The document discusses the importance of carrying out due diligence as part of the grant making process for charities. It notes that while due diligence may seem like a tedious task, it is important to minimize risks and ensure funds are properly used. The author provides tips for an appropriate due diligence process, including assessing risks, determining the level of due diligence required, and basic checks such as reviewing legal status, accounts and online presence. Maintaining records of due diligence is also advised. The guidance aims to help trustees discharge their duties and provide reassurance that funds are being expended responsibly.

1. IBB SOLICITORS CHARITIES TEAM
Law and best practice for grant-makers
Carrying out due diligence as part of the grant
making process might seem like a time-wasting,
box-ticking exercise. You may have spent some
considerable time identifying the right recipient
and scoping your project and, having invested so
much time, you may just want to get started. In this
article Eva Abeles, Senior Solicitor in IBB Solicitors
Charities team, offers some practical tips.
due diligence
This briefing note is only intended to provide general
guidance and is not intended to constitute legal advice.

2. IBB SOLICITORS CHARITIES TEAM
Due diligence
Having an appropriate and proportionate
due diligence process in place should
minimise the chance that you find out
something untoward later on – that
heart-stopping moment which is usually
followed by a chorus of “if only…”.
Whether it is unholy alliances with
inappropriate political groupings or
getting caught up in a charity scandal, due
diligence can help to ensure that the grant
is able to achieve its purpose.
Due diligence, however tedious it may
seem, is one of the key components of
effective and responsible grant-making.
The Charity Commission has published
guidance on what is expected of
charities in Chapter 2 of its Compliance
Toolkit: Due Diligence, Monitoring and
Verification of End Use of Charitable
Funds http://goo.gl/mfnWlO and trustees
of grant-making charities are strongly
advised to familiarise themselves with this
document.
In this article. I have focused on three
key areas for trustees to consider when
designing an appropriate due diligence
process for prospective donees.
1. assess the risk
The level and intensity of the due diligence
process which is appropriate for each grant
will generally differ depending on factors
such as:
•
The identity of the donee (and
whether they are an individual or an
organisation);
•
the size and capacity of the donee;
•
whether the donee works in a “high
risk” country or area, such as a war
zone, where there are high levels
of corruption or in a region where
terrorists or drugs barons are known
to operate; and
•
whether the grant poses any potential
reputational risk for the grant-making
charity.
Grant making charities are advised to
create a simple risk-assessment checklist
with a scoring system, to enable them
to determine the level of due diligence
appropriate for each grant (i.e. low,
medium and high).

3. 2. Translating risk level into
an appropriate level of due
diligence process
The following steps are an example of a
basic level of due diligence which trustees
of grant-making charities should consider
implementing before making a grant to
any organisation:
•
•
•
check that the organisation is a
registered charity with the Charity
Commission/OSCR/HMRC or,
if the organisation is an overseas
organisation, check the donee’s legal
status and whether it is registered with
any relevant regulator in its country
(e.g. in the US, check if it is a 501(c)
(iii));
review the charity’s governing
document and latest audited accounts
for the organisation, to check that it
is solvent and that there are no other
obvious causes for concern;
undertake an internet name check of
the organisation using a search engine
(e.g. google) to check whether there
are any negative press stories about it
or its trustees or (senior) employees
acting improperly, fraudulently or any
other cause for concern is raised; and
•
ensure that the proposed project that
you will be funding is exclusively
charitable under English law, within
the grant-making charity’s objects
and within the donee organisation’s
objects.
If the grant scores a medium or high risk
on the charity’s risk matrix, further due
diligence.
3. maintain records of due
diligence undertaken
The results of the due diligence checks on
the donee and its accounts should be kept
in a file, together with a signed copy of the
grant agreement, so that it can be provided
to HMRC (or the Charity Commission)
should they decide to inspect or query any
grants made.
Producing a stream-lined and
proportionate due diligence process may
take time and effort to set-up but, in the
long term, it will reap rewards. If done
properly it should provide peace of mind
to the trustees that the funds are being
properly expended and that the charity is
complying with its requirements under
both charity and tax law. In the worst case
scenario, it can be used to demonstrate
to the various regulators that the trustees
have properly discharged their duties.

4. IBB SOLICITORS CHARITIES TEAM
Due diligence
If you or your Trustees would like to talk in more
detail about adapting or creating your grant making
strategy and related procedures, please contact:
Eva Abeles,
Senior solicitor,
IBB Solicitors Charities team
01895 207964
eva.abeles@ibblaw.co.uk
This briefing note is only intended to provide
general guidance and is not intended to
constitute legal advice.
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