How to select a beneficiary organisation

With so many worthy organisations and causes in South Africa, it can be daunting to decide which ones to support. There are many considerations that should inform this decision, including ensuring alignment between the funder’s and recipient’s objectives, and how best a sustainable impact can be made. 

Finding strategic alignment

Often, the most successful initiatives are those in which there is an invested relationship between the funder and beneficiary organisation, with a common vision and goals. A meaningful partnership also facilitates the exchange of non-financial support, including the sharing of skills and knowledge.

Funders, therefore, should first look to identify ideological and strategic alignments with a prospective beneficiary organisation. For corporate funders, this alignment should be based on the nature of their own core business activities. For individual donors, the alignment may be based on a personal interest, passion or an emotional connection. In either case, alignment may be geographical or conceptual.

A further determinant is the nature of the social change in which a funder would like to invest. In order to make well-informed funding decisions, it is important that funders are aware of the different ways in which social change can be brought about by different types of organisations. Charities, community-based organisations, think-tanks, advocacy and activism-oriented organisations are all worthy causes, but each has different aims, working styles and results. For example, funding could go towards programme-based poverty relief or advocacy efforts working to influence national policy research in the socio-economic development space.

Making a sustainable impact

Investing in organisations that manage their funds strategically can help to enable greater impact, release a project or community from donor dependency and can help build capacity.

Once a funder has narrowed the pool of prospective beneficiary organisations to those that align with its interests and the nature of change it hopes to achieve, research often termed “due diligence” should be conducted. Due diligence provides detailed information about the mission and goals of a beneficiary organisation, its reach, durability and governance. It also indicates how and where funds are spent.

Due diligence  

Through due diligence, a funder learns about a prospective beneficiary organisation before entering into an agreement of support. Due diligence is a comprehensive process of researching, appraising and analysing the work of a prospective beneficiary in order to evaluate its performance and potential. This ensures that any money provided will reach its intended end destination.

Due diligence enables an assessment of how the organisation is run, the impact it has had, and the impact that new funds are likely to  have. While funders are not legally bound to engage in due diligence, it is a beneficial process for both the funder and the prospective beneficiary organisation, establishing a relationship based on transparency and accountability.

Importantly, a balance must be struck. A well-run NPO will have strong reporting systems in place and will be able to produce the necessary reports and documentation without much extra effort. However, an overly rigorous due diligence process may pose an additional burden to an often already strained organisation, and take time away from other efforts in the field. It is necessary to conduct comprehensive due diligence to minimise risk and ensure maximum impact of funds, but the process should be simple and efficient. Ultimately, due diligence appraisal must be based on common sense.

What information to collect

Vision and strategy – Conduct a thorough alignment assessment of the funder’s and beneficiary’s visions, priorities and strategies, and check whether the beneficiary’s mission is reflected in its ongoing projects and achievements.

Tax and other legal considerations – Review the legal and charitable status of the proposed beneficiary. Copies of the organisation’s registration documents, founding constitution or trust deed will establish whether the prospective beneficiary is registered as a NPO, non-profit company, or trust. If desirable, proof of a section 18A-approved PBO should be requested, including details of any restrictions on the NPO’s activities. Corporate and government donors should also confirm the organisation’s BBBEE rating and beneficiary category percentages.

History and track record – Check whether the prospective beneficiary organisation has a history of success, including tangible achievements that demonstrate impact. This includes a record of serving its beneficiaries with integrity. If the prospective beneficiary is a new organisation, investigate whether sufficient financial, infrastructural, leadership and capacity systems are in place to ensure its ongoing competence and sustainability.

Financial health – Request the organisation’s financial statements for the past three years (or for as many as are available). It is also necessary to ascertain how the organisation intends to use any donations received. Note that, while overhead cost and expense ratios do provide necessary information, it is important to contextualise this. Low overheads do not necessarily indicate organisational efficiency or effectiveness; rather, organisations that invest more in infrastructure may be better able to support successful programme delivery. The overall due diligence assessment should provide clarity in this respect.

