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PEAK Grantmaking

Due Diligence in an Increasingly Remote World

Sponsored by NGOsource

For funders, the gold standard in due diligence has been doing a site visit—physically going to the grantee’s place of operation to ensure that the way they presented themselves and their work on paper could be supported by in-person reviews and interactions. While site visits offer extraordinary value in building relationships and trust between grantor and grantee, they are expensive and, as the COVID-19 pandemic has underscored, not always a viable option.

Even before the pandemic, the practice of using site visits to assess grantees’ effectiveness was cost-prohibitive for many donors. For others, coordinating a visit prior to issuing a grant was often a setback to quickly releasing funds to organizations in need. Further exacerbating the problem, nongovernmental organizations (NGOs)  in high-risk countries are typically subjected to higher levels of scrutiny—and they are also often most in need of urgent and efficient access to aid. To significantly reduce cost and free up grantees’ resources to focus on their core missions, due diligence must adapt to an increasingly remote world, just as workforces and service industries continue to do so.

In mid-2019, I interviewed a handful of European donor agencies about their use of site visits as a pre-grant assessment tool. The majority required some type of on-site audit, particularly for larger awards. And yet, for compliance purposes, it is unclear whether these visits enabled a donor organization to reduce the level of risk it assumed or achieve greater impact. To be clear, I am a strong proponent of active listening and relationship-building among grantors and grantees. I believe that site visits contribute to these goals and advocate for their use in that capacity. However, once site visits become a barrier to giving, I deeply question their value in mitigating risk. 

Even for those funders that don’t rely on site visits, grantee due diligence practices are often outmoded. Due diligence is still largely conducted using a standard set of questions in the donor’s primary language (often English), usually sent to the grantseeker over email. With nearly universal internet access and the mass adoption of teleconferencing software, automatic translation tools, safe (and free) data storage options, as well as increasing mechanisms to develop innovative partnerships with local NGOs, there are myriad ways that due diligence in philanthropy can be better streamlined and localized. NGOs should be spending less time on compliance reporting to funders, and more time on fulfilling the purposes of their grants. Funders can go a long way in supporting this shared goal by investing in ways to improve their due diligence processes.

One of the many lessons from the pandemic is that philanthropy needs to be more flexible if it is to both expand and localize the delivery of aid. In an era of inflated regulatory expectations and risk aversion among funders, it is past time to reinvent the way funders conduct due diligence. There are many avenues to building trust, and not all of them require intensive compliance exercises or site visits.

NGOsource, a project of TechSoup and the Council on Foundations, is a prime illustration of what this new approach could look like. NGOsource’s repository of NGOs vetted under equivalency determination dramatically changed the landscape of due diligence for US institutional donors. Not only did it reduce costs for grantors and grantees, but it demonstrated how technology and sector collaboration can localize due diligence exercises by conducting the process in multiple languages via an easily accessible online format, and supported by local NGOs.

Like schools, restaurants, and cinemas forced to find new ways to function during the pandemic, funders found ways to continue giving—and even increase giving—when in-person interactions were not an option. Unlike schools, restaurants, and cinemas for whom physical presence is a cornerstone, there is no reason philanthropy can’t continue to perpetuate these recent trends, innovating in the way we build partnerships and assess risk. Virtual site visits, staff surveys, agile uses of technology, repository models, and alternative evidence of policy implementation are a few easy steps that can be taken to pave the way. What would happen if we invested more in these ideas? For those of us steeped in performing due diligence, we are painfully aware of the improvements that can be made and the extraordinary benefits these innovations can bring to the sector. So, what is holding us back?

If you’d like to learn more about ways TechSoup is innovating in grantee due diligence, send them an email.