Grants for budgetary institutions: treasury servicing

A university, a museum, a school or the executive committee of a council cannot simply open an account with a commercial bank and take a grant there. A budgetary institution lives by its estimate, and its money is serviced by the State Treasury. For a donor and partners such an institution is therefore slower than a civic organisation, and that is procedure rather than negligence. Knowing the procedure in advance makes the delays avoidable.

What a grant is from the budget’s point of view

The Budget Code classes grants as own revenues of budgetary institutions: receipts obtained as payment for services, for carrying out earmarked activities, grants, gifts and charitable contributions. They are received in addition to general fund money and are included in the special fund of the budget.

Part four of Article 13 of the Code divides own revenues into two groups. Grants fall into the second group, "other sources of own revenues": subgroup 1 is charitable contributions, grants and gifts, subgroup 2 is funds from enterprises, organisations and individuals for earmarked activities. The subgroup determines what the money can be spent on, so the accounting office assigns it by the text of the grant agreement, not by the project title.

Treasury or bank

The general rule is that the money is credited to the institution’s special registration account with a Treasury office. The exceptions are written directly into the Code.

• State and municipal institutions of professional pre-higher and higher education, research institutions and cultural institutions may credit fees for services, charitable contributions and grants to special registration accounts with the Treasury or to current accounts with state-owned banks (part seven of Article 43). The procedure for placing such funds is approved by the government.
• Local budgets: by decision of the relevant local council, development budget funds and own revenues of budgetary institutions may be serviced by state-owned banks (Article 78).

For a grant in euros this is the key question, because a bank account is what makes it possible to hold foreign currency and pay foreign partners. A municipal enterprise is not a budgetary institution and works through ordinary bank accounts, which often makes it the more convenient recipient in community projects.

The estimate: why the money is there but cannot be paid out

The arrival of the grant on the account does not yet give the right to spend it. First the institution amends the special fund of its estimate: it draws up a statement of changes with calculations and justification and registers it with the Treasury. Cabinet of Ministers Resolution No. 228 allows this to be done for own revenues without amending the budget schedule, so the procedure is shorter than for the general fund, but not instant.

The Treasury then registers budget commitments under each contract, and only after that does it make the payment. At the end of the year the rule on closing the accounts of the budget period applies, and the balance of own revenues carries over to the next year through new amendments to the estimate.

Procurement: Prozorro and the donor’s rules

A budgetary institution is a contracting authority under the Law of Ukraine on Public Procurement, and the source of the money does not change that. Article 6 of the Law gives two exceptions: where a different procurement procedure is laid down by an international treaty to which the Verkhovna Rada has consented to be bound, and where procurement is financed by loans, credits and grants of the international financial organisations listed in the Law, in which case their rules apply.

In other cases both sets of requirements have to be met at once. That is usually possible: EU donors require best value for money and the absence of a conflict of interest, and an open procedure in Prozorro satisfies those requirements. Problems arise with thresholds, time limits and the language of the documentation, so these are checked against the cost eligibility rules while the budget is being drafted. During martial law procurement is carried out subject to special rules approved by the government, and their current wording is checked before each procedure.

Typical delays and how to plan for them

• Start. Weeks pass between the arrival of pre-financing and the first payment: amendments to the estimate, registration of commitments, the tender. Do not plan equipment purchases for the first month.
• Year end. In December and early January payments effectively stop. Key results are not scheduled for that period.
• Foreign currency payments. Fees for events abroad and transfers to partners need separate agreement with the bank.
• VAT. If the project gives the right to a VAT exemption, project registration is started straight after the agreement is signed.