Expenditure Responsibility: the extra steps required when a grantee is not a public charity

What is expenditure responsibility?

Most grants a US private foundation makes go to organisations with public charity status, and require no special handling. Expenditure responsibility covers the rest: grants to for-profit entities, to individuals in some circumstances, to foreign organisations without an equivalency determination, and to other private foundations.

The requirement is procedural. The foundation is not prohibited from making the grant; it has to take defined steps and be able to show that it did.

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The five steps

A pre-grant inquiry into the grantee's identity, history and management, sufficient to give reasonable assurance the funds will be used as intended. A written grant agreement restricting the funds to a stated charitable purpose and prohibiting other uses.

A requirement that the grantee hold the funds in a separate account and keep separate records for them. Reports from the grantee on how the money was spent and what progress was made, at least annually and at the end of the grant.

And disclosure of the grant on the foundation's annual return, with the reports retained. The fifth step is the one most often missed, because it happens long after the programme team has moved on.

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When it applies

The status of the recipient decides, not the size or purpose of the grant. A modest award to a social enterprise structured as a company carries the full requirement; a much larger one to an established public charity carries none of it.

For international grants, the foundation chooses between this route and an equivalency determination. Expenditure responsibility is quicker to start and heavier to carry.

One practical consequence is worth planning for: the obligation outlasts the grant decision by years. A foundation that cannot retrieve a 2022 grantee report in 2026 has a compliance gap regardless of how well the programme performed.

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Expenditure responsibility in a grant platform

A grant management software platform can flag which grants carry the requirement at the point of award, generate the restricted-purpose grant agreement from an approved template, and schedule the required grantee reporting automatically.

The reporting obligation is where a system earns its place. Annual reports for the life of every affected grant, tracked and chased without anyone remembering to, is the difference between a documented file and a reconstruction attempt.