Charitable Organizations:
Due Diligence and Site Visits

By: Patricia M. Soldano Cymric Family Office  Services, Costa Mesa, CA

Many  individuals have established private foundations to carry out their philanthropic goals. These individuals frequently serve as officers, directors, or trustees of their foundation. In addition, children and other relatives and friends or colleagues may serve in an oversight or operational capacity as directors, trustees or officers. In some instances, family offices handle the day-to-day  management of private foundations. No matter how private foundations are organized, a crucial, but often overlooked, activity is the site visit.  The purpose of this article is to discuss some of the reasons why site visits are important and the best ways to conduct them.

Too  often, site visits to prospective grantees are not conducted, because of either the time required or logistics. However, these visits are important  because it is impossible to get a sense of the grantee and its activities simply through reports, financial statements and phone calls. After a  site visit, the foundation will have a more complete picture of the prospective  grantee, its culture and the services it provides. Without a site visit,  the foundation really lacks enough information to know if previous grants were spent as they should be or whether the current request for funds  is appropriate given the activities of the grantee and its actual needs.

 The private foundation should conduct some basic due diligence on the organization's structure and finances well in advance of the site visit.  In this way, the visit will not be wasted if it is found out later that the grantee's financial affairs are not in order. The foundation should  obtain a copy of the determination letter from the IRS that it is a valid tax-exempt organization under Sec. 501(c) (3) of the Code. The most recent  year-end financial statements of the grantee, and, if possible, audited financial statements, should be reviewed. In addition, a copy of the most  recent Form 990-Annual Report of a Tax-Exempt Organization of the grantee should be examined. Another document that is often helpful is a copy of  the annual budget. It is especially helpful if there is a comparison of the budget to actual, and can assist the foundation in determining the grantee has maintained its budget. Failure to maintain the budget might indicate problems in the grantee. If the grantee has proposed for a special  budget for the grant under consideration, the foundation should also review that in advance of the visit.

 Another important area to examine is the grantee's expenditures. The foundation should determine if the amount spent on fundraising and administration is appropriate when compared to those amounts spent by other tax-exempt  organizations. One area to examine is the watchdog lists and websites,  such as the National Charities Information Bureau (www.give.org), and Guidestar (www.guidestar.org), that are maintained on tax-exempt organizations and that provide warnings  of organizations that may have spent too much on either fundraising or  administration.

 Hopefully, the grantee will have provided a written grant request. (In  fact, the failure to submit an adequate grant request may be an initial indicator of the problems with the grantee.) The grant request should be reviewed carefully to see if it is appropriate in the light of the  information that can be obtained from various sources well in advance  of the site visit. Another area to examine is the list of the Board of Directors, advisory committees, key staff members and key volunteers.  Especially helpful here is to have background information on each of these  groups. Another important area is to evaluate the professional level of the staff and the executive director (or person holding similar responsibilities).

 Only after all of the factors discussed above have been examined should the decision be made to make the site visit. Try to give the executive director or other person responsible for the day-to-day operation of the foundation plenty of notice, and, if possible, schedule the visit at the same time the grantee is having a meeting of its board of directors. In  this way, the representative of the foundation can meet with the board  members and observe how they work and how committed they are to the grantee. If attending a board of directors meeting is not possible, try to meet or talk to individual board members by phone. An important consideration in whether the grantee is run by its executive director, with the board essentially a rubber stamp, or whether the directors exercise true oversight of the grantee and make decisions on their own. The representative should determine how well the board recognizes the grantee's need for fundraising  and how committed the board is to accurate financial reporting and management.

 If the grantee runs programs or does most of its work outside the administrative  office, the representative needs to visit some of those places where the actual work of the grantee is being conducted. He or she should arrange  to meet with or observe some of the individuals that the grantee helps, and if necessary, visit additional locations.

 While visiting the administrative office, the foundation representative should observe the activity and attitude of the staff, no matter how small the staff is. Is the office busy, with the phone constantly ringing, or  is it silent? Basically, is the activity level one that you would expect? Does it appear that the staff has a commitment to the activities of the  grantee, or are they simply doing a job? The representative, should determine how well organized the office is. The representative, in talks with the  executive director and other individuals, should determine whether the staff is realistic with respect to its expectations. This is often a difficult  thing to judge, but grantees should have staffs that, while they are committed to the activities being conducted by the grantee, also are realistic as  to what can be done.

 Another interesting factor to analyze is the ratio of volunteers to paid  employees. The foundation's representative should determine whether volunteers are performing work that professionals should do, and vice versa. In many  instances, volunteers can assist in the management of the office, run a thrift store, or collect donations. However, if the grantee is running  a center for battered wives, for example, trained individuals will be  necessary for that work. If volunteers perform more delicate functions, such as counseling, the representative should determine whether the volunteers  receive the necessary training and supervision for that work.

 The private foundation needs to gather as much information as possible  to determine if the need for the project proposed by the grantee is a real one. For example, if the representative is visiting a family counseling center and finds that all of the rooms are amply furnished but no families are being counseled, they need to determine if there is really a need  for the grantee to provide this service. The representative must make sure that the proposal by the grantee has not been manufactured to create  jobs for the professional staff.

 Try to observe the interaction of the staff with those being served. The  representative should note if the staff members are sensitive and caring or aloof. Likewise, if the proposed grant is for funds to assist in the  operation of a social center for the mentally ill, the representative should observe whether sufficient clients are using the center and that they are engaged in social activities such as conversations, participating in games, or participating in educational programs. One key indicator  here as to whether or not the center is truly providing necessary service  is whether the clients are actually engaged in activities, or are simply  watching TV. On the other hand, the representative may find that a facility is no over-stretched and that the staff is doing such a good job on limited  resources, that an even larger grant tan proposed is necessary to enable the center to truly serve the community.

 A foundation cannot get a true picture of an organization without a site  visit. Failure to make site visits, especially to new grantees with whom the foundation has little experience, will often lead to under served grants  that do not meet the foundation's objectives or societal needs. Likewise, site visits are important with respect to grantees who have been receiving  funds from the foundation for a long period of time. This will ensure  the foundation that the funds continue to be used in the intended purposes.  Site visits are a crucial part of the grant making profess of the private foundation.