With so many worthy organisations and causes, it can be difficult to decide which ones to support. Many considerations should inform this decision, including alignment between the funder and recipient’s objectives.
Finding strategic alignment
The most successful initiatives are those in which there is an invested relationship, with a shared vision and common goals between the funder and beneficiary organisation. A meaningful partnership also facilitates the exchange of nonfinancial support, including skills and knowledge sharing.
A funder should therefore first look to identify ideological and strategic alignments with a prospective beneficiary organisation. For corporate funders, this alignment should be based on the nature of their core business activities. For individual donors, alignment may be based on a personal interest, passion or an emotional connection. In either case, alignment may be geographical or conceptual.
A further determinant is the nature of the social change in which a funder would like to invest. In order to make wellinformed funding decisions, it is important that funders are aware of the different ways in which social change can be brought about by different types of organisations.
Charities, community-based organisations, think-tanks, advocacy- and activism-oriented organisations are all worthy causes, but each has different aims, working styles and results. For example, funding could go towards programme-based poverty relief or towards advocacy efforts working to influence national policy research in the socioeconomic development space.
Once a funder has narrowed the pool of prospective beneficiary organisations to those that align with its interests and the nature of change it hopes to achieve, further research should be conducted.
Conducting due diligence
Due diligence is a comprehensive process of researching, appraising and analysing the performance and potential of a prospective beneficiary organisation, before the funder enters into an agreement of support. This process should provide detailed information about the mission and goals of a beneficiary organisation, its reach, durability, governance, as well as how and where funds are spent and what its outcomes are. While funders are not legally bound to engage in due diligence, it is a beneficial process for both the funder and the prospective beneficiary organisation, establishing a relationship based on transparency and accountability. Importantly, a balance must be struck. A well-run NPO will have strong reporting systems in place and will be able to produce the necessary documentation without much extra effort. However, an overly rigorous due diligence process may pose an additional burden to an often already strained organisation, and take time away from other efforts in the field. It is necessary to conduct due diligence to minimise risk and ensure maximum impact of funds, but the process should be simple and efficient. Ultimately, due diligence appraisal must be based on common sense.
What information to collect
Vision and strategy – Conduct a thorough assessment of the beneficiary’s vision, priorities and strategies, and check whether the beneficiary’s mission is reflected in its ongoing projects and achievements.
Tax and other legal considerations – Review the legal and charitable status of the proposed beneficiary. Copies of the organisation’s registration documents, founding constitution or trust deed will establish whether the prospective beneficiary is registered as an NPO, non-profit company, or trust. If desirable, proof of section 18A approval should be requested, including details of any restrictions on the NPO’s activities. Corporate and government donors should also confirm the organisation’s BBBEE rating and beneficiary category percentages.
History and track record – Check whether the prospective beneficiary organisation has a history of success, including tangible achievements that demonstrate impact. If the prospective beneficiary is a new organisation, investigate whether sufficient financial, infrastructural, leadership and capacity systems are in place to ensure its ongoing competence and sustainability.
Financial health – Request the organisation’s financial statements for the past three years (or as many as are available). It is also necessary to ascertain how the organisation intends to use any donations received. Note that, while overhead costs and expense ratios do provide necessary information, it is important to contextualise this. Low overheads do not necessarily indicate organisational efficiency or effectiveness; rather, organisations that invest more in infrastructure may be better able to support successful programme delivery. The overall due diligence assessment should provide clarity in this respect.
Governance and executive leadership – It is important to carefully review how an organisation is managed and how it conducts and monitors its affairs. It is crucial that the governance and leadership structures in place are sufficient for the nature, purpose, size and capacity of the organisation. Also review the size, structure and qualifications of the organisation’s board and minutes from board meetings.
Staff skills, morale and capacity – Assessing staff skills, tenure and morale can reveal organisational and capacity gaps. Consider whether the amount of proposed work is realistic in relation to the amount of funding being granted and whether the time and resources required for administrative tasks, including monitoring, evaluation and reporting, have been taken into account.
Monitoring and evaluation – Ensure that the organisation has a system in place to measure its results and assess what outcomes have been achieved through its projects and services, as well as how its evaluation processes compare with similar organisations. Review any formal evaluations that have been conducted.
How to collect information
Much of the due diligence will be conducted via analysis of documentation, which will either be provided by the organisation or will be publicly available. To make a comprehensive assessment, however, it is advisable to complement this with personal interaction. A site visit enables a potential funder to get to know staff and to witness how a project works and who it affects. Engaging with direct and indirect beneficiaries of the organisation’s programmes, and other relevant stakeholders, often provides further clarity on how the organisation connects, collaborates and communicates.
A holistic process – Aim to build a holistic organisational story through various stages of information gathering. Once the organisation has submitted a written proposal and provided its founding, registration and reporting documentation, and independent research has been conducted based on publicly available information, consider speaking to staff and beneficiaries to fill any gaps in information and provide a more complete picture.
Look beyond management – It is important to gain insight from staff who understand and are directly involved in implementing and managing project operations. Ask to see field notes and other documentation that details challenges experienced on the ground. Talking to staff with varied levels of authority will also provide information about the leadership of the organisation, as well as its overall effectiveness.
Consider context – Understanding the environment and broader context in which the organisation operates is crucial for establishing realistic expectations.
Share findings and acknowledge shortcomings – A well-conducted due diligence process reveals both positive and negative findings that, if shared with the prospective beneficiary organisation, can be useful for its development and growth. It is beneficial for each party to acknowledge organisational shortcomings and engage in a collaborative process to address these.
Plan together – Once a beneficiary has been selected, both parties should agree on the specific objectives of the funding and project, and how progress against these will be measured. The amount of funding, how the funds will be spent, reporting deadlines, consequences of unmet milestones, and any other terms and funding conditions should be clarified and agreed upon. If an organisation is effective and its projects are working, funders should continue to provide support as far as possible. This saves time, since the funder will not need to go through the beneficiary selection process afresh. It also builds stronger partnerships and is likely to maximise impact.
Determine an exit strategy – A transparent and mutually agreed exit strategy will ensure that the beneficiary organisation is not overly reliant on this source of funding and will remain sustainable once the funding period ends. If the donation serves as a financial lifeline, it is particularly important for both parties to plan the exit strategy together, to ensure that the organisation does not collapse when the funding ends. Achieving developmental results is complex and takes time, so funding periods of three to five years are preferable.
Monitor and evaluate – Monitoring the beneficiary throughout the period of support is highly recommended. This monitoring should, however, be conducted in an undemanding, authentic manner that allows the funder to understand the impact of the financial investment, and motivates the beneficiary to be self-critical and improvementoriented. If the funder remains engaged with the beneficiary beyond the initial stage of granting funding, it will help to foster a partnership-based and sustained relationship.
Fostering a partnership
These suggestions are intended to provide information on the process of selecting a beneficiary organisation, but they are not exhaustive. Ultimately, effective due diligence should provide a basis for communication and increased transparency. The process should foster understanding, mutual trust, commitment to shared values and goals, and help to transform the standard funder-recipient relationship into a partnership that provides value to all parties