so a fund looks healthy when it is not.
- Forgetting that some donors do not allow certain costs at all. Read the cost rules before you post.
A worked example
A country office holds three funds. Fund A is a restricted health grant of 120,000 for 12 months. Fund B is a restricted education grant of 80,000. Fund C is unrestricted, with 30,000 from individual donors.
In month five, the health team buys medical supplies for 9,000. The invoice is tagged to Fund A on the day it is posted. In the same month, the office pays its rent of 4,000. The rent serves all three programmes, so the team splits it by a stated rule, and only the share that Fund A may bear is charged to it. The part that no donor allows goes to Fund C.
At month end, the finance officer produces one line per fund: received, spent, committed and available. Fund A shows 120,000 received, 52,000 spent, 14,000 committed and 54,000 available. The program manager sees at once that 14,000 is already promised to suppliers, and plans the remaining months from 54,000, not from 68,000.
Questions to ask at every grant start
- Does the agreement name a purpose, a place or a target group?
- Is there a cap on any cost type, such as equipment or staff?
- Does the donor allow money to move between budget lines, and by how much?
- Can unspent money be carried forward, or must it be returned?
- Which costs does the donor refuse to pay at all?
Write the answers on one page and keep it with the fund record. New staff then learn the rules in minutes, not months. Donor terms change by agreement and by country, so always read the agreement itself and ask the donor when a term is unclear.
Where EMPOBase fits
In EMPOBase, each ledger line can carry a project, a grant and grant budget line, and a fund with its restriction class. One posting serves the ledger, Budget vs Actual and Restricted Funds. You can see what is spent, committed and still available for each award. The ledger is built for projects, grants and restricted funds. It is not statutory accounting, so your accountant still prepares those accounts. See the platform overview for the Finance module.