Among the companies that invest in government funding initiatives, many do not receive the full value of their application due to the complexity of post application requirements, which can make or break your application. However, a full understanding of these requirements can ensure that the time and resources that your company has dedicated to the initial application provide a maximum return on your investment. The following is the first article in a three part series that goes behind the scenes of major Government Funding processes, including Grant Reconciliation and SR&ED reviews, to examine some key post application requirements that can help ensure that you acquire the full value of your application.
Your company receives an exciting email: your grant application has been approved! A lot of hard work has gone into securing this government funding so far, but the process does not stop at the primary submission; achieving project goals and metrics and providing evidence of your incurred eligible expenses are critical to obtaining payment. While some grants pay an installment after accepting your application, almost all require the expenditures your company incurs during/as part of the approved project to be reconciled to receive further payments.
Each grant has its own reconciliation process, but most reconciliation processes involve providing invoices and proofs of payment (evidence that the company has fully incurred each invoice/expense) for the Reimbursement. It is crucial to remember that for each invoice, you will need to provide proof not only that the invoice was paid, but that your company paid for each invoice. This means that for payments made by credit card, you will need to provide credit card statements and copies of cancelled cheques proving that the credit card was paid off (whether the card is business or personal, the cheque needs to come from the company).
After submitting the Reimbursement—either through an online portal or through the mail— the expenses will be assessed by the government body and they will contact with you any questions or concerns. You may also need to report on primary project goals and metrics at this time. Once the expenses are approved, the government body usually pays a percentage of the awarded amount, less any approved amounts that were not incurred.
Often, you are then required to submit a more comprehensive and detailed Final Report, which includes reporting on critical program and project goals and metrics, explaining any unexpected gains or losses in relation to these metrics, along with written statements about the success of the project. Examples of metrics that may need to be reported on include leads generated, jobs created, export markets accessed, market knowledge gained, and/or sales attained as a direct result of the project.
As the Reconciliation and the Final report are submitted as separate items, it is important to be aware of timelines and when objectives need to be reported on or completed to ensure success of the project and the reconciliation process. Likewise, as grant programs typically pay out their successful recipients in installments, it is important to be patient and to stay in communication with your funding program representative.
Features of the Reconciliation Process
Advance Payments: Funding distribution varies by program, but payment is usually awarded after a reconciliation has been accepted, and again when a final report is accepted. Some programs provide advanced payments, meaning that a percentage of the total awarded amount is provided as an upfront payment. This payment is usually contingent on the signing of the principal agreement and is intended to help ensure the approved project can move forward.
Evaluation: Reconciliations and final reports usually include a section where your company must attest to the corporate/market knowledge you have gained by completing the project. You will likely also have to state how the project has helped you grow in reference to key metrics, and how you will continue to grow these metrics moving forward.
Reconciliation Grace Periods: As each grant government body has its own stipulations for grace periods on reconciling submissions, it is highly recommended that you maintain regular contact with your government representative.
Project Accuracy: This translates to how funding is being spent. The success of the project (and the paid installments you’ll receive) is contingent on how you demonstrate that the originally submitted plan is being adhered to; the government wants to make sure that the original plan, the one they approved, is followed through in the agreed upon calendar window and fashion. To ensure you can prove project accuracy, it is essential that all receipts are final and dated and that all “proofs of payment” are organized and trace the full chain of the transaction (including credit card statements, cancelled cheques, and wire transfer documents, if applicable).
Accurate Documentation: Ensuring all documentation is accurate includes verifying that each document includes dates, signatures, names of employees, and payment information (as applicable). This may also include keeping logs prescribed by the adjudicating body, collecting signatures from employees or subcontractors, logging new potential client data, or updating timelines and milestone dates.
Metrics: Key metrics are critical as they are used to assess project viability/success when securing the grant and during the reconciliation process. If your project under-spends, if you submit expenditures late, or if you fail to achieve key metric goals, the government can reduce your payments, withhold further payment, or even claw-back payment in rare circumstances. Major discrepancies can put your company in poor standing with adjudicating government bodies and impact future funding opportunities.
Results/Final Reports: A final project report is typically required at the end of the contribution agreement project phase to receive final payments. In addition, annual reports, possibly required for several years following the project, may be needed to assess the ongoing benefits resulting from the project and general company success.
Site Visits: Site visits may be done to ensure the project is being completed as stated, that your company is keeping accurate logs, or to verify project completion/milestone completion (if applicable). Some programs even require site visits prior to primary application submission, to ensure the validity and viability of the company and project.
Reviews: The possibility of a review is listed in nearly all grant contribution agreements. You should meticulously maintain all documentation and diligently log all metrics. If your firm has been selected for a review, you will be notified well in advance and will be notified what aspects are being reviewed at that time.
Financing: While there are government programs who act as a guarantee to another lender, generally this is not the government’s intention in awarding grants. Supporting documents, however, may be required for a successful application: the awarding body is often interested in making sure that their support is not the sole support and that the project is financially viable, such that it will probably take place even without government funding,.
Taxable Income: The CRA considers funding either a taxable income, or the reduction of an expense, with potential implications for Scientific Research and Experimental Development tax credits. The CRA recommends that your company utilizes professional tax advice for an assessment for grants.
Overall, reconciling grants requires your company to maintain diligent records of spending and timelines, a keen eye on the original project calendar, and regular contact with your adjudicating body representative. Given the complex nature of these application and reconciliation processes, a consultant can be a key ally in ensuring your project is a success from start to finish.
Coming up: Behind the Scenes SR&ED Review. Find out what the review process involves and what your company can do to prepare while minimally impacting business as usual to get the most of your SR&ED resources and increase return on investment.
*Co-authored by Gerry Fung, Vice President of Business Services, and Alex Carey, Technical Writer at NorthBridge Consultants.