Due diligence findings play an important role in determining whether a prospective implementing partner is ready to receive funding. A pre-award assessment may identify weaknesses in governance, financial management, internal controls, safeguarding or organisational capacity. These issues can raise important questions about an organisation’s ability to manage resources responsibly and deliver the intended programme outcomes.
However, identifying a weakness does not automatically make an organisation unsuitable for funding. Equally, a commitment to supporting local organisations should not justify overlooking risks that could compromise accountability or the responsible use of resources.
The purpose of pre-award due diligence is to understand these risks well enough to make an informed funding decision. Each material finding should help the funder determine whether the exposure can be accepted, mitigated through practical measures or requires the proposed award to be reconsidered.
The objective is not to eliminate every weakness. It is to establish whether the risks are understood, whether appropriate safeguards can be implemented and whether proceeding with the award is justified.
Understanding Due Diligence Findings Before Making a Funding Decision
Not every issue identified during an assessment carries the same significance. A minor documentation gap, persistent financial reporting failures and credible evidence of financial misconduct require different responses.
When evaluating due diligence findings, funders should consider the nature of the weakness, its relevance to the proposed award and the consequences if the risk materialises.
Four considerations are particularly important:
- Materiality: How significantly could the weakness affect the proposed award?
- Likelihood: How likely is the identified risk to occur?
- Impact: What financial, operational, reputational or safeguarding consequences could arise?
- Manageability: Can practical measures reduce the exposure to an acceptable level?
The reliability of the available evidence and the organisation’s demonstrated ability to address weaknesses should also inform the assessment.
For example, an NGO with limited financial reporting experience may benefit from technical assistance and more frequent reporting. An organisation facing unresolved allegations of serious financial misconduct may require independent verification, escalation and further review before a funding decision can be justified.
This distinction helps funders avoid two extremes: rejecting capable organisations over manageable weaknesses or proceeding with awards despite material, unresolved concerns.
Accept, Mitigate or Reconsider: Three Possible Responses
Once the significance of the identified risks is understood, the funder must determine the appropriate course of action. In general, the decision falls into three categories: accept, mitigate or reconsider.
1. Accept the Risk
Risk acceptance is appropriate when a weakness does not create sufficient exposure to justify additional controls, or when the remaining risk falls within the funder’s established risk tolerance.
Accepting a risk does not mean ignoring the issue. The funder should document the reasoning behind the decision and explain why the remaining exposure is considered tolerable.
Example: A prospective implementing partner has minor administrative inconsistencies in filing supporting documents. However, the relevant financial records remain available, expenditure can be verified and existing controls provide reasonable assurance over the use of funds.
In this situation, the funder may accept the risk while recording the issue and monitoring it through routine grant management processes.
The decision should be supported by evidence rather than convenience. Risk acceptance should never become a way to dismiss serious concerns simply because an award deadline is approaching.
2. Mitigate the Risk
Risk mitigation is appropriate when an identified weakness creates material exposure but practical measures can reduce that exposure sufficiently for the award to proceed.
The response should address the specific problem identified rather than impose general conditions that add administrative work without improving accountability.
Depending on the nature of the risk, mitigation measures may include:
- Strengthening financial management and procurement procedures.
- Introducing more frequent financial and programme reporting.
- Establishing additional approval controls for significant expenditure.
- Requiring corrective action plans with clear responsibilities and deadlines.
- Providing targeted technical assistance to address capacity gaps.
- Strengthening safeguarding, fraud reporting and conflict-of-interest procedures.
- Introducing independent reviews or phased disbursements where appropriate.
Example: A community-based organisation has a credible programme delivery record but lacks adequate segregation of financial duties. The funder may require revised approval procedures, periodic transaction reviews and evidence that the new controls are operating effectively.
The effectiveness of these measures must be verified. An approved policy or written commitment does not, by itself, demonstrate that the underlying risk has been reduced.
3. Reconsider the Proposed Award
Some risks cannot be adequately addressed within the proposed award’s timeframe, resources or operating conditions.
In such cases, the funder may need to delay approval, revise the scope of the award, withhold disbursement or decide not to proceed, depending on the evidence and applicable requirements.
Example: An assessment identifies credible evidence of serious financial misconduct. The organisation cannot provide satisfactory explanations or demonstrate effective corrective measures, leaving the funder unable to establish reasonable assurance over the use of funds.
Under these circumstances, proceeding may not be defensible.
Reconsideration is not necessarily a permanent judgment on an organisation’s future eligibility. It is a decision about whether the proposed award can responsibly proceed under the circumstances currently established.
The decision should be evidence-based, proportionate to the seriousness of the concern and consistent with the funder’s policies and legal obligations.
Turning Due Diligence Findings into Corrective Action
Identifying weaknesses is only the beginning. The value of due diligence findings depends on whether the assessment leads to practical actions that strengthen controls and reduce exposure.
An effective corrective action process should establish five essential elements.
1. Define the issue clearly.
Document the weakness, the evidence supporting it and the risk it creates for the proposed award. Clear descriptions help implementing partners understand what must change.
2. Specify the corrective action.
Avoid broad instructions such as “improve governance” or “strengthen financial management” without defining the expected outcome. Each action should address a specific deficiency.
3. Assign responsibility.
Identify the individuals responsible for implementing the measures and those responsible for verifying completion.
4. Establish deadlines and milestones.
Set realistic timeframes that reflect the seriousness of the risk. Critical controls may need to be established before award approval or the release of funds.
