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Grant and Grant in Aid

GRANT AND GRANT IN AID

Contents:

Scope

Key Points

Background

Funding by grant

Funding asset creation and maintenance through endowments or dowries

Conditions attached to the payment of grant

Using assets as collateral or to generate income

Statements on compliance with conditions of grant

Funding by grant in aid

Assets funded by grant or grant in aid

Third party grants

Assistance to private sector organisations

Annex 1: Charge / Clawback Condition over Publicly Funded Conditions

Annex 2: Framework for the Financial Control of Third Party Grants

Annex 3: Grant funding and Procured Goods and Services Contracts

Scope

1. This section gives guidance on grant and grant in aid and the conditions that might be attached to the different forms of funding. The guidance is aimed primarily at the core Scottish Government (SG) and the other constituent parts of the Scottish Administration (i.e. the Crown Office and Procurator Fiscal Service, SG Executive Agencies and non-ministerial departments). However, other organisations to which the Scottish Public Finance Manual (SPFM) is directly applicable, including bodies sponsored by the SG, should ensure compliance with any relevant provisions and, where appropriate, arrange for procedures consistent with the guidance to be put in place.

Key Points

2. Grant in aid refers to pre-funding provided to SG sponsored bodies to finance their ongoing operating expenditure within broad parameters set by Scottish Ministers. Grant refers to funding provided by the SG to other organisations and individuals for specific purposes provided for in legislation.

3. Grants provided by the SG must be made subject to binding agreements - a model Offer of Grant document, including standard conditions of grant and schedules covering claims and payments, is available to SG staff on the SG Intranet. The terms and conditions attached to grant in aid should take the form of a framework document consistent with the model at Annex 3 of the section of the SPFM on Accountability, adapted as appropriate.

4. Conditions should normally be attached to grants or grants in aid which will be used to acquire or improve capital assets so that the SG's position is protected in the event of disposal.

5. Grant and grant in aid should not be paid in advance of need.

6. Business areas are responsible for ensuring, so far as possible, that grants are spent for the specific purposes for which they were authorised. 

7. Proposals to provide assistance to private sector organisations should be carefully appraised and the terms on which any assistance is given made absolutely clear. Government assistance to private sector organisations is constrained by EC State Aid Rules

Background

8. Funding by the SG of individuals or bodies is normally provided in the form of grant or grant in aid. Separate guidance on SG support for revenue expenditure and capital investment by local authorities is set out in the section of the SPFM on Local Government Finance. However, "specific grants" made by the SG to local authorities are covered by this guidance. Grant in aid refers to pre-funding provided to SG sponsored bodies (e.g. executive non-departmental public bodies) to finance their ongoing operating expenditure within broad parameters set by Scottish Ministers. (It should be noted that local authorities or organisations consisting largely of local authority representatives would not qualify as SG sponsored bodies.) Grant refers to funding provided by the SG to other organisations and individuals for specific purposes provided for in legislation.

Funding by grant

9. Grant should not be issued to the recipient in advance of need and in many instances (e.g. under the terms of a grant scheme) will not be made available until the recipient has incurred the expenditure and claims reimbursement. Pre-funding, however, may be appropriate in the case of public sector or voluntary sector bodies. Any other proposals for pre-funding must be approved in advance by the relevant SG Finance Business Partner (or equivalent). Grant should be provided net of recoverable VAT. Business areas are responsible for ensuring, so far as possible, that the recipient spends the grant for the specific purpose for which it was authorised. Grant funding provided by the SG must be subject to the lead business area being satisfied as to the standing and relevant experience / expertise of the recipient and any delivery partners. Checklists covering the grant proposal, application and assessment processes are available to SG staff on the SG Intranet.

10. In the interests of transparency there should be a presumption against sponsored bodies supported by grant in aid from the SG being eligible for separate payments of grant from the SG. Any such payments must therefore be approved in advance by the relevant SG Finance Business Partner (or equivalent). Payments of grant should not be made to any other body funded directly from the Scottish Consolidated Fund as identified in a schedule to the annual Budget Act - support, where considered appropriate, should be provided by transferring budgetary provision. (This guidance is not applicable to EU Funding claimed via the SG.)

