Funders, stop requiring line-item budget reports and variance explanations

Hi everyone. Halloween is coming up, which means it’s time for scary stories. Grab a stuffie and wrap yourself in a blanket as I tell a terrifying tale that will leave you with chills down your spine. This one is extra scary because it’s true; I didn’t make it up.

There was a nonprofit that provided vital services to the community, especially to communities that have been historically disenfranchised. It received a small grant from a foundation. But every year, it must report on its expenses to this funder, and if any line item varied 10% of more, it must provide a written explanation for why. “Last year, I had estimated our postage expense to be $250,” whispered the ED, “but we spent $277, and that was just one of the many line items we had to explain.”

Year after year, this nonprofit had to do this. And it wasn’t the only one. Across the sector, thousands of nonprofits must do this all the time…

BOO!!!

Of all the crappy funding practices funders sometimes pull, requiring nonprofits to justify line items variances on their financial reports is one of the most archaic, inane, insipid, ludicrous, and banal of them all. AND IT’S TIME FOR ALL FUNDERS TO STOP DOING IT. Here are several reasons why:

You are wasting everyone’s time and energy: Millions of hours in our sector are wasted annually on these tedious reports. I remember spending three days tearing out my hair one time because a funder wanted to know how much of each line item we spent, and to explain any variances greater than 10%, but for information pertaining to their own fiscal year, which ended in December. My org’s fiscal year ended in June.

You’re telling your partners you don’t trust them: If you trust them, why do they need to explain why they spent 12% less than budgeted on something? Who cares? And if you do, why? By requiring grantees to provide this level of financial detail, you’re telling them you have no confidence they know what they’re doing, and you’re suspicious that they’re possibly mismanaging funds or committing fraud. It’s very patriarchal and insulting. And also a completely ineffective way to detect mismanaged funds or fraud.  

You’re reinforcing archaic and toxic funding dynamics: As the field moves toward trust-based philanthropy, general operating funds, and covering the full costs required for nonprofits to be successful, there is no room for these “suspicion-based philanthropy” practices. The more we continue using them, the more they hold back our sector from being able to be as effective as it can be.

You’re indicating your foundation is out of touch: Anyone who has managed an organization, or heck, even planned a kid’s birthday party, knows that budgets are estimates and guidelines. With everything being volatile right now because of politics and whatnot, and nonprofit funding being generally volatile because funders and donors are fickle, it would be weird if there’s no variance. So what’s the point having nonprofits report on them?

You're helping right-wing movements: One of the reasons why right-wing organizations and movements have been so effective is because conservative funders don’t seem as caught up in banal, pointless requirements such as line-time variance explanations. They trust their grantees and encourage them to do whatever it takes to achieve goals. Many progressive-leaning foundations' practices are actively preventing progressive organizations from doing their work. This is one of them.

For these and other reasons, I’m calling for all funders who currently require organizations to provide detailed financial reports with explanations for line-item variations to immediately stop doing it. It’s a crappy, demoralizing, time-wasting thing to ask grantees to do. Instead, do these things:

Focus on outcomes and results: Why does it matter that a nonprofit spent $277 instead of the $250 they had originally proposed? Let’s concentrate on whether it’s successful in providing effective programs and services for the community. Especially when everything is on fire, we all need to focus on putting out the fires, not on pointless proxies for effectiveness.

Give general operating funds: All funding should be general operating funds. Especially now, when we are barreling toward authoritarianism, there are multiple intersecting crises for nonprofits to deal with, while they are simultaneously under attack from every direction. Dealing with funding restrictions is not a good use of anyone's time when we are trying to deal with multiple crises.

Get over the illusion of financial attribution: It is a silly, bizarre idea we’ve entrenched in this sector that every funder and donor has a right to know specifically what their contribution was used specifically for. All the money goes into a bank account, which is then used to pay for everything. It’s delusional to think certain dollars pay for certain things. It’s like me writing to Netflix demanding a line-item accounting of where they spent the specific $300 I paid last year.

Accept grantees’ annual reports: As I mentioned before, no funder or donor deserves their own snowflake financial (or programmatic) report. This work is holistic. A whole bunch of people and organizations pooled time, talent, and money together to make good things happen. And it’s documented each year in nonprofits’ annual reports and tax filings. Accept those instead of requiring your grantees to write indulgent, meaningless reports specifically tailored to your foundation’s financial contribution.   

With everything going on, any funder that truly want to make the world more equitable and inclusive cannot keep operating as if things were normal. In the best of times, practices like bespoke financial reports and having to explain line-item variances are annoying. During the worst of times, like the ones we’re in now, these things are actively harming nonprofits, which means these practices are harming communities. Please knock it off. Help free up nonprofits to do what matters.

Or else be ready to be called out publicly by name on social media by people anonymously nominating your foundation to Crappy Funding Practices.

--

Vu’s new book will be coming out on October 14th, 2025. Pre-order your copies at Elliott Bay Book Company, Barnes and Nobles, or Bookshop. If you’re in the UK, use this version of Bookshop. If you plan to order several copies, use Porchlight for significant bulk discounts.

Net proceeds from the sales of the book from now until end of 2026 will be donated to organizations supporting trans rights, immigrant rights, and/or are fighting fascism.