Due Diligence Policy and Procedures for Grantmaking
The primary purpose of this policy is to ensure that grants are consistent with IRS regulations and that the recipient organization is both legitimate and capable of carrying out the purpose for which the grant is intended.
All grants made by the Foundation shall be for charitable purposes. The determination of whether an organization’s activities are charitable is made by the IRS in assigning a tax-exempt status. Delaware County Foundation verifies charitable status by:
- Verifying charitable status using the GuideStar data.
- Obtaining a copy of the 501(c)(3) letter directly from the grantee organization if the organization is newly organized or not listed on GuideStar.
In exceptional circumstances, grants may be made to unincorporated groups and non-501(c)(3) organizations when the grants are for charitable purposes. Grants made to non-qualified organizations must follow expenditure responsibility procedures.
Competitive grants review process
Applications for competitive grants are solicited and reviewed once a year. The review begins with the Foundation staff, then by the Grant committee before final recommendations are made to the Foundation Board of Directors for approval through the process outlined below:
- Prospective grantees provide a timely submission of a written proposal that responds to the Foundation’s Request for Proposal (RFP) instructions which include basic information about the organization and details about the proposed project or program.
- Staff will conduct a review of all grant applications to verify adherence to instructions and compliance with all terms as outlined in the RFP.
- Qualified applications are reviewed by the Foundation Grant Committee.
- Staff will facilitate grant committee meetings, take minutes, and ensure that the review process for competitive grants use the specific fund’s evaluation criteria if the grant is from a fund, or shall use the Board Approved grant review criteria to evaluate proposals for grants from the unrestricted fund.
- A site visit may be made for prospective grantees by a Foundation staff member or volunteer. Depending on the size of the organization, its longevity or the nature of the proposed request, additional information may be requested upon the site visit or gathered by the Foundation office such as: IRS Form 990, review of past grant awards and the grantee’s grant reports from those previously awarded, review of the organization’s website, or seek community input.
- Recommendations are submitted to the Board of Directors for approval.
- Once approved, a Grant Acceptance Agreement shall be signed by grantees at acceptance of the grant. Agreements are crafted to ensure grantee compliance and adherence to the terms of the grant and include language to verify the required use of funds, performance measurements such as outcomes, receipts, service delivery, or other objective criteria and verification requirements.
- Each Grant Acceptance Agreement includes a date when certain progress and/or final reporting requirements must be met by the Grantee. The Foundation Coordinator tracks due dates to ensure that reports are received. (See Grant Terms and Reporting Requirements)
Non-competitive grants may include grants from area of interest funds, organizational endowments, agency funds, and designated funds:
- Due diligence activities are specified by the terms as outlined in the fund agreements. The Foundation President maintains oversight of all grants to ensure that non-competitive grants that are not from Donor Advised Funds are made in accordance with terms as per fund agreements.
- Noncompetitive grant recommendations are submitted by staff to the Board of Directors for approval.
- Should terms as outlined in the fund agreement designate a use of the funds for other than general support, then a Grant Acceptance Agreement shall be signed by grantees at acceptance of the grant. Agreements are crafted to ensure grantee compliance and adherence to the terms of the grant and include language to verify the required use of funds, with performance measurements such as outcomes, receipts, service delivery, or other objective criteria and verification requirements.
- Each Grant Acceptance Agreement includes a date when certain progress and/or final reporting requirements must be met by the Grantee. The Foundation Coordinator tracks due dates to ensure that reports are received.
- The Foundation reviews grantee reports as received to verify that the use of funds was in accordance with the terms and maintains contact with grantees to ensure that reports adequately meet requirements.
- If terms are not met, then future grants are withheld until such time as the grantee complies or the Board uses the variance power to redirect the funds to another charitable purpose.
Donor Advised Grants
Upon receiving grant recommendation from the appropriate donor advisor(s), the following documents may be requested from each prospective grantee:
- IRS 501(c)(3) verification letter, financial audit, annual report, most recent financial statement, and board of trustees list with affiliations.
