E&F Advice & Administration
July 11, 2022
Due Diligence for Foundations and Nonprofits
In the 21st century, we conduct due diligence and reconnaissance on nearly every aspect of daily life. We swear by Yelp ratings, scour Amazon product reviews and research people and opportunities using Google. In a world with unprecedented access to information, and at a time when increased scrutiny is placed on all businesses and organizations, it is important that nonprofit trustees, board members and staff conduct ongoing due diligence on all areas of the organization, including reviews of insurance policies and providers, auditors, software systems, equipment and cybersecurity.
Due diligence matters
Trustees and board members are legally bound to a series of duties and responsibilities that may be classified as:
- Duty of care: Emphasizes active participation in organizational planning and decision-making to achieve sound and informed judgments.
- Duty of loyalty: Places the interests of the nonprofit before personal or professional concerns and avoids potential conflicts of interest.
- Duty of obedience: Ensures the organization complies with applicable federal, state and local laws and remains committed to its mission.1
Beyond these requirements, boards and trustees must also act as fiduciaries, maintain oversight of the assets and ensure their organizations have the necessary resources. Ongoing due diligence is a means to help board members and trustees remain prudent in meeting their fiduciary responsibilities, expose potential organizational risks and highlight opportunities for improvement.
Factors to consider
Who: One of the first considerations in developing a due diligence plan is determining which vendors or processes to review. Some nonprofits may choose to evaluate service providers, while others may focus on marketing or fundraising protocols. Along the way, internal as well as external personnel, including staff, committee members, vendors, consultants or volunteers, should participate in the review process.
When: Policies should be established for the timing and frequency of third-party provider reviews. While some organizations implement time-based reviews by calendar intervals — every two, three or five years are common choices — others may plan evaluations based on board or staff tenure and turnover, grantmaking programs, fundraising cycles or signature events.
Why: Trustees, board members and staff should establish criteria for scheduling impromptu reviews. Reviewing an external auditor, for example, may become necessary if there is overall dissatisfaction or if there has been a change in the provider’s leadership, processes or service levels.
How: Discussion about how the due diligence process will be implemented and how reviews will be conducted should result in tangible procedures. Will the organization implement a formal request for proposal process? Will providers be invited to interview in-person, or will there be a combination of approaches? Who from the organization will participate in the review process, and who will have the authority to make the final decision?
PARTNERING WITH PROFESSIONALS
Professional associations can be a helpful resource in developing and implementing due diligence plans. Industry leaders with expertise in the areas under evaluation are another important resource. Partnering with experts provides an organization’s leaders with valuable guidance regarding the type of information they should be gathering as well as the questions they should ask during due diligence reviews.
Although each organization’s due diligence program will vary, it is important that foundations and nonprofits institute ongoing review processes. Professional associations and other industry leaders offer valuable help when developing the insights and practices to safeguard an organization’s financial and reputational well-being, paving the way for future success. A carefully planned due diligence program can instill the discipline necessary to prevent problems before they arise, and will help board members and trustees execute their fiduciary duties to the fullest.
For more information on the importance of a due diligence plan, please contact your Glenmede Relationship Manager or email EFSolutions@glenmede.com.
This presentation is intended to be an unconstrained review of matters of possible interest to Glenmede Trust Company clients and friends and is not intended as personalized investment advice. Advice is provided in light of a client’s applicable circumstances and may differ substantially from this presentation. Opinions or projections herein are based on information available at the time of publication and may change thereafter. Information obtained from third-party sources is assumed to be reliable, but accuracy is not guaranteed. Outcomes (including performance) may differ materially from expectations and projections noted herein due to various risks and uncertainties. Any reference to risk management or risk control does not imply that risk can be eliminated. All investments have risk. Clients are encouraged to discuss the applicability of any matter discussed herein with their Glenmede representative.