This is part 1 of a blog series for grant-makers conducting applicant due diligence checks

A roadmap for grant-making success

In the world of grant-making, ensuring that your funds are directed to the right causes is paramount. This blog series is dedicated to UK grant-makers, especially those new to the grant awarding process, or looking to make efficiencies in existing systems. Through our extensive research, we have noticed a lack of comprehensive information and guidance about conducting due diligence, and how this crucial work fits into the grant-awarding process. Read on to discover the fundamental considerations for both grant eligibility criteria and due diligence, with valuable insights and practical tips that you can apply to your own grant-making.

What is due diligence?

Due diligence is an essential stage of grant-giving to ensure that funds are being used appropriately and in line with the objectives of the charity or non-profit organisation. With the increasing number of grant applications, it is crucial to implement risk-appropriate measures to ensure the safe allocation of grants to deserving organisations that align in mission and objects, ultimately maximising impact.

However, it’s important to recognise that due diligence is more than just a checkbox exercise. As The Institute for Voluntary Action Research (IVAR) references in their Small Charities and Social Investment report,

“To some extent, the term ‘due diligence’ has become shorthand for the whole assessment process. However, the assessment process also includes a focus on mission, governance, public benefit, non-financial risks, and community engagement and empowerment.”

A comprehensive due diligence evaluation includes a thorough review of the applicant's organisational structure, in addition to their governance. We recommend a holistic approach, which includes assessing the applicant's organisation leadership team, board composition, objects, powers, policies, and procedures. As financial scrutiny is an integral part of the assessment, we uphold an assessment of financial statements, audits, and regulator information, including annual reports, and accounts.

At a fundamental level, the purpose of due diligence is to establish clear and compelling evidence that the organisation is effectively delivering a Public Benefit. This should align with the organisation’s stated objects, and meet the eligibility criteria set forth by the grant-maker.

Good due diligence strives to ensure that the organisation’s mission is not only aligned, but also that it is being executed effectively and transparently, reinforcing the grant-makers commitment to responsible and impactful grant allocation.

What makes for good eligibility criteria?

Creating effective criteria is important for grant-makers to ensure a fair and accessible application process. Here are some key considerations for creating and communicating your eligibility criteria:

1. Eligibility criteria should be clear and easily accessible; applicants should be able to find, read, and understand the criteria without confusion.
2. Organising your eligibility criteria into distinct headings will help applicants navigate the criteria, for example: ‘Organisation Types’, ‘Type of Funding’, ‘Grant Amount Available’.
3. Rather than listing what you don’t fund, it’s often more helpful to emphasise what you do fund. Highlight focus areas and beneficiaries that your grant is aiming to address using clear and consistent language.
4. Align your criteria with established standards or taxonomies in the sector like the DEI Data Standard or Brevio’s own Focus Area Taxonomy. This will help applicants to understand how their organisation fits into the criteria.
5. Be clear on the application methods that you would like to receive. Having a good online application can be crucial for streamlining your data collection process, reducing the burden significantly on grant administration. Making bespoke application processes can be expensive and time consuming, Brevio’s customisable online platform can support this.
6. End your eligibility criteria with clear calls to action that outlines the application process and provides details on how applicants can apply, what supporting documents they need, and any deadlines or important dates.

By considering these ideas, you can create an eligibility criteria that is not only well-structured and transparent but also contributes to a more inclusive and efficient grant application process. This, in turn, can help you attract a wider pool of qualified applicants, alleviating oversubscription, and ensuring that the process is clearly defined.

What should you be checking for in due diligence?

Your due diligence assessment ought to compliment your grant eligibility criteria. Conducting thorough due diligence is essential to ensure that grant funds are distributed to deserving and trustworthy organisations. Here are the key elements and considerations for effective due diligence checks:

Governance: Examination of the leadership and board composition, mission and governance structure of the charitable organisation. This should also align with the grant-makers objectives and eligibility criteria.

Regulatory filings: Reviewing the regulatory filings and records with relevant authorities, such as the Charity Commission, OSCR, Companies House and the FCA. Confirming the organisation’s legal status and compliance with reporting requirements.