- These documents are reviewed by the President of the Foundation at the time a grant is recommended to a new grantee and periodically thereafter when future grant recommendations are received.
Grants from Donor-Advised Funds for the following are expressly prohibited:
- For the purpose of lobbying
- For the purpose of supporting nonpartisan voter registration activity
- To a private foundation
- For a scholarship
- For the benefit of an individual
- To type III supporting organizations that are not functionally integrated
- To any supporting organization that is controlled by the donor or donor appointee
- To an organization for the purpose of paying for an event, membership, or any purpose for which the donor or related parties will receive a tangible economic benefit
- Any grant which would impose penalties on the sponsoring charity and fund managers, per Section 1231 of the Pension Protection Act of 2006.
In accordance with requirements for expenditure responsibility per the Pension Protection Act (HR4-2006), grants from Donor-Advised Funds may only be made to organizations described in section 170(b)(1)(A) of the Internal Revenue Code, type I and II supporting organizations, and type III supporting organizations only if they are “functionally integrated.”
Under no circumstance will a grant from a Donor-Advised Fund be made to any supporting organization if the organization it supports is controlled by the donor or donor appointee.
Grant recommendations from donor advisors shall contain language verifying that the donor will not receive any material benefit as a result of the grant.
Before a Designated Fund agreement or upon notification of a bequest of a designated fund, the designated organization’s charitable status is confirmed and documentation similar to that described for Donor Advised fund grants is gathered to confirm the recipient organization’s nonprofit status. In the case of a bequest to an organization that is no longer in existence, the Foundation’s legal counsel, Board of Directors, the Foundation President where appropriate, the donor’s legal advisor, are consulted as to their recommendations of the use of cy pres, e.g. determining an appropriate grantee that would be in keeping with the donor(s)’ intent.
Grant Terms & Reporting Requirements
Once a grant recommendation is presented to the Board of Directors and approved, the grant check along with a Grant Agreement is forwarded to the grantee organization. A Grant Report Form also accompanies the award. As stated in all grant cover letters, by signing the grant agreement, the grantee agrees to the terms and conditions of the grant and that the grantee has read and understands the grant terms and will comply with the stated requirements. In addition, the organization agrees that (1) no tangible benefit, goods or services were provided to anyone connected with the above fund of the Delaware County Foundation, and (2) the donation will not be used to satisfy the payment of any pledge or other financial obligation on behalf of the donor(s) per Section 6115 of the Internal Revenue Code, grantee agrees to (3) provide a report on the use of the funds, and (4) provide photographs or access to your organization or project. The agreement is signed by the organization’s highest staff member, e.g., executive director, CEO or the Board chair. The agreement lists the fund from which the grant was made, the grant amount, and the grant purpose.
The Grant Report date of six to 12 months is stated in the grant cover letter. The Grant Report includes questions regarding the (1) success of the project for which funds were granted, and why or why not the project was successful, (2) how many people the project served, (3) if the entire grant was expended, and if not, how the grantee would propose using the remaining funds, and the impact if the project was not funded at the anticipated level, (4) how the project was advertised/promoted within the organization and asks for sample news articles, newsletters, photos, etc., and (5) additional remarks from the grantee.
As a result of the completed report, the Grant Report provides information on the use of the funds and confirms they were used for their intended purpose. Follow-up calls to grantees are made to all those who do not return either the signed Grant Agreement or Grant Report within the appropriate time frame. The Foundation reserves the right to contact the grantee organization mid-year for an informal update on major grant awards. If the funds were not used for the intended purposes, Foundation asks for the funds to be returned. Additional sanctions could be imposed as a result, such as suspending the grantees privilege to request grants of the Foundation. Likewise, additional assistance could be required for the grantee organization such as providing help for organizational development.
Exercise of Expenditure Responsibility
The Foundation has adopted these expenditure responsibility procedures to ensure that grants are used for a charitable purpose, and that appropriate oversight and documentation of the grant is maintained.
