| Foundation
Accountability Self-Assessment
Tool Q&A DJB Consulting
answers questions from foundations using the
accountability self-assessment tool
developed for the Forum of Regional Associations of Grantmakers.
Finance
Governance
Grantmaking
Finance
Audits (Level 2)
Q: What is the issue of finance committee
members being on the audit committee and vice versa?
A: The
audit committee is responsible for monitoring and reviewing an
organization’s financial management and reporting, so it should not be
comprised of all the same people who are responsible for overseeing
the organization’s financial management and reporting through the
finance committee.
That would diminish the audit committee’s
independence and create a conflict of interest.
It is worth noting that the California
Nonprofit Integrity Act, which went into effect in 2005, requires all
nonprofit corporations with more than $2 million in annual revenue to
prepare and submit audited financial statements and requires that the
members of a nonprofit’s finance committee constitute less than half
of its audit committee.
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Investments (Level 3)
Q: We don't understand what it means to
consider “the extent to which the values and principles that guide our grantmaking also inform our investment policies and decisions.”
A: This
practice relates to what is often known as mission-related investing
or socially responsible investing, where foundations ensure that their
investment practices are aligned with their mission and values or at
least don’t work against them.
For example, if a foundation is working to
improve the health of the people in a community, it might not want to
invest any of its funds in tobacco stocks.
You can learn more about mission-related
investing in
this resource from the National
Center for Family Philanthropy and in this
comprehensive guide from Rockefeller
Philanthropy Advisors.
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Governance
Board Fiduciary Duties (Level 1)
Q: I can't find any examples
in use by foundations regarding a policy on confidentiality.
Where can I find one?
A: Here’s a
link to several
samples of foundation confidentiality policies.
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Board Management (Level 2)
Q: What is meant by a
"statement of guiding principles"?
Is this the mission statement?
A: “Statement of guiding
principles” refers to a set of ethical standards for the philanthropy field.
The national Council on Foundations has
developed a set of such standards for the field, and many regional
associations of grantmakers around the country have developed
statements of guiding principles for the grantmakers in their regions.
These associations ask their members to
subscribe to these principles (sometimes voluntarily, sometimes as a
requirement of membership).
For example, here’s
a
link showing how The McKnight Foundation in Minneapolis
demonstrates on its website that it has subscribed to the guiding
principles for grantmakers developed by the Minnesota Council on Foundations.
On its
website, the Forum of Regional Associations
of Grantmakers provides links to guiding principles developed by
regional associations of grantmakers around the country.
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Board Membership (Level 2)
Q: For the practice “We periodically evaluate the
individual performance of each board member," who does the "we" in this
statement refer to?
A: “We” is
referring to the board.
It is considered a good practice for a
board to engage in a periodic, formal evaluation of each board
member’s performance.
This can be done by the board as a whole
or by a board committee.
At
foundations where board members can
serve multiple terms, boards will often conduct an evaluation of
board members prior to approving a new term of service.
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Conflicts of Interest (Level 2)
Q: Why would you post your
conflict of interest policy on your website?
Are you supposed to post all of your policies
on your website?
If so, why?
A: A foundation will
typically post its conflict of interest policy on its website in the
spirit of openness and transparency.
It can make a strong statement to
demonstrate that your foundation is being fully accountable to the
public and is engaging in sound governance practices.
You do not need to post all of your
policies on your website; there are clearly some policies that are for
internal use only and do not need to be on your website (an investment
policy, for example).
But a conflict of interest policy is a
good one to post on your website, since it is a core
accountability-related policy for an organization.
We have noticed more and more foundations
posting their conflict of interest policies on their websites.
Some foundations go further, and post a
large number of other policies and other documents related to the governance of the foundation,
such as
The David & Lucile Packard
Foundation,
The John D. and Catherine T. MacArthur
Foundation and the
Ford Foundation.
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Grantmaking
Grantmaking Process (Level 1)
Q: What are "appropriate
legal steps" to ensure that grants do not fund terrorist
organizations?
Is it sufficient to know the
organization well?
A: This
article from the Council on
Foundations provides a good overview of compliance strategies for grantmaking
in an “age of terrorism." In a nutshell,
the appropriate steps to take vary depending on your organization and
who you fund, and these steps usually apply to funders engaged in
international grantmaking. As the article states: "Funders that make
grants entirely within the United States, to grantees that they know
well and monitor regularly, may conclude that their normal due
diligence procedures already provide adequate information from which
they can conclude that the grantees are not themselves terrorists or
likely to be supporting those who are."
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Q: What are "the appropriate
legal steps to exercise expenditure responsibility"?
Is this only a concern for grants made to
other private foundations?
