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July 20, 2010

Ask a group of nonprofit leaders what bugs them most in their dealings with foundations, and I’ll bet you dollars-to-donuts someone will mention the onerous administrative requirements tied to many grants. For the Friends of Buffett and Gates (FOBGs) who are considering the challenge to give away half of their wealth, I therefore have a simple request: Make sure the application and reporting processes you create are guided by practicality and mutual need, rather than your lawyers’ cautionary tales.

GEO hears the same lament from nonprofits all the time: grantmakers too often impose “one-size-fits-all” requirements on their grantees. In GEO’s national study of philanthropic practice, only 41 percent of respondents said their application requirements were proportionate to the size and type of grant. In addition, only 12 percent of respondents said they collected information about how long it takes grantees to meet their organizations’ administrative requirements.

The Project Streamline study Drowning in Paperwork, Distracted from Purpose yielded similar findings, identifying ten “flaws in the system” that “create significant burdens on the time, energy and ultimate effectiveness of nonprofit practitioners.” These flaws range from enormous variability in grantmaker requirements to redundant due diligence procedures and grantee reports that sit on a shelf. “We assume that they feed everything to a giant fiery furnace,” said one nonprofit executive when asked what happens to the organization’s reports to its funders.

But the question remains: How much due diligence and reporting is enough, and when do grantmakers go over the line? Nonprofit Finance Fund has advanced the concept of the “net grant” as a guidepost for the sector as nonprofits and grantmakers seek to streamline application and reporting processes. The net grant is the difference between the amount of a grant and what it costs a grantee to obtain and report on that grant. Grantmakers and grantees alike should beware of cases in which the net grant is too small to make a difference to the grantee, or when the requirements associated with a grant are too large as a percent of the total grant.

Different grantmakers will address the challenge of streamlining their procedures in different ways. Philanthropic Ventures Foundation, for example, has advanced a new model of “immediate response” grantmaking that eschews formal due diligence procedures in instances when the foundation is making small grants. PVF’s Teacher Resource Grants program, for example, provides teachers in the Bay Area with $500 for classroom materials, field trips and other needs—all based on a one-page faxed request to the foundation. To date, nearly 7,000 teachers have received the grants.

“This is really about honoring these people and not forcing them to go through all kinds of hoops to get the funds they need to do their work,” said Bill Somerville, president and founder of PVF and author of Grassroots Grantmaking: Field Notes of a Maverick Grantmaker.

The PVF approach will not work for everyone. And I hope this post isn’t read as a plea to abandon due diligence and grantee reporting altogether. Indeed, when making larger grants in particular, a foundation has an obligation to ensure that the money is spent wisely and according to plan.

But every grantmaker, large or small, can take steps to streamline its application and reporting procedures and cut the red tape.  One way to start: talk to your grantees about your requirements and whether they’re too much—it’s amazing what you can learn by going straight to the source.

Kathleen Enright