Federal law requires expenditure responsibility for certain grants from Donor Advised Funds and for all grants to nonqualified organizations. Grants from donor-advised funds to organizations other than those described in section 170(b)(1)(A), type III supporting organizations that are not “functionally integrated” and any supporting organization if the organization it supports is controlled by the donor or donor appointee. The Foundation staff can also use information from the IRS Business Master File, IRS publication 78 and Guidestar to further determine if the prospective Grantee is or is not a supporting organization and, if so, what type.
The following additional information can also be requested for review if further examination is needed to determine a prospective grantee’s status.
For an organization that is a Type I or II Supporting Organization:
- Written letter signed by an officer, director or trustee stating the process used for selecting the grantee’s officers, directors or trustees and references the pertinent provisions of the grantee’s organizing documents that establish the grantee’s relationship to its supported organizations, and
- The Foundation collects and reviews copies of the grantee’s governing documents. If the grantee’s organizing documents are not sufficient to establish the relationship, the Foundation must also collect organizing documents from the supporting organization.
For an organization that is a Functionally Integrated Type III Supporting Organization:
- The grantee’s written letter must identify the organizations it supports,
- The Foundation collects and reviews the grantee’s organizing documents (and those of the supported organizations if necessary),
- The Foundation collects a written representation signed by an officer, director or trustee of each supported organization that the supporting organization is functionally integrated and that but for the involvement of the supporting organization, the supported organization normally would engage in those.
- The Foundation collects and reviews the grantee’s organizing documents (and those of the supported organizations if necessary),
Grants to the following types of organizations require expenditure responsibility:
- Tax exempt organizations not classified under Section 501(c)(3)
- Private non-operating foundations
- Private operating foundations
- For-profit companies
- New public charities that have not obtained Section 501(c)(3) status from the Internal Revenue Service
- Organizations formed outside of the United States (Certain grants may be made to such entities outside the United States without the need for expenditure responsibility if the Foundation completes a procedure called “equivalency determination”)
Expenditure responsibility includes:
- Pre-grant inquiry. The Foundation must make a reasonable investigation of the grantee to make sure that the grantee is capable of performing the charitable activity that is to be funded.
- Written agreement. The grantee must sign a written agreement with the Foundation that specifically sets out what charitable activities are to be accomplished with the funds to be granted. The agreement must also contain certain limitations (such as prohibiting the use of any of the funds for lobbying).
- Separate account. Unless the grantee is another private foundation or private foundation equivalent, the grantee must establish a separate account for the funds. Charitable dollars cannot be commingled with non-charitable funds.
- Regular reports. The grantee must provide regular status reports (narrative and financial) on the expenditure of the funds and the progress made in fulfilling the charitable purpose for which the funds are granted.
- Report to IRS on the tax return. When filing the Form 990-PF tax return for any year in which a payment for an expenditure-responsibility grant is made, the foundation must indicate that expenditure responsibility payments were made and must add a schedule to the form with a brief description of each grant indicating the grantee, the amount, the charitable purpose and the current status of the grant.
Approval of Grants and Scholarships
All grants and scholarships, including all donor-advised grant recommendations, are reviewed and approved by the Board of Directors or the Foundation President. Grants under $10,000 may be approved by the Foundation President. Grants in excess of $10,000 must be reviewed and approved by the Foundation Executive Committee of Board of Directors.
Distribution of Grants
Prior to distribution of the grant, correspondence is prepared that details any restrictions on the use of the grant. Depending on the size of the grant and/or the reporting requirements, the grantee may be required to sign a grant acceptance agreement prior to receiving the grant check. Grants may be distributed by mail or ACH payment.
On an annual basis, all staff, trustees, and committee members including the Grants committee and the Program Committee complete a Conflict of Interest/Duality of Interest and Confidentiality/Intellectual Property disclosure statements that are reviewed and signed by the Foundation President.
If a member of the Board of Directors or a committee member has a conflict with a particular grantee or grant application, then that person does not vote on the grant recommendation. This abstention is noted in the meeting minutes. If a staff member has a conflict with a particular grant application, they do not participate in the proposal review process and this information is recorded in the meeting minutes.