Funding asset creation and maintenance through endowments or dowries

11. In general, grant should provide cash on the basis of need in a particular financial year. Exceptionally, however, there may be a case for considering funding by way of endowment or dowry, i.e. making a one-off grant which will often represent a clean break between the SG and funded body whilst enabling a funded body to set up a fund from which to draw down over several years. Where business areas consider such funding appropriate they should seek the prior approval of their SG Finance Business Partner (or equivalent). In assessing particular proposals business areas will need to provide an assessment of the overall value for money of such funding, including an assessment of:

  • the opportunity costs of locking public funds into a particular endowment, using investment appraisal techniques;
  • the value of the particular programme or project against others. The SG Finance Business Partner (or equivalent) will need to be satisfied that such funding would not protect any low-value programmes or projects from proper expenditure scrutiny;
  • the sustainability of the funded body and whether such funding decreases reliance on public funding or not;
  • whether there are clear objectives, outputs and outcomes of the funding; and
  • the risk of further call on public funds (e.g. because the endowed funds have not grown at the expected levels).

12. Where it is decided to make an endowment or dowry, its terms should:

  • provide clarity - the funded body should know where it stands and not have to approach the SG for annual funding; and
  • maintain clean boundaries between the SG and the grant recipient.

13. Business areas should however ensure that such payments are based on:

  • genuine need for funding; and
  • an assessment that the grant recipient has the necessary competence to preserve or increase the value of the endowment over time.

Conditions attached to the payment of grant

14. Grants provided by the SG must be made subject to binding agreements. A model Offer of Grant document, including standard conditions of grant and schedules covering claims and payments, is available to SG staff on the SG Intranet. This model should be used as the basis for all grants provided by the SG except where bespoke models have been developed in consultation with SG Finance Business Partners (or equivalent) and the Scottish Government Legal Directorate (SGLD). The standard model Offer of Grant document may be adapted in consultation with Finance Business Partners and, as necessary, SGLD. Finance Business Partners and Internal Audit Division should be consulted when any new proposals for the provision of grant are being considered.

Using assets as collateral or to generate income

15. The SG needs to be satisfied that grant funded assets are used for their agreed purpose. It may however take into account that using the assets as collateral might help the transition from a short-term social project to a viable third sector body e.g. the voluntary and community sector, charities. Equally the appropriateness of giving grants to finance asset acquisition when it is being used solely to lever in income or provide security for lending must be taken into consideration. Business areas should be alert to the risk of third party creditors gaining a benefit at the expense of the SG, in the event of a body becoming insolvent and having used grant funded assets as security. They should therefore ensure that the body seeks the agreement of the SG to grant funded assets being used as security whilst a charge / clawback condition still applies - see guidance below under the heading "Assets funded by grant or grant in aid".

16. Similarly, conditions may be set on the ability of the recipient to generate income from a grant funded asset. Such conditions should be proportionate and weigh up the balance between impeding a body's ability to be self-supporting against the appropriateness of using public funds for the body to acquire an asset solely for the purpose of generating income. It would be appropriate to allow a body to retain income if, for example, it was generated by using spare capacity.

Statements on compliance with conditions of grant

17. A standard condition of grant (but not grants to voluntary bodies to assist with their operational costs) is the requirement for the grant recipient to provide statements on compliance with the conditions attached to the grant - see paragraph 3.2 of the standard model Offer of Grant. Such statements may be provided by the grant recipient's director of finance or head of internal audit, except where an assessment of the risks involved indicate that certification should be provided by the grant recipient's external auditor or an independent accountant. The SG has agreed that all statements provided by local authorities should be signed by the relevant director of finance. Where external certification is considered necessary - taking into account the risks of the grant recipient failing to use the grant for the purpose intended or failing to abide by the grant conditions in general, together with such matters as materiality - the precise wording of the statement would need to be agreed between the SG and the external auditor / independent accountant on a case by case basis. Advice on the wording should be sought from the SG's Internal Audit Division.

18. An independent accountant providing statements on compliance with conditions of grant must either be eligible for appointment as a company auditor or, where the total offer of grant is no more than £50,000, be a member of one of the accountancy bodies listed below. Any discretion with regard to these requirements is subject to the prior approval of the relevant SG Finance Business Partner (or equivalent).

