04/23/2024 | News release | Distributed by Public on 04/23/2024 08:14
There are millions of wonderful nonprofit organizations working to make this world a better place. And as a grantmaker, you've had the privilege of supporting many of them.
But on occasion, a person will make a mistake or doesn't follow the restrictions for the grant. Or even more rare, a bad actor will intentionally try to impede your impact-either by posing as a grantee or by stealing from your grantee.
Even though these instances are few and far between, your grantmaking organization needs to be prepared. To mitigate risk throughout your grant cycle, you need to know your grantees through relationships and documentation, support their internal controls, and set up a process for whistleblower complaints.
The more you know about your grantees, the better decisions you can make. In addition to building relationships with the organizations you support, there is some documentation you should ask for, especially for new applicants. Here is a list of key information grantmakers should, at a minimum, obtain when completing the due diligence process:
It's also important to understand how the grantee would respond to unexpected revenue shortfalls or cost overruns. Depending on how your application is set up, you can add an open-ended question or discuss it during a follow-up conversation.
All well-run organizations have standard best practices that employees follow. These internal controls provide consistency and security. Most of your established grantees will have documented internal controls, but it's always good to verify and help them establish these practices if they aren't already in place.
Here are some of the internal controls your grantees should have:
You want to make sure your grantees have documented and defined ways of managing and tracking the funds they receive. Here are some questions you can ask potential grantees, either as part of the application or as a follow-up conversation:
As a grantmaker, be sure to review all your grant terms and conditions to ensure any additional policies that you require are in writing and easily accessible by your grantees.
Having great written policies is key, but how do your grantees ensure that they are followed? Suggest that they monitor the following activities, and provide support if your grantees don't have the systems in place:
This is a common area of weakness we see across grantees, large and small.
As a grantmaker, it is important that you ensure your grantees do the following:
Many of your repeat or more mature grantees will already have the documented internal controls and reporting in place so these questions will simply be a box to check. But for younger organizations, you may need to guide them on how to use their fund accounting software to automate these controls or set them up with a mentor organization to help establish them.
Even when you have an established relationship with a grantee and they have documented controls in place, there can still be problems. Whistleblowers who call attention to possible wrongdoing can save you significant time, resources, and reputational damage if you catch issues early. If you receive a whistleblower complaint, it is crucial to maintain transparency and accountability. Here are a few tips to consider:
Your whistleblower policy should be broad in scope so that it includes not only financial concerns but also complaints about a wider variety of activities and operations. Make sure you are complying with federal and state laws that protect whistleblowers from retaliation. Consider obtaining outside legal counsel when drafting your policy. Establish an internal process for handling complaints and make sure these are posted on an internal intranet site and your employee handbook.
Investigate complaints promptly and take appropriate corrective action if necessary. Consider outsourcing this function if capacity or appropriate skillset is a concern. Involve the Board of Directors in overseeing the whistleblower process. Regularly review and update your policy to ensure its effectiveness. Review this policy along with all your other policies on an annual basis.
The grand majority of the organizations that apply for funding are well-run, well-organized nonprofits that do great work. And because you are building strong relationships and verifying their internal controls, it's easy to assume everything will always go smoothly. Establish and rely on your own internal controls, best practices, and documented policies to make sure your grantmaking is less likely to fall prey to the occasional mistake or bad actor.
Learn more about how your grantmaking organization can mitigate risk throughout your grant cycle with our webinar, How to Minimize Risk with Your Grantees.