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PEAK Grantmaking

Demystifying Grantmaking Transparency and Compliance

Sponsored by Blackbaud

Funders can get answers to almost any question they have with only a few keystrokes. That desire for information at their fingertips has bled over to the organizations they support. It is no longer a question of whether organizations should share impact data. It’s now about how much data to share, how often to share it, and if there are some stakeholders who need more transparency then others in terms of how the organization runs. 

Transparency and compliance are must-haves for the modern grantmaking organization, and are therefore top-of-mind. But with evolving technology and ever-changing regulations, many foundations feel like they are constantly scrambling to stay on top of regulations and best practices. 

At Blackbaud, we work with grantmaking leaders and industry experts to identify transparency and compliance trends and communicate what these changes mean for those in the nonprofit world. Here are a few resources that can guide you as you look to update your own transparency and compliance practices.

Think Beyond “Where Did the Money Go?”

Transparency in grantmaking centers around your relationships with your grantees, donors, senior staff, board, and all your stakeholders. They want and need to be kept in the loop on what you’re funding, how you’re funding it, and the outcomes of that funding. And you are expected to be honest in your reporting, and that honesty should mitigate any fears and anticipated judgments or repercussions.

But according to  “Transparency in Grantmaking,” by consultant and self-proclaimed philanthropy geek Tony Macklin,foundations in their efforts to be transparent are not asking the right questions. “But the efforts are mostly concentrated on answering ‘Where did our money go?’ and ‘What did it accomplish?’ rather than ‘Why and how did we make our funding decisions?’” Macklin also reminds us that the public has a growing mistrust of institutions, including foundations.  

Acting transparently is a choice that you and your staff can make. You need to think about transparency and be transparent on a daily basis. The sooner that you absorb and practice this mantra in everything you do, both in individual roles and as a team, the better your reputation will be in your stakeholders’ and the public’s eyes.

In “Transparency and the Power Gap,” Communications Editor for the Georgia Center for Nonprofits Communications Editor Marc Shultz wrote about the three types of transparency: organizational, process, and decision-making. He states “making your operation as transparent as possible is essential to narrowing the power gap, one of the Principles for Peak Grantmaking.”  

Marc goes on to state that transparency “doesn’t just foster greater trust in you and greater accountability on both sides, but empowers grantseekers to provide candid feedback you can use to further improve your practices—a true win-win-win.”

For those who want to dive into transparency further, Glasspockets by Candid is a site dedicated to “bringing transparency to the world of philanthropy.” It is loaded with transparency tools, news, FAQs, trends, and other valuable information.

Compliance in Grantmaking

Ah, the dirty word of the nonprofit and grantmaking world.  As a reminder, 501(c)(3) organizations are held to a high standard by the federal government and the Internal Revenue Service; this is the trade-off for the ability to be exempt from federal and state taxes and having access to public funding. Strict compliance laws exist to protect the public and ensure nonprofit organizations do not abuse these financial advantages.  

Compliance with government regulations in the corporate world—where bigger budgets and fully-staffed accounting and legal departments are more the rule than the exception—is a pretty routine and simpler process. In the nonprofit and grantmaking world, however, resources are stretched thin and compliance is often arduous. Grantmakers must adopt policies and a due-diligence process and decide which functions should be assigned to and carried out by whom within the organization. Being that “How do we do our due diligence to get and stay compliant?” is one of those commonly-asked questions of us here at Blackbaud, we’ll focus here on the due-diligence component of the compliance process.

In her recent guest post on Blackbaud’s sgENGAGE blog, “Due Diligence Best Practices for Grantmakers,” Elizabeth Gousse Ballotte, principal at PKF O’Connor Davies, explained how grantmaking is often the largest expenditure of a private foundation, and how disbursement of these funds warrant oversight and review. Due diligence has the potential to provide insight into critical attributes and the level of alignment between the foundation’s mission and the goals of the grantee.

Ballotte explains that it is imperative to understand the financial and organizational health of the grantee prior to making the grant. She offers a list of key information private foundations should, at a minimum, obtain from a grantee when completing the due diligence process, including obtaining a list of their board members, IRS determination letter and Form 990, audited financial statements, a copy of their organizational budget, and more.

The bottom line is that due diligence is at the core of the grantmaking compliance process. By incorporating best practices, you’ll 1) be more confident that the grantees you partner with will align to your vision and mission, 2) make better decisions, and 3) be more accountable to all your stakeholders.

Automating Transparency and Compliance

Forming a day-to-day culture of grantmaking transparency and compliance will take practice—but it doesn’t stop there. Increasing transparency and efficiency and staying compliant within your grantmaking workflow is far less of a chore when you have a sophisticated grant management system in place. A system will enable you to address efficiency and reporting needs proactively, take the stress off your staff, and give all stakeholders the necessary transparency in every step of the grantmaking process.

Whether you are shopping for a new grants management system or simply evaluating your current one, keep in mind that the best grant management software for funders provides comprehensive tools to streamline administration of the entire grant lifecycle—from accepting online applications to managing grant data to evaluating and communicating impact.

Make Transparency and Compliance a Priority

Being proactive with setting and abiding by your organization’s grantmaking transparency and compliance policies, and having the right people, processes and technology in place to carry them out can save you a world of headaches such as audit time with a certified public accountant —or worse—the IRS, fines, and more. As the second half of the year approaches—a new fiscal year for many of you—get these items on your next team-meeting agenda so you can be fully transparent and compliant within just a few months!

Want to learn more?

Check out our webinar Due Diligence Defined | What ‘Being Complaint’ Really Means for Grantmakers,” where Ballotte digs a little deeper into this issue, including an explanation of the three phases when due diligence should occur, due diligence models, risk identification in grant applications, structure and governance, and more. And please join us on Thursday, May 26, for the next installment in our Blackbaud Grantmaking 2022 Thought Leadership Webinar Series, Transparency as a Grantmaking Strategy to Build Trust & Mutual Accountability. Register here.