Grantmaker Due Diligence Questionnaire

BY ELIZABETH GOUSSE BALLOTTE, Principal at PKF O’Connor Davies

Your foundation has a strong mission, and the programs you fund are a reflection of your priorities and values. By completing some basic due diligence, you can gain valuable insight into the level of alignment between your grantmaking organization’s mission and your potential grantees’ objectives. Here are 15 questions to ask when evaluating a potential grantee.

1. Has your foundation supported this organization in the past?

If you have worked with this grantee and had a good experience, your due diligence will be easier. If you haven’t worked with this organization before, visit their website to see if they list their funders and use sam.gov to see if they’ve received federal funds.

2. Does their program portfolio include similar-sized projects?

Does the organization have a track record of managing programs with similar resources to what they plan to undertake with this funding? Or is this a logical growth step? If the answer is not obvious on their website or social feeds, talk with the organization’s leadership.

3. Does the organization match your grantmaking priorities?

If you have requirements around the leadership reflecting the demographics served, climate impact, community involvement, or other priorities, does the potential grantee meet those goals? In addition to asking about these initiatives on your application, make sure to verify through interviews and research.

4. Did they complete the application in full and on time?

An incomplete or late application may not be a reason to reject a potential grantee on its own, but it can give insight into staffing or bandwidth issues, or simply a lack of organization.

5. Is the grantee verified by the IRS?

If you require your grantees to be a 501(3)(c), ask the potential grantee to supply this letter directly so you can verify that the organization is recognized by the IRS. As the organization continues through the grantmaking process, also use the IRS Tax Exempt Organization Search to double-check.

6. Is the grantee compliant with IRS requirements?

By receiving the organization’s Form 990, 990-EZ, 990-N, or 990-PF, you can easily verify that the potential grantee is current and compliant with its required IRS filings. If you don’t require your grantees to be tax-exempt, you can ask for their business tax return to make sure they are current with their taxes.

7. Have their financial statements been reviewed by an independent CPA?

With an audit by an independent CPA, you can be confident that the statements are an accurate picture of the grantee’s financial health. Smaller organizations that aren’t required to get a full financial audit might still benefit from a less-expensive financial review. If the financial statements have not been audited by an independent CPA, or if the audit uncovered issues, be sure to ask about their next steps. If you require your grantees to undergo a full financial audit, include that on your application documents or eligibility quiz.

8. Is their current budget realistic?

By reviewing the organization’s budget for the fiscal year, you can see whether it is practical, if the sources of revenue are reliable, and if they have reasonable estimates of future expenses.

9. How would the grantee respond to any unexpected revenue changes?

See if the potential grantee has a plan in place if outside forces affect the budget in a significant way, either positively or negatively. Internal Control Resources for Your Grantees If the organization you’re evaluating is a good fit for your grantmaking program but might not have the great internal controls in place, provide them with resources to help shore up their processes and procedures. You can start with our Internal Controls Toolkit specifically designed for nonprofit organizations.

10. What is the organizational structure?

Request an organizational chart to see the potential grantee’s reporting structure and if they have staff to effectively manage the different roles for internal controls.

11. Who are the board members, including their occupations and titles?

Look for any obvious conflicts of interest and get a feel for who at the organization has governance responsibilities. Are there defined roles and committees for the board? With a few quick searches, you can also verify whether the board includes members of the community they are serving.

12. What information is shared with the board and how often?

Review a board packet from the most recent board meeting. See what information is included. A regular cadence of oversight is good but watch for issues with too much decision-making responsibility falling on the board—or not enough.

13. Has the organization undergone a board assessment recently?

A board assessment will help identify any skills or composition gaps that need to be filled. If they have done an assessment, ask about the follow-up and how the findings will be addressed.

14. Is there a conflict of interest policy?

Understand how issues are addressed if they arise, including between the Board and the organization. Look for a strong set of internal controls, including a conflict of interest policy.

15. Is there a healthy relationship between the Board and leadership?

During your conversations with the leadership of the potential grantee, ask about the relationship between the organization and the board. Be sure to get this information from both a board representative and the CEO or Executive Director.

Build a Due Diligence Process

Due diligence is a vital part of the grantmaking process. But it can be difficult for smaller grantmakers to undertake extensive due diligence. Don’t get overwhelmed with a huge checklist. Start with what your team can manage, such as reviewing an application and a handful of documents, and add from there. Create a network of CFOs and Grant Managers to share helpful best practices and ideas to make the process more streamlined.