A: Expenditure
responsibility is of concern for grants that U.S. private foundations make
to any organization that is not described in Section 501(c)(3)
(including social welfare organizations, trade associations,
for-profit corporations), to certain supporting organizations, to
other private foundations and to charities outside the United States.
Expenditure responsibility requires that a
foundation take steps to ensure that the proposed grantee can fulfill
the intended charitable purpose of the grant and that the grant will
not be used for private gain or political activities.
The steps involved in exercising
expenditure responsibility include making a pre-grant inquiry and a
detailed, written agreement and filing special reports on the status
of the grant. You
can learn more about expenditure responsibility from the resources
listed
here.
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Q: What is a "fiscal sponsor"?
A: A fiscal sponsorship is an
arrangement in which an established nonprofit receives and manages
funds for a project or group that does not have its
own tax-exempt status.
Here's a
link to a good
article from the Council on Foundations that discusses the basics of
fiscal sponsors and fiscal agents.
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Q: The
self-assessment tool refers to
ensuring that “any grants we make to a fiscal sponsor are not
earmarked and that the fiscal sponsor has total control over how the
funds are granted.” "Earmarks" are something I'm not familiar with.
I'd appreciate any enlightenment.
A: A grant is “earmarked” if the grantee is required
to use the grant funds for a specific purpose or recipient, or if the
grantor has the right to impose such a requirement.
For the specific issue of
fiscal sponsorships, if a foundation wants to provide funds to an
organization that is not a registered 501(c)(3), one way to accomplish
this is to make a grant to a 501(c)(3) that is serving as a fiscal
sponsor for the non-501(c)(3).
However, when making that grant, the
foundation cannot specify, orally or in writing, that the grant to the
fiscal sponsor must be used for the non-501(c)(3).
If it does this, then the IRS is free to
disregard the existence of the intermediary organization and consider
the grant as being made directly to the ultimate recipient.
Instead, the foundation needs to ensure,
in writing, that the fiscal sponsor retains ultimate control over the
funds.
For more on the topic of fiscal sponsorships and
earmarking, consult this
article from the
Council on Foundations.
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Q: What is a type III supporting organization?
A: Describing a
type III
supporting organization can get a bit complicated, and it got even
more complicated after the passage of the Pension Protection Act in
2006.
The last page of this
article about the
Act has a good FAQ about supporting organizations
in general and type III supporting organizations in particular. You can also learn more about type III supporting
organizations on the Council on Foundations’ website
here.
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Grant Application (Level 3)
Q:
For the practice “If we routinely contact others for pertinent
information about an applicant's programs or proposal as part of the review process, our
guidelines say so,” what does "our guidelines say so" mean?
Doesn't everyone routinely contact others
for pertinent information during the investigative/review process?
A: This practice relates to
openness and transparency with grant applicants about a foundation’s
application review procedure.
A common grantee criticism of foundations
is that nonprofits perceive the grant review process as being
secretive and suspect that foundations are in collusion with each
other about which organizations to fund/not fund.
So this practice just reminds funders to
be clear in their guidelines to let applicants know they may be
contacting other foundations or other organizations and individuals to
gather pertinent information about the applicant’s proposal; it is
simply a matter of being as clear as possible in your guidelines about
the grant decision-making process.
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Q: For the practice “We have
developed and follow a procedure for responding to and acting promptly
on all complaints from grant applicants or grantees,” has anyone ever
received a complaint except when they're declined?
What kind of complaints are you referring
to?
A: This practice can refer
to any kinds of complaints that foundations receive from applicants or
grantees.
Often this relates to complaints about
declines, and it is a good practice for a foundation to have a
standard procedure in place for how to respond to complaints, rather
than just handling them on an ad-hoc basis, which can lead to
inconsistency in how such complaints are handled by different
foundation representatives.
It is considered a good practice to not
just have an internal complaint procedure in place but to also let
grantees and grant applicants know how they can file a complaint or
concern.
The MacArthur Foundation
describes its complaint process as part of its “Commitment to
Fairness and Courtesy.”
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Q: What would be a standard for a "ratio of
successful to unsuccessful grant applications"?
A: There is no
single correct
standard for this particular measurement; it varies based on many
internal factors.
Once you develop a baseline measure using your current applications figures, you can track this ratio over
time as a way to highlight potential problems or issues in your grant
application process.
For example, if a foundation experiences a
significant increase in the number of declines vs. approvals, perhaps
this is an indication that the foundation needs to do a better job of
communicating its guidelines and explaining what it does and does not fund.
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Legal Disclaimer: Information provided here is not
intended to provide legal, tax or other professional advice;
organizations should seek expert legal, tax and/or other professional
advice for their specific circumstances.
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