Governance and executive leadership – It is important to carefully review how an organisation is managed and how it conducts and monitors its affairs. It is crucial that the governance and leadership structures in place are sufficient for the nature, purpose, size and capacity of the organisation. Also review the size, structure and qualifications of the organisation’s board and minutes from board meetings. 

Staff skills, morale and capacity – Assessing staff skills, tenure and morale can reveal organisational and capacity gaps. Consider whether the amount of proposed work is realistic in relation to the amount of funding being granted and whether the time and resources required for administrative tasks, including monitoring, evaluation and reporting, have been taken  into account sufficiently.

Monitoring and evaluation – Ensure that the organisation has a system in place to measure its results and assess what outcomes have been achieved through its projects and services, as well as how their evaluation processes compare with similar organisations. Review any formal evaluations that have been conducted.

How to collect information

Much of the due diligence will be conducted via research and analysis of documentation, which will either be provided by the organisation or will be publicly available. To make a comprehensive assessment, however, it is advisable to complement this technical aspect with personal interaction. A site visit enables a potential funder to get to know staff and to witness how a project works and who it affects.  Engaging with direct and indirect beneficiaries of the organisation’s programmes and other relevant stakeholders often provides further clarity on how the organisation connects, collaborates and communicates.

A holistic process – Aim to build a holistic organisational story through various stages of information gathering. Once the organisation has submitted a written proposal and provided its founding, registration and reporting documentation, and independent research has been conducted based on publicly available information, consider speaking to staff and beneficiaries to fill any gaps in information and provide a more complete picture. 

Look beyond management – It is important to gain insight from staff who understand and are directly involved in implementing and managing project operations. Ask to see field notes and other documentation that detail challenges experienced on the ground. Talking to staff with varied levels of authority will also provide useful information about the leadership of the organisation, as well as its overall effectiveness.

Consider context – Understanding the environment and broader context in which the organisation operates is crucial for establishing realistic expectations and outcomes.

Enhancing impact

Share findings and acknowledge shortcomings – A well-conducted process of due diligence reveals both positive and negative findings that, if shared with the prospective beneficiary organisation, can be useful for its development and growth. It is beneficial for each party to acknowledge organisational shortcomings and engage in a collaborative process to address these.

Plan together – Once a beneficiary has been selected, both parties should agree on the specific objectives of the funding and project, and how progress against these will be measured. The amount of funding, how the funds will be spent, reporting deadlines, consequences of unmet milestones, and any other terms and conditions of the funding should be clarified and agreed upon.

If an organisation is effective and its projects are working, funders should continue providing support, as far as possible. This saves time, since the funder will not need to go through the beneficiary selection process afresh. It also builds stronger partnerships and is likely to maximise impact.

Determine an exit strategy – A transparent and mutually agreed exit strategy will ensure that the beneficiary is not overly dependent on this source of funding and remains sustainable  once the funding period ends.  If the donation serves as a financial lifeline, it is particularly important for both parties to engage in planning the exit strategy,  to ensure that the organisation does not collapse when the funding ends. Achieving developmental results is complex and takes time, so funding periods of three to five years is preferable.

Monitor and evaluate – Monitoring the beneficiary throughout the period of support is highly recommended. This monitoring should, however, be conducted in an undemanding but authentic manner that allows the funder to understand the impact of the financial investment, and motivates the beneficiary to be self-critical and improvement-oriented. If the funder remains engaged with the beneficiary beyond the initial stage of granting funding, it will help to foster a more collaborative and sustained relationship.

Fostering a partnership

These suggestions are intended to provide information on the process of selecting a beneficiary organisation, but they are not exhaustive. Ultimately, effective due diligence should provide a basis for communication and increased transparency. The process should foster understanding, mutual trust, commitment to shared values and goals, and help to transform the standard funder-recipient relationship into a partnership that provides value to all parties.