Supplementing versus supplanting grant funds (bonus: "fungible" explained)

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In “What to do while waiting for the Stimulus Bill to pass,” Isaac included a footnote that says “This is a big grant no-no called ‘supplantation.’ In a future post I will explain how you can explain away supplantation in your grant writing anyway.”

This is that post, except I’m writing it instead of him, so one might say I am supplanting him. Or am I supplementing him? Read on to find out.

Supplanting Versus Supplementing: A Key Distinction

A grant applicant always, always, always should assure the funding source that funding of any kind will supplement, not supplant, existing programs. Some RFPs make this explicit; for example, the HUD NOFA for?the Capital Fund Recovery Competition Grants?says on page 26:

No Supplanting of Funds. The applicant must certify that: (1) the CFRC funds, if awarded, will not supplant expenditures from other Federal, State, or local sources or funds independently generated by the grantee; and (2) the CFRC funds, if awarded, will not supplant any leverage related to this grant, if any (that is, the grantee must have pursued and secured leverage to the fullest extent possible in order to ensure that expenditures from other Federal, State, or local sources or funds independently generated by the grantee are not supplanted).

Last year we had a client who decided that he wanted to fund his existing staff positions with a new HUD?Rural Housing and Economic Development Program?grant. That’s a big no-no: it’s supplantation, and, if he tells HUD that he wants to use their money to replace the money he’s already got, at best they’ll deduct it from his budget. At worst, they’ll reject the proposal outright. It’s also possible that they won’t notice until after the grant is awarded and implemented, and if our client is unlucky enough to get a program audit, the auditors or funder could demand repayment of the grant amount that “supplanted” existing funding. This is the same as a college student asking his mom to supplant her $100 to cover his cell phone bill so that he can use the original $100 on beer. Moms know not to fall for this and so do most funders.

Still, there are ways of getting around this?proposal-world problem. For example, an organization could announce that people already employed by the agency will spend 10 – 20% of their time managing the proposed program, so that money should come from the grant. If an organization has enough major grants, the grants might cover 100% of management team salaries. Some agencies claim?more?than 100% of the time of certain staff, which is another no-no, albeit one that many agencies do anyway, and an issue that we’ll cover in a future post. Another method is to give multiple job titles: previously, an existing staff person was a Housing Counselor, and now she is a Program Specialist for Client Assistance. Suddenly, she’s being paid because she’s in a new position related to the new grant.

Why Supplantation Happens Anyway

Although the rules usually forbid it, supplantation happens all the time anyway, mostly because money is?fungible—meaning that many organizations just have a big money pot at the center of their financial systems, so money goes in one side and out the other, making it almost impossible to determine whose dollar was spent on what.*

So if you have a grant and you need, say, new computers, you might put them in the budget for the grant—and those computers no longer need to come from your equipment replacement fund. And does the Executive Director spend “15%” of their time on the grant? That’s another small but real amount of money that doesn’t have to come from the central pile. Do you have a Program Director? Put her in charge of the new program, and hire someone else in her place. Technically none of that is supplantation, because it’s part of what you need to run the program.

I explained all this to my girlfriend, who asked why the rules about supplantation exist. The answers:

• They work sometimes and aim to prevent egregious abuses;
• The rules weed out unsophisticated applicants who announce they’re going to stop using local funds and donations and start using Federal dollars;
• Such rules pass the New York Times test, which means that the funding agency or the funded agency aren’t as likely to see themselves on the front page of the Times, if a nonprofit proposes to do?Bad Things?(the theme song from my guilty pleasure,?True Blood) with their money.

* There is an approach called?Fund Accounting, which is supposed to overcome fungibility but often doesn’t. Think of the?Social Security “Lockbox”?debate of a few years ago. How exactly do the feds account for your FICA contributions? That’s fungibility writ large.