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:
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:
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:
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.”
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