Preventing grantseeker fraud

Taking four basic steps can help to ensure that your organisation doesn't become a victim of grantseeker fraud.

  1. Determine your level of risk tolerance; 
  2. Develop a policy on what your organisation will do in the case of fraud; 
  3. Provide your fraud policy to grant applicants; and
  4. Promote vigorous competition for your grants.

What can be done about it?

  • When the amounts of funding you administer are relatively small, you can choose to retain the ability to respond quickly to unexpected opportunities, rather than building in review mechanisms and financial precautions. Keep in mind the proportionality rule: you shouldn't ask grantees to spend a week filling out a form for a $1000 grant. The fast and flexible approach is based on the hope that enough groups will receive a boost to make the total grants program cost-effective. You might expect a few failures and some surprisingly creative successes.
  • When the amounts of funding you administer are relatively large, you might choose to build in review mechanisms and financial precautions. Incompetence is far more common than scamming, so that's what you should be working to protect against. A due diligence check of the grant recipient’s governance arrangements can help to mitigate the risk of fraud, or financial mismanagement.
  • When it comes down to it, there must be a degree of trust. The only way to protect your money from all risks of misappropriation is to leave it in the bank, which of course defeats the purpose. If you're going to set up a small grants scheme, you should do so in the belief that most people will do the right thing.
  • The best precaution you can take is to promote vigorous competition for your grants. Legitimate grantseekers are likely to appear more worthy than dodgy ones. The cream usually rises to the top.

What are the nuts and bolts?

  • Consider what level of risk is acceptable given the scale of the grant and the nature of the grantees.
  • From a financial perspective, the level of risk should be determined by considering the scale of any potential loss versus the cost of detecting and preventing potential problems.
  • Don't allow worst-case scenarios and generalised paranoia to be the strongest influences on your grant planning. Most people do the right thing.
  • Have a clear rationale for the position you decide to take, and be prepared to defend it.
  • Write a policy on what your organisation does in the case of fraud, and provide it to grant applicants. That way they know you're keeping an eye out for wrongdoing.
  • Advertise your program widely so you will be able to choose from a range of applicants who know their integrity and sincerity will be taken into consideration.
  • Be aware that financial controls can increase a project's overhead costs and reduce the proportion of a grant that is spent on its nominal purpose.

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