Our grant application reflected our best estimates for results and expenses. Take-up was well below our expectations and, therefore, our costs were a lot lower too. But we developed a related program that achieved similar outcomes, sort of, and used up the monies. Now the report is due – what do I tell the foundation?

The only really ethical approach was to have called the foundation as soon as you realized your estimates were not going to be close to reality. Foundations are trying to achieve good outcomes for the communities in which they support projects, and your grantor likely would have let you redirect the monies to a similar program that was more in demand.

However, hindsight would be more useful if our time machines worked, and mine remains broken too. We can only go forward.

At this point, the foundation is under no obligation to give retroactive approval. There are several ways to handle the situation now. One is complete honesty – call your foundation contact, confess that you redirected the grant without advance approval, and throw yourself at their mercy. You will likely build trust for the future, but you may be asked to repay the grant.

Since repayment might seriously hurt mission achievement, and also get you in trouble with your board, some people feel it is acceptable to combine the results and costs, and try to make it appear that you stuck to the approved use. You might get away with this, but you will probably find yourself creating a web of lies. The lies may extend to your treasurer, finance or audit committee, external auditor, audited financial statements and communications to members. If the deception is discovered by the foundation, your organization is highly unlikely to ever receive future support. And foundations talk to each other!

If those involved with your organization discover the deception, they may congratulate you on retaining the monies and fooling the foundation…but will they ever trust you again? And what kind of role model are you for your staff? It is pretty hard to keep such stories from reaching far beyond the accounting staff.

As usual, when considering possibilities for an ethical dilemma, there is another option. The one most organizations actually choose, in my experience, is to massage the numbers to look as good as possible in relation to the original approval, and downplay the amounts that were diverted. They also put extra effort into evaluating how the unapproved program achieved the same or better results. This work is best done openly with staff, finance committee and auditor, so there is agreement on which reallocations are deemed honest, and which are not. The percentage allocations of overhead, for example, are usually estimates and a somewhat different estimate may be no less true.

The result of this option is that when you call the foundation and explain the situation, the amount redirected may seem less material and the results more positive. The foundation will likely still be unhappy that you did not call earlier, and may impose more frequent or stringent interim reports if they ever give you money again. But the chance they will demand repayment is reduced (though not eliminated).

There is another option, used all too often. We sometimes call it witch-hunting, and sometimes scapegoating. You could tell the foundation that the misdirection was done by “one bad apple” on the staff, and that person has been seriously disciplined. I cannot support this choice unless that one person really was fully responsible, and managed to disguise the situation so well that even with due diligence, the misdirection was not discovered in time. You failed to properly monitor both the finances and the program activity? A likely story, since you have not yet been fired for incompetence. This option makes the whole organization look unfit for any further grants, even if you get to keep this one.

I hope this outline of options makes organizations think more about coming forward as soon as a redirection of funds is being considered. The grantor has the right to choose how their monies are spent, and it is unethical to mislead them or hide the redirection until the grant period ends.

By the way, grantors in this situation sometimes let organizations keep the monies in order not to miss their distribution quota, or, in the case of government, to avoid under-spending their own budget and having future budgets reduced accordingly. But they will not thank you for putting them in such a position.

Since 1992, Jane Garthson has dedicated her consulting and training business to creating better futures for our communities and organizations through values-based leadership. She is a respected international voice on governance, strategic thinking and ethics. Jane can be reached at jane@garthsonleadership.ca.

To submit a dilemma for a future column, or to comment on a previous one, please contact editor@charityvillage.com. For paid professional advice about an urgent or complex situation, contact Jane directly.

Disclaimer: Advice and recommendations are based on limited information provided and should be used as a guideline only. Neither the author nor CharityVillage.com make any warranty, express or implied, or assume any legal liability for accuracy, completeness, or usefulness of any information provided in whole or in part within this article.