Your organization can lose its reputation post-funding if found guilty of falsification at any stage of the application. This is in addition to withdrawal if funding has been disbursed. Twelve years ago, two Harvard University-affiliated teaching hospitals and a prominent Alzheimer’s disease researcher used falsified data to obtain a $12 million grant from the National Institutes of Health, according to NPT, Rebuilding the public’s trust and confidence in an organization found guilty is time-consuming and not always successful.
Every organization wants to change their community and the world, but lack of resources stands in the way. Grant funding, which is the best bet, is fiercely competitive. Hence, falsification of data, forgery, plagiarism, and lies might find their way into grant applications by desperate grant seekers. Funders have since devised an effective way of spotting grant fraud and that is due diligence. This blog post will discuss due diligence and what grant seekers need to know about it.
Historically, the word due diligence is traceable to two Latin words “debere” and “diligentia”, meaning exercising the level of carefulness required for a given situation. The Securities Act of 1933 in the US introduced due diligence in a business sense. Notably, the Act required that sellers (more like grant seekers) disclose crucial information to potential buyers (potential funders) and that sellers could be liable for giving false information.
Merriam-Webster defines due diligence as the care that a reasonable person exercises to avoid harm to other persons or their property. In grant funding, due diligence refers to the steps taken by a funder to assess an organization’s mission fit, long-term sustainability, and likelihood of impact.
From the definition above, funders conduct due diligence for four reasons. The reasons are:
1. Legal Compliance
Every country has laws and rules guiding its affairs. No two countries have the same laws in entirety. Funders and grantees are often if not mostly, not from the same country. Funders are often careful about this when they release a call for applications or proposals. They do due diligence to follow all applicable laws and regulations before transferring funds.
For example, US laws prevent funders within its country from awarding grant funding to organizations in some selected countries such as Russia, North Korea, Ukraine, Cuba, Afghanistan, and some war-torn African countries. Aside from that, local laws in some countries impact an organization's ability to receive funding or operate.
A country operating in Kenya could have its parent or affiliated company in the Kremlin, a sanctioned area. While the applicant would only include Kenya in the proposal, due diligence is where the parent company is traced out.
2. Mission Alignment
Every funder has a mission, and every call for a proposal is tied to a priority. Due diligence is needed to vet whether a startup or NGO's mission aligns with the funder's goals and priorities. Disbursing funds to a grant seeker does not start with the quality of the idea, but the alignment with the funders’ mission and priority.
For this due diligence reason, funders move like a political party. They only support with funding any applicant that champions and furthers their mission. An education foundation will not, even for the urgency of a communal crisis, fund a peace-building project unless it will have a spillover effect on education. Even in such a case, the applicant must demonstrate how in the application.
Criteria like track record, transparency commitment, diversity, or preference for minority-led organizations are top checks during due diligence. Additionally, reviewing annual reports, website information, and local reputation can provide insights.
3. Financial Security
Money in the hands of the wrong grant seeker is the same as wasting money. Some grantees close up even after receiving funding. Funders want to ensure their money is used effectively and not diverted inappropriately. This also links to the first reason with regard to the parent or affiliated company.
As is the case, most grant applications request applicants to submit or upload their financial statements and tax filings. Some go further by requesting audited statements and even asking for the contact information of the auditors. Additionally, the application question asks applicants to demonstrate efficient use of funds and long-term sustainability.
4. Reputational Risk
While funding is only requested for what you will do in the future, due diligence gives funders an idea of who you are and what you have been doing. It is also a way to self-discover your organizational capacity. They are interested in knowing the personality of the applicant or what the organization is known for.
For example, Evans and Turji are two names synonymous with kidnapping and terrorism in Nigeria. Imagine these two have an anonymous organization jointly or separately with which they are seeking grant funding. Without due diligence, they could receive funding and subtly divert it into their respective heinous activities. This would then translate to mean the funder unknowingly funds terrorism and kidnapping which could earn it a bad name if found out.
Here are some ways due diligence is carried out by funders:
1. Through Grant Applications
Due diligence starts from the grant application itself. Funders require detailed information about the organization, including its mission, activities, leadership, finances, and more. Joint AU-EU combines all four due diligence reasons in their application questions which have three sections. This initial assessment helps funders evaluate alignment with their goals and potential risks.
2. Social Media Review
Gone are the days when social media was just for socializing. Our blog post, 7 Social Media Red Flags That Turn Off Potential Funders, talks about this. Funders now request applicant handles to examine the organization's social media presence to gain insights into their actual work, public engagement, transparency, and potential reputational issues.
3. Physical Site Visits
Applicants are interested in funding and will do what it takes to get the funding. This could include using false information like the examples used at the start of this blog post. For the Anzisha Prize, they do physical verification before disbursing funding. During visits, funders conduct obvious or disguised in-person site visits to verify operations, evaluate capacity, meet staff, and get a firsthand look at the organization's activities in their local context.
4. Grant Reporting
Funders require regular reporting from grantees after fund disbursement. Funders monitor the effective use of funds and track performance against stated goals throughout the funding period through financial statements, progress updates, audits, and evaluations. This is not particular to a funder. All funders request this information.
5. Local References
While USAID has a deep presence in Nigeria, funders like the Jack Ma Foundation might not. Funders consult community leaders, government officials, and local experts to gain important contextual information about an organization's reputation, relationships, and standing. For registered entities, funders can review available legal/regulatory filings, tax documents, annual reports, and other publicly available records that can uncover the financial/operational details of the applicant.
Grant due diligence is a two-edged sword that shields funders and applicants. For funders, thoroughly vetting organizations ensures that their resources are allocated effectively, aligning with their missions and priorities. For applicants, it is an opportunity to showcase their credibility, transparency, and commitment to their cause. Maintaining honesty and accuracy throughout the application process is paramount, as any falsification or misrepresentation can have severe consequences, including the withdrawal of funding and damage to reputation.
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