Sector Focus: Grantmakers need to take steps to protect themselves from fraud

01 Mar 2022 Expert insight

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We have seen an increased level of fraud since the start of the Covid-19 pandemic, not only through more “traditional” methods such as changing supplier details, phishing emails and ransomware attacks, but also through an increase in reported numbers of fraudulent grant applications being made. It is more important than ever that grantmakers have robust due diligence processes in place to ensure grants are awarded appropriately and reach those that need them most, and continue to follow up post award to ensure the grants have been spent as agreed.

The ultimate responsibility to ensure charitable funds are spent appropriately, including being used as expected by the recipients of grants, lies with a funder’s trustees. Therefore, robust grantmaking processes should be put in place and reviewed periodically to ensure there is evidence that “reasonable” steps have been taken to confirm payments are applied to advance charitable objectives. However, this can be somewhat more complicated for those awarding grants overseas.

Questions to ask

Some areas to consider are:

  • Have appropriate identification checks been undertaken to ensure you “know your client”?
  • Has the governance been reviewed in terms of structure, purpose and objectives?
  • Has the recipient been reviewed from a financial aspect; are they financially viable with capacity to manage the project in line with the grant agreement?
  • Is there the appropriate capacity, technical skills and experience to deliver the project?
  • Have any risk management procedures including the risk register of the recipient entity been reviewed?
  • Are there appropriate procurement processes in place including staffing to deliver the project?
  • Are there sufficient reporting requirements in place, including adequate data availability, to measure and report results and impacts? Are these likely to be followed in practice?
  • Should a representative of the charity visit the project to check on progress?
  • What audit trail will be available to confirm that the grant has been spent in line with the terms and conditions?
  • Are the charity’s contact and reporting expectations likely to be met by the beneficiary or are there any indicators which show otherwise? Have you considered the recipients’ history?
  • If the proposed recipient is a previous recipient, has anything significant changed since due diligence was carried out which would require it to be revisited?
  • If the grant is ultimately being funded by a donor, are any relevant contractual commitments being passed on to the proposed recipient?
  • Are trustees satisfied that appropriate due diligence has been performed on the proposed recipient?

Most importantly, do not ignore red flags. If you have concerns, do further research on the recipient or ask for more information.

Trustees should continue to review their grant due diligence processes in light of the changing working practices as we emerge into the “new normal” post Covid-19. Pay particular focus on ensuring there has been adequate reporting and review of those grants awarded in periods of lockdown when processes, such as onsite visits to projects, may have been postponed as a result of government guidance.

Siobhan Holmes is a director and head of grantmaking at haysmacintyre


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