5. Verify effectiveness.
Require evidence that the agreed measures have been implemented and are functioning as intended.
For example, where procurement controls are inadequate, acceptable evidence might include an approved procurement policy, a documented approval matrix, competitive quotations where required and sample transactions demonstrating compliance with the revised procedures.
This process transforms assessment findings into measurable improvements rather than a list of recommendations that may never be implemented.
Must Every Weakness Be Resolved Before an Award?
Not necessarily. The timing of corrective action should depend on the severity of the risk, the funder’s requirements and the consequences of delaying intervention.
A practical approach distinguishes between three categories.
Pre-award requirements: Critical weaknesses that must be resolved before the award can be approved.
Pre-disbursement conditions: Safeguards that must be established before funds are released.
Post-award corrective actions: Lower-risk or longer-term improvements that can be monitored during implementation, provided the remaining exposure is acceptable.
This distinction allows funders to respond proportionately without imposing unnecessary restrictions on implementing partners.
However, it should not become a mechanism for postponing action on serious financial, compliance or safeguarding concerns. Where essential safeguards are absent, the funder must determine whether proceeding would expose resources, beneficiaries or programme outcomes to unacceptable risk.
The decision should reflect what could happen before the corrective action is completed, not simply whether the organisation has promised to address the issue.
Documenting Due Diligence Findings and Maintaining an Audit Trail
A sound funding decision can be difficult to defend if the reasoning behind it has not been recorded.
For each material issue, the funder should document the evidence reviewed, the assessed level of risk, the chosen response, the reasons for that response and the monitoring arrangements established.
Where a risk is accepted, the record should explain why the remaining exposure is considered tolerable.
Where mitigation is required, the documentation should identify the agreed measures, responsible parties, deadlines and verification requirements.
Where an award is reconsidered, the record should explain why the available evidence does not provide a reasonable basis for proceeding under the proposed conditions.
Proper documentation of due diligence findings supports consistency across funding decisions, facilitates internal and external review, and helps programme teams understand the controls they must maintain after an award is made.
It also reduces the risk of decisions being driven by urgency, personal relationships or inconsistent interpretations of funding policies.
Common Mistakes to Avoid When Responding to Risks
Even a well-conducted assessment can lose its value if the response is poorly managed.
Treating every weakness as grounds for rejection. This can unnecessarily exclude capable organisations whose shortcomings are manageable. Decisions should reflect the materiality of the exposure and the effectiveness of possible corrective measures.
Accepting written assurances without verification. A commitment to change is not the same as demonstrated improvement. Funders should establish what evidence will confirm that the action is effective.
Imposing excessive conditions. Requirements should address identified risks directly. Unnecessary conditions can burden implementing partners without materially improving accountability.
Failing to assign responsibility. Corrective actions without clear ownership and deadlines are difficult to implement and monitor.
Ignoring the cumulative effect of weaknesses. Several moderate deficiencies may combine to create significant overall exposure. Funders should consider how individual risks interact.
Allowing deadlines to override judgment. Pressure to finalise an award should not outweigh concerns that materially affect financial accountability, safeguarding or programme delivery.
Conclusion: Turning Due Diligence Findings into Informed Funding Decisions
Due diligence findings should not be viewed merely as weaknesses to record or obstacles to overcome before funding can proceed. They provide evidence that helps funders understand uncertainty, evaluate exposure and determine the safeguards required before committing resources.
When managed effectively, these findings can guide targeted capacity support, stronger internal controls, improved oversight and more accountable programme delivery. Where risks cannot be managed adequately, they can also provide a sound basis for reconsidering an award.
The objective is not to produce an assessment report without weaknesses. It is to understand the risks well enough to make a defensible decision, apply proportionate safeguards and remain accountable for the consequences.
The value of due diligence lies not in identifying risks alone, but in determining what those risks mean for the funding decision and what should happen next.
Frequently Asked Questions
What are due diligence findings?
Due diligence findings are observations, weaknesses or concerns identified during an assessment of a prospective implementing partner. They may relate to governance, financial management, internal controls, safeguarding, compliance or operational capacity.
How should funders respond to due diligence findings?
Funders should assess the materiality, likelihood and potential impact of each issue before deciding whether to accept the risk, introduce mitigation measures or reconsider the proposed award.
Does identifying a weakness automatically disqualify an organisation from receiving funding?
No. The implications depend on the evidence, the seriousness of the concern, applicable requirements and whether the resulting exposure can be managed adequately.
What is the difference between an assessment finding and a corrective action?
An assessment finding identifies a weakness or risk. A corrective action specifies the measures required to address it, including responsibilities, deadlines and evidence of completion.
When should a funder reconsider an award?
An award may need to be reconsidered when material risks cannot be reduced to an acceptable level, essential safeguards are absent or applicable legal and funding requirements prevent the award from proceeding.
How can funders monitor corrective actions after an award?
Funders can use corrective action plans, periodic reporting, independent reviews, transaction testing and follow-up assessments. The monitoring approach should reflect the severity of the risks and the agreed mitigation measures.
Why is documenting funding decisions important?
Documentation creates an audit trail showing how risks were assessed, why a particular response was chosen and what controls were established. It supports accountability, consistent decision-making and subsequent monitoring.
EP Martins Advisory supports organisations through strategy and innovation, business performance, programme assurance, and workforce solutions. Effective risk management and programme assurance help funders and implementing partners strengthen accountability, improve oversight and support sustainable programme outcomes.
Written by EP MARTINS ADVISORY
