PEAK Grantmaking is a US-based network of grant making professionals working to improve how philanthropic organisations translate their values into practice. One of its most equity-relevant areas of work is challenging conventional financial due diligence: the use of standardised financial documents, benchmarks and risk assessments to determine whether an organisation is suitable for funding.
PEAK argues that many philanthropic risk models were inherited from the commercial sector whose purpose is to protect profit and financial standing. When applied uncritically to grant making, these models can systematically favour established, well-resourced organisations. Organisations led by and serving marginalised communities are more likely to depend on restricted project grants that do not cover their full costs or allow them to accumulate reserves. In the US, nonprofits delivering services through government grants and contracts – particularly those paid retrospectively on a reimbursement basis – may experience delayed payments and resulting cash-flow pressures. Viewed without context, these conditions can appear to be organisational deficiencies rather than evidence of persistent underinvestment.
PEAK’s approach is to make financial assessment proportionate, contextual and useful to the prospective grantee. Funders are encouraged to request only the information necessary for the size and type of grant – and only information they have the capacity and expertise to interpret. For smaller grants or established relationships, this may mean requesting no additional financial documents and instead using publicly available information. PEAK notes that five years of financial trend data may provide a more meaningful picture of an organisation’s trajectory than a single recent set of accounts. In partnership with BDO (Binder Dijker Otte – global professional services and accountancy network), it developed the three-part Assessing Financial Health training series to help grant makers understand nonprofit resilience, interrogate their assumptions about risk and conduct financial reviews through a grantee-centred lens.
The approach has also been translated into foundation practice. The Surdna Foundation, working with Fiscal Management Associates, redesigned its financial review process to align with its values around advancing social justice and racial equity. In the Due Diligence stage, instead of applying the same level of scrutiny to every organisation, it sought to use detailed financial review where it could help identify and respond to a grantee’s needs, while taking a more trust-based approach with the majority of grantees. PEAK’s wider guidance also points to shared digital vetting systems such as NGO source, which enables information to be collected once, in multiple languages to support accessibility, and with support from local organisations, reducing repeated compliance work and the cost and delay associated with compulsory site visits.
What practitioners can take from this
A weak reserve or cash-flow position should trigger a conversation about what support an organisation needs – not automatically remove it from consideration. PEAK’s central challenge to practitioners is to distinguish evidence of genuine financial mismanagement from the financial effects of chronic underfunding; otherwise, due diligence reproduces the very inequities that philanthropic funding is intended to address.