Due Diligence of CSOs Needs Reimagining, Digitalizing
Due diligence can be an obstacle or a tool for change. Too often it means frustration and waste for funders and grantees alike. Tech Soup, a network of CSOs, describes it as redundant, costly, based on standards and language of western funders, favoring long-standing international grantees over newer, local organizations and suffering from technological stagnation. Additionally, bank "de-risking" due to counterterrorism regulations has disproportionate, negative effects on the independent sector. To remedy this, Tech Soup suggests influential funders should unite to create, rely on and digitalize a uniform standard of due diligence, and specifically:
- Adopt a flexible framework and compliance repository, such as the one piloted by TechSoup for humanitarian aid in seven countries, with a view to becoming a technical platform. The model conducts due diligence online and includes a tailored learning path for local organizations to improve, a clearer understanding of requirements and ways to improve their risk file and get reviewed by financial institutions.
- Commit to provide assessments in local languages and user-friendly formats such as mobile applications or other accessible interfaces (as they still rely on narrative questionnaires and document requests, manual reviews, and on-site audits).
- Streamline the process of equivalency determinations so US foundations can donate internationally to organizations as “equivalent” to US public charities and avoid Internal Revenue Service penalties. For example, NGOsource maintains equivalency determinations for thousands of unique organizations on behalf of grant-makers in their online database, saving many hours of compliance work and reducing costs dramatically.