Vetting grantees makes sense for many reasons, but it’s too often overlooked in the grantmaking process. GlobalGiving shares insights into what motivates its partners to conduct deeper due diligence and why it matters.
Just like when they pick a supplier or start a new business partnership, smart companies vet nonprofit organizations before making grants. The importance of vetting grantees can be summed up in the words of one of our partners: “Just because you can give to a charity doesn’t mean you should give to that charity.”
There are many reasons why companies choose to protect their investment with vetting and due diligence.
1. You want to give internationally.
Perhaps the most common reason companies vet an organization before making a grant is if funds will be crossing borders. Global companies want to give globally where their employee, customer, and supplier communities are located. But international donations and grants are subject to additional regulation from the Foreign Corrupt Practices Act (FCPA), UK Bribery Act, and more. There are dozens of watchlists meant to prevent money laundering, terrorism, and corruption, and a review of these becomes even more critical when disbursing funds internationally.
Our team at GlobalGiving has sent money to nearly every country in the world. In our experience, it is often challenging to send money to countries that either place restrictions on the foreign funding of local nonprofits or have specific banking regulations around foreign transfers. A few countries that require special handling when sending funds are Russia, Pakistan, and Brazil.
2. You want your funding to align with your values.
Many companies want to see that funds aren’t used in a way that discriminates on the basis of race, political orientation, religion, gender, sexual orientation, age, national origin, ethnicity, ancestry, marital status, veteran status, or mental or physical disability. We most often see misalignment of values when it comes to religion, as some faith-based organizations engage in evangelism or proselytizing, which isn’t a great fit for most companies. Of course, many faith-based organizations don’t promote a certain religion. Habitat for Humanity is an example of an international charity that is both a great partner to companies and influenced by faith-based values, but offers its programs and activities to anyone. With thoughtful vetting that factors in your company’s values, you can make grants confidently.
3. You don’t want to break the law.
Enough said! It’s prudent to search international fraud and terrorism databases (including those of the U.S. Office of Foreign Assets Control) for board members and senior management to help ensure you don’t breach U.S. Patriot Act guidelines if you make a grant to your selected organization.
4. You don’t want to risk your reputation.
When vetting organizations, it is important to calculate the risk that a grant or relationship will be cast in a negative light. You want to know that a nonprofit organization you are aligning with and giving money to is going to reflect positively on your community impact and brand goals. You don’t want to be surprised to find that an organization has a history of discriminatory practices or financial management issues. From embezzlement to child abuse convictions to conflicts of interest, our vetting team has seen it all when utilizing deep web searches and other tools. Every company and industry has a different appetite for risk, and vetting should take reputation risk into account.
5. There is such a thing as too much money.
Granting an organization too much money is a real risk for many companies and foundations without the proper controls in place. As a general rule, you don’t want to give more money than an organization spent the prior year. Responsible grantmakers perform some level of due diligence review on the organization receiving funds. It’s during this review that you can determine an organization’s capacity for absorbing the money you plan to give.
6. You want tax efficiency.
Some U.S.-based grantmakers, like GlobalGiving, can give to organizations that aren’t registered in the United States, while still receiving U.S. tax benefits with two forms of vetting. The first, 501(c)(3) equivalency determination looks at whether an intended foreign grantee is the equivalent of a U.S. charity. A second option, expenditure review, allows companies to make grants to an organization that is neither recognized as a 501(c)(3) organizations by the IRS nor as the foreign equivalent of a U.S. public charity.
7. You want to have an impact.
When making a grant, most companies are looking to have positive impact. But even if nonprofits are registered and in good standing, not all of them have social impact. That’s why it is important to assess whether they have meaningful programs by taking a look at their activities and budgets. By having this flagged, you’ll be able to prevent your company’s grants or employee matching gifts from going to an organization that isn’t making a social impact. By looking at a nonprofit’s program materials, annual report, and reputation, you can see whether it’s making a difference.
There you have it—seven things to consider when vetting grantee organizations.