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Fit to Fund: Who Should Pay to Raise Standards for Good Financial Grant Practice?

November 08, 2019

Global standardsFunders have a right to expect that their nonprofit grantees have systems and structures in place to manage grants effectively and ethically. But does that right also imply that funders have a responsibility to invest in the grant management capabilities they expect from organizations they entrust with funds?

In the production of French cognac, nearly twenty million bottles, or 8 percent of the country’s annual production, is lost to evaporation after the distilled spirit has been put up in oak barrels; this is known, rather romantically, as "the Angel's Share."

A similar but far less romantic phenomenon occurs in the nonprofit sector. According to Caroline Fiennes, author of It Ain't What You Give, It's The Way That You Give It, roughly $125 million in the United Kingdom alone is "lost" by grant recipients in the production of reports required by funders and government agencies; much of that is spent on duplicate assessments as part of the submission of multiple grant proposals.

Rather than going to the angels, this $125 million could be seen as the "admin share," with both funders and their nonprofit grantees spending significant amounts of time and money on multiple due diligence assessments, diverting funds to needless administrative tasks that could be used to change lives for the better.

Most grant proposal forms use different criteria, leaving many would-be grant recipients unclear about what funders expect of them. This also means that many nonprofits end up spending hundreds of hours a year filling in different forms that ask for the same basic information in slightly different ways.

Nowhere is the problem more acute than when it comes to filling in forms designed to assess a nonprofit's grant management practices. In part, this is because funders are under increasing pressure from watchdog groups, the media, and taxpayers to demonstrate that the funds they award are being spent effectively and ethically.

In addition, different ideas about what constitutes good grant management practice have led to lower levels of trust in grant management capabilities across global funding supply chains. As a result of this breakdown, nonprofits find themselves having to jump through ever more complex and costly assessment hoops in order to reassure funders of their reliability.

The Global Grant Community (GGC) was established to address this broken model and reduce the "admin share" of funds being lost to paperwork. Its mission is to enable more money to flow to the people who need help by using standardization and the disruptive power of technology to reduce the cost, in time and dollars, currently entailed in connecting funders with potential nonprofit partners.

Our antidote to "admin share" is the world’s first international standard for Good Financial Grant Practice (ARS 1651:2018). For the first time ever, there is now a global standard for good grant management practice that CBOs, CSOs, NGOs, and higher educational and research institutions can adopt, bringing rigor and trust to even high-risk funding environments and creating a level playing field between state and philanthropic funders and their beneficiaries.

Streamlining and stripping out the cost of due diligence by standardizing and digitizing the due diligence process also means a greater comfort level for funders — and more money for organizations that are working to create greater impact for people across Africa and the world — a win for both funders and recipients.

The new standard was developed at the African Academy of Sciences in Nairobi, Kenya, with support from some of the world’s largest public- and private-sector funders, including UKAID, USAID, Wellcome, UK Research and Innovation, the UK Department of Health and Social Care, the IKEA Foundation, the European and Developing Countries Clinical Trials Partnership (EDCTP), the African Union, and the New Partnership for Africa's Development and Coordinating Agency (NEPAD).

Developed in partnership with the African Organization for Standardization (ARSO), the standard was piloted and road-tested by more than three hundred organizations around the globe and was formally adopted (ARS 1651:2018) by ARSO in June 2018. As such, it sets out more than two hundred and eighty clauses stipulating what major funders expect from their grantees with respect to grant management practice. The practices are organized into four broad organizational areas — financial management, human resources, procurement, and governance — and four tiers of compliance — bronze, silver, gold, and platinum (depending on the scale and complexity of funding and the size of the nonprofit, NGO, or research institution).

The GFGP standard is not meant to replace existing audit and assessment processes but instead provides a strong and consistent belt for a funder's braces. Because grant recipients are assessed against common standards of grant management practice, funders can have greater confidence that their funds will be spent effectively, responsibly, and free from corruption. Working with certified Global Grant Community organizations also reduces funders’ risk and the cost of audits and compliance, ensuring that more of their funds support government policy objectives, Sustainable Development Goals, and Grand Bargain targets.

At the same time, a global standard benefits grant recipients. Because the standard clearly sets out the grant management and risk mitigation procedures funders are looking for before awarding grants, nonprofits can use the standard as a tool to improve their grant management capabilities.

The journey for a nonprofit to world-class grant management practice begins with a simple GFGP Pre-Certification Assessment that measures its capacity to comply. Organizations can improve their funding prospects further by opting for an independent audit by a licensed GFGP Standard Certification Body and earning a Certificate of Compliance, which can be displayed as a quality mark on a searchable database used by funders, where it is seen by many funders. This "provide once – share with many" functionality reduces the time and money that grantmakers spend on finding and verifying reliable partners.

Critics of the standard may point out the irony of yet another new form that needs to be filled out. However, we believe that over time the GFGP standard will be the only form a nonprofit ever needs to complete. Still, there is a short-term cost for nonprofits, and while the costs are far lower than the price charged by external audit firms and other third-party verification bodies, they do represent a barrier for many organizations, which in turn limits the ability of those organizations to improve their grant management capabilities and attractiveness to funders.

That raises an interesting question about whether the world's biggest funders should subsidize the cost of completing a GFGP assessment for underresourced organizations. We say "yes." By making the cost of an assessment and certification an allowable grant expense, funders would be acting in their own self-interest while strengthening the ability of their nonprofit partners to spend the grant funds they receive responsibly and ethically. If you decide to give someone a car, the first thing you probably want to know is whether person has a driver’s license. The same principle applies here.

As well as making a GFGP assessment an allowable expense, we are calling on funders to provide small grants through a special fund to pay for assessments for the smallest CSOs as a way of ensuring that no organization is left behind. It's our belief that the GFGP standard will become an international standard on which all grant funding, and the way funders fund, is based. It is long overdue, and we look forward to the many positive changes its adoption will bring.

Headshot_michael_kilpatrickMichael Kilpatrick is senior advisor to the Global Grant Community at the African Academy of Sciences in Nairobi, Kenya.

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