How the donor assesses the use of grant funds

In most projects, the review comes down to three questions: is it allowable, is it supported, and were procedures followed.

• Consistency of expenses with the budget and purpose.
• Allowability of expenses: compliance with donor rules, the project period, and activity objectives.
• Availability and quality of supporting documents: contracts, invoices, acts/delivery notes, payment documents, orders/authorizations.
• Compliance with procurement procedures and contractor selection.
• Correctness of staff costs and allocations, taxes/contributions.
• Consistency of figures: report ↔ accounting records ↔ bank statements ↔ transaction register.

Documents and transaction register: basic structure

To keep preparation manageable, maintain a transaction register and file support following the logic “one transaction — one document set”.

• Project documents:
  • grant agreement/contract, approved budget and annexes;
  • amendments/addenda, agreed reallocations;
  • donor requirements for reporting and supporting documents.
• Finance and reconciliation:
  • project bank account statements;
  • payment documents (orders/instructions), payment purposes;
  • transaction register (date, counterparty, amount, budget line, purpose, link to document);
  • foreign exchange differences calculation (if there are FX transactions).
• Source documents for expenses:
  • contracts/orders, invoices;
  • acts/delivery notes, evidence of delivery/service provision;
  • evidence of outputs/results (reports), if required under donor rules.
• Procurement and supplier selection:
  • justification of need and procurement method;
  • comparison of offers/quotes;
  • minutes/decision on selection, evidence of compliance with thresholds;
  • confirmation of no conflict of interest (if required).
• Staff and payroll:
  • contracts/orders/authorizations for payments;
  • payroll statements/slips, evidence of taxes/contributions paid;
  • project time records, if required by the donor.
• Internal procedures:
  • expense approval workflow and authorization levels;
  • procurement/supplier selection policy (if documented separately);
  • document retention rules and access (including electronic archive).

Common reasons for donor remarks

• Expenses do not match the budget line or were incurred without an approved reallocation.
• Incomplete support: there is a payment but no act/delivery note, or documents are not linked to each other.
• Procurement issues: no comparison of offers, no justification for selection, decisions are not documented.
• The link “expense → activity → project result” is unclear in explanations (the logic of intended use is not evident).
• Staff cost risks: no timesheets/time records, weak basis for payments, incomplete evidence of accruals.
• Expenses outside the project period or without clear evidence of allowability under donor rules.
• Poor reconciliation: the report does not match accounting/bank statements/transaction register.

Preparing for a review: step-by-step plan

• Recheck the rules: budget, allowability, timelines, document and procurement requirements.
• Compile the transaction register and supporting files for each transaction.
• Review procurement: thresholds, competition, decision minutes, selection documents.
• Review staff: payment basis, accruals, taxes/contributions, time records (if required).
• Reconcile “report ↔ accounting ↔ bank statements ↔ register”: amounts, dates, purposes, budget lines.
• Prepare explanations for disputed transactions: what was done, why for the project, under which rules and documents.

When external assurance is required for a project

• the project is large or high-risk in procurement/staff costs;
• the donor explicitly requires agreed-upon procedures/AUP (often under ISRS 4400 (Revised)) or another review format;
• the project has FX transactions, complex cost allocation, or significant subcontracted work;
• there were budget changes or reallocations.

The practical point for the grantee is one: the requirements for the evidence base will be higher, and the “support chain” should be easily traceable for each material transaction so that the intended use of funds does not raise questions.