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Five top-tips for grant-making trusts & foundations

Gerald Bates

When it comes to the financial management of recipients, grant-giving foundations and charitable trusts face contradictory pressures. On the one hand, foundations do not want to be overly burdensome on their partners. Many foundations take pride in distinguishing themselves from publicly-funded bilateral and multilateral donors. They see themselves as being more nimble, less bureaucratic and less demanding on the recipients of their funds; more interested in results rather than adherence to myriad procedural conditions. They are also more willing and able to fund riskier projects and partners.
On the other hand, however, the increasing size and scale of the grants given by foundations invites increasing levels of scrutiny, heightening the reputational risks to trusts / foundations and their funders. The most recent Foundation Giving Trends report details how a whopping £2.7 billion is granted each year by the largest 300 foundations registered in the UK.
UK registered foundations have no discrete status under charity law. They are subject to the same regulations as any other charity, most notably to demonstrate that their spending is in line with their charitable objects. Once the cheque has been cashed by the recipient, how soundly can your management team and trustees sleep at night knowing that these funds are being spent by your partners in a way that meets your objectives? This question is especially problematic when funding overseas programmes with their additional geographic and cultural complexities.
Beyond the mitigation of reputational risk and legal necessity, there is also a moral argument for ensuring partners are using funds economically, efficiently and effectively. Failure to provide sufficient support and guidance to recipients can foster wasteful attitudes and poor practice which may create difficulties for them further down the line.
Our Top 5 Tips
 At Moore, our dedicated team works with a wide range of donors in the UK and overseas. We help them strike a balance in demonstrating accountability for their funds in a way which is proportionate to the size and scale of their programmes and the capacities of their partners. Through this we have identified the following top 5 tips for any grant-making foundation/charitable trust to consider when designing an assurance framework for your programmes:
1. Be a coach, not just a policeman
 Within any assurance framework lies an opportunity to help develop the financial management and reporting capacities of your partners. This is especially important with recipients inexperienced in the management and reporting of donor funds. Grant audits (and auditors!) are often criticised by grantees for focussing on what the entity has done wrong (being the policeman) rather than working with the recipient to understand and address underlying capacity constraints (being the coach). Coaching requires its own set of skills: encouraging the recipient where they have performed well (and noting these areas in your report) as well as taking the time to discuss and agree upon your findings. Most importantly, you should ensure that your recipients understand the underlying issue at fault and why it is important (indeed, is it important or does it reflect a condition which could be removed without any adverse impact on the project?). Asking them to suggest remedial action in the first instance will give them ownership over the steps to be taken. Often issues derive from a lack of understanding or confidence, and a participatory approach will likely be most effective in these instances, rather than further undermining the partner by focusing on ‘what they have done wrong’.
Embedding financial management improvements within your programme will ensure that you can leave your partner in a stronger, more sustainable position.
2. Encourage challenge
 Require your partners to report back to you on areas where they feel you can improve. Include a section in your narrative reports for the partner to identify areas for improvement or where they feel the guidance issued to them has been unclear. Such an approach can allow issues to be identified and remedied before they become major problems. Moreover, if your recipients receive funds from multiple donors then it also provides an excellent opportunity to learn about possible improvements to your systems and procedures.
3. Embrace risk
 For any assurance framework to be proportionate you first need an understanding of your organisation’s particular risk appetite and the risk profile of your programmes/partners. Too often, however, programme officers shy away from having an honest conversation about programme risks. They may feel that doing so might jeopardise awarding funds to a particular recipient or paint ‘their project’ in a negative light. The reality is, however, that no programme is risk free. If we follow the logic that private foundations are more empowered to spend their funds on the kind of higher risk programmes that publicly funded donors might baulk at, then a mature and realistic approach to risk assessment and mitigation is essential. Applying a risk-based approach will ensure that finite resources are targeted at those entities which are likely to require the most help while not unnecessarily burdening lower risk programmes.
4. Know your partners
 A particular challenge for any donor (especially those funding international programmes) is knowing whether your applicants are who they say they are and have the necessary capacity to deliver your programmes. The Charity Commission has produced some recent guidance on this topic and this is a useful starting point. For smaller programmes it may not be reasonable or a good use of your charity’s funds to undertake a full visit to assess the applicant’s systems. However, having access to local experts who can verify the authenticity of the documents presented for your inspection (and translate them where necessary) as well as provide local insight into the organisation can prove highly cost-effective.
5. Keep it simple
 It is important that the guidance you issue to your partners is clearly written. Rather than bulking out the award letter with a ream of financial conditions, it may be better to include any necessary financial guidance in a separate guide which is written in plain language (and ideally translated into their native tongue). You can then refer to this guide in your award letter. Keeping the financial guidance separate is one way of increasing the chance it will be read! Providing video tutorials and ‘how to’ guides on particularly difficult areas is another way of reducing the risk of errors and misunderstandings.