Financial accounts: Analysing the organisation’s financial statements including income, expenses, and full financial health. Looking for good financial stability in reserves and if losses, a transparent explanation.

Online Presence: Evaluating the organisation's online presence, including their website and social media profiles. Checking for where else online the organisation has been referenced and that all content is consistent with the stated objects.

Adverse Media: Conducting a background check on both the organisation, and the leadership composition for any media mentions or reports and investigating any red flags.

All of the above elements can help in creating a picture of the applicant organisation, and if you think the organisation will be able to deliver the work that you are funding as intended. Whilst this is the main objective of due diligence, completing robust checks will also allow the discovery of key activity that may indicate fraudulent applicants.

As ACF references in their Guide to Tacking Grant Fraud,

“We recognise that most grant applications are honest. There are occasionally innocent mistakes made by trustworthy individuals and organisations. However, it is important not to be naïve to the fact that the actions of a dishonest minority can have a significant effect on the whole charity sector.”

Although occurring at a minority level, it remains important to establish consistent and impartial risk standards to protect vital funds. This practice ensures that all applicants undergo fair and uniform evaluations.

Risk Tolerance and Setting Standards

Whilst considering what due diligence checks to conduct, you should also be determining your risk tolerance to your grants. Below are some points to consider:

• Consider factors like the grant award amount and the potential impact of misuse. Eg. waste of funds, potential bad PR or funds not being used for how they were intended.
• Organisations offering smaller grants may be able to take a more lenient view on risk, whilst those providing substantial sums should exercise greater scrutiny.
• Keep in mind that regulators like the Charity Commission do conduct their own checks, but grant-makers should not solely rely on these checks and should perform their due diligence independently.

There is some guidance available for setting your risk tolerance from reputable sources like ‘The Institute of Risk Management’.

This is a vital step in maintaining the integrity of the grant-making process.

Whose responsibility is due diligence?

Trustees or the governing body of the grant-making organisation are responsible for ensuring that robust due diligence checks are carried out before awarding grants. They play a crucial role in safeguarding the charity’s assets and ensuring that funds are allocated to reputable and legitimate organisations. Here is some guidance for Trustees:

• Trustee’s should establish and enforce policies and procedures for conducting due diligence, including both eligibility and financial checks.
• They are responsible for setting risk tolerance levels and guidelines that can be followed during the grant allocation process.
• Clear guidance and training should be provided to those involved in assessing grant applications to ensure a consistent and thorough due diligence process.
• Due diligence is a crucial part of a Trustees duty to help mitigate risks associated with grant-making.

As the Charity Commission references in the guidelines Charities: due diligence, monitoring and verifying the end use of charitable funds,

“Due diligence' is an important part of trustee duty and is essential in safeguarding charity assets. It means carrying out proper 'checks' on those individuals and organisations that give money to, or receive money from, the charity, including partners and others that are contracted to work with it.”

In conclusion

The grant-makers decision making process hinges on two essential elements: eligibility and due diligence. While these processes may seem intertwined, they serve distinct yet complementary roles in ensuring that grants are awarded wisely and ethically. Together they empower grant-makers to make informed decisions, protect charitable assets and fulfil their mission of making a positive impact on society.

In our commitment to streamlining the grant ecosystem, Brevio stands ready to support grant-makers in their journey. Our expertise, gained through conducting thousands of due diligence checks, enables us to offer our due diligence services and consultancy.

In Part 2 of this blog series, we delve deeper into the practical aspects of due diligence, offering insights on collecting the right data and assessing risks in grant-making, read it here

‍

Blog Sources:

1. IVAR: Small Charities and Social Investment
2. ACF- Tacking Grant Fraud
3. Institute of Risk Management: Setting your risk appetite: supplementary guidance
4. Funders Collaborative: DEI Data Standard
5. Charity Commission: Charities: due diligence, monitoring and verifying the end use of charitable funds‍
6. Brevio- Due Diligence