  • Institute of Chartered Accountants in England and Wales
  • Institute of Chartered Accountants of Scotland
  • Institute of Chartered Accounts of Ireland
  • Chartered Association of Certified Accountants
  • Chartered Institute of Management Accountants
  • Institute of Company Accountants
  • Association of International Accountants
  • Chartered Institute of Public Finance and Accountancy

Funding by grant in aid

19. Grant in aid is paid to arm's length bodies sponsored by the SG. Where a sponsored body comes within the SG's resource budgeting boundary grant in aid provides the cash required from the SG to fund the agreed resource budget. Budget Documents, published together with the annual Budget Acts, should provide the Parliament with sufficient detail on the application of grant in aid. Once the grant in aid has been paid over to the sponsored body any unspent balances it holds are not liable to surrender to the SG at the end of the financial year. However, to ensure that sponsored bodies do not build up unacceptably large balances, the sponsoring unit within the SG should ensure that grant in aid is not paid in advance of need. The full amount of budgeted grant in aid may not therefore have to be issued.

Conditions attached to the payment of grant in aid

20. While the SG does not seek to exercise operational control over sponsored bodies, it must set out the terms and conditions on which the grant in aid is paid. Those terms and conditions should take the form of a framework document consistent with the model at Annex 3 of the section of the SPFM on Accountability, adapted as appropriate in consultation with the relevant SG Finance Business Partner (or equivalent). See also the guidance in relation to sponsored bodies in the section of the SPFM on Delegated Authority.

Assets funded by grant or grant in aid

21. Where assets acquired or developed with the aid of grant or grant in aid are disposed of, the proceeds - or an appropriate proportion of them if the grant was for less than the whole cost of acquisition or improvement - should normally be clawed back by the SG in accordance with conditions attached to the grant or grant in aid. General guidance on the introduction of a charge / clawback condition over a publicly funded asset is provided in Annex 1. Business areas should consult their SG Finance Business Partner (or equivalent) on the application of the guidance.

Third party grants

22. In many areas across the SG the funding of third parties has devolved to organisations such as Local Authorities, Non-Departmental Public Bodies (NDPBs) and other bodies such as community partnerships. In delegating such responsibilities, it is important that business areas put in place effective systems to ensure the propriety and regularity of expenditure. A framework for the control over funds to third parties is set out in Annex 2.

Assistance to private sector organisations

23. Government assistance to private sector organisations is constrained by EC State Aid Rules. Business areas must, before any scheme is launched or grants paid, establish that the measure or payment is either covered by relevant permissive European legislation or has been notified to and approved by the European Commission as a State Aid.

24. Before assistance is given to private sector organisations to undertake or assist with a specific project, business areas should establish, so far as possible, that the organisation will be capable of carrying out the project and taking ownership of risks which fall to it, and that the organisation's general management procedures and organisation are sound. The potential cost which would fall on the organisation, after allowing an appropriate margin for contingencies commensurate with the organisation's exposure to risks, must also be examined in relation to the assisted organisation's total resources and commitments.

25. Business areas should ensure that the terms on which assistance is given, the length of time involved, and the extent of the SG's involvement are clearly stated. (Loans by sponsored bodies to organisations should, wherever possible, be properly secured. Exceptions to this general principle should be made only after careful consideration and for adequate reasons.)

26. Business areas should take all practicable steps, without diminishing the responsibility of directors for management, to ensure that proper and early warning is received of any major problems that may be developing; and, in particular, agree with the assisted organisation the nature and frequency of returns needed by the business area to keep itself adequately informed of the organisation's situation. Consideration should be given to providing for access to the records of the organisation bearing in mind the risk attached to the grant. The primary objective of such monitoring is to provide early warning of project failure or cost increases which might lead to requests for further assistance. With such warning a business area is able to consider the financial position with the organisation and decide whether to continue with the project on an agreed basis or to cancel it with minimal further expenditure.

27. SG assistance to private sector organisations is subject to the "Concordat on Financial Assistance to Industry" attached to the Memorandum of Understanding between the UK Government and Scottish Ministers.

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Page Published / Updated: April 2016