The Mott Foundation provides a collection of resources for our current and potential grantees, and to support the philanthropic sector.
This section provides a broad overview of the Foundation’s grantmaking process. It includes general information about the types of support we provide, grant actions we make and an explanation of our grant payment procedures. It also includes detailed information about restrictions regarding lobbying and the Foundation’s compliance procedures and requirements relating to the USA PATRIOT Act.
Accounting Go Back
Grantee Reporting Go Back
USA PATRIOT Act and Re-granting Compliance Go Back
Types of Support
General Purpose vs. Project Support
The Mott Foundation provides support to nonprofit organizations that are working to further the programmatic objectives identified by our four programs.
General purpose grants provide financial assistance for the full range of the grantee’s activities. They are designed to help grantees meet operating costs and grantees determine how the funds will be used.
In contrast, project support grants provide financial assistance for specific activities or programs of grantees. Occasionally grantees will be awarded a mix of general purpose and project support to help them meet core costs and pilot new programs.
General Purposes Grants
To apply for a general purposes grant from the Mott Foundation, you must submit a set of detailed documents about your organization. In order to allow for adequate proposal review and processing time, please submit your request to the Foundation at least 60 days prior to the start of the grant period. The Foundation can provide single and multiyear grants (typically not more than three years).
Your request/proposal need not be lengthy (normally not longer than 10-15 pages), but must contain the following:
- A cover letter signed by an authorized officer of the organization. The letter should be prepared on the organization’s stationery or letterhead and should include the amount of funds requested and the specific period of time during which the grant funds would be spent.
- A brief summary of results or accomplishments during the current grant period, if this is a renewal request.
- Objectives for the grant period.
- Your organization’s institutional budget that coincides with the grant period, including sources of revenue.
- A copy of your organization’s annual report and its audited financial statements. If these are not available, then please provide a copy of the organization’s internally prepared financial statements for the most recently completed fiscal year. (For organizations outside the United States, these documents do not need to be translated into English.)
If your organization is located outside the United States, then see the General FAQs and the Affidavit FAQs for additional requirements. For domestic grantees submitting a renewal request, if your organization’s advance ruling period has expired, please provide a copy of your final IRS determination letter.
Project Support Grants
To apply for a project-support grant from the Mott Foundation, you must submit a set of detailed documents about your organization and the project for which you are seeking support. In order to allow for adequate proposal review and processing time, please submit your request to the Foundation at least 60 days prior to the start of the grant period. The Foundation can provide single and multiyear grants (typically not more than three years).
Your request/proposal need not be lengthy (normally not longer than 10-15 pages), but must contain the following:
- A cover letter signed by an authorized officer of the organization. The letter should be prepared on the organization’s stationery or letterhead and should include the amount of funds requested and the specific period of time during which the grant funds would be spent.
- A brief summary of results or accomplishments during the current grant period, if this is a renewal request.
- Objectives for the grant period, including any dissemination and evaluation plans.
- A documented line item budget for the grant period for the project, showing projected expenditures, sources of revenue, the amount of staff time represented by the salaries/benefits line item, and the number of full-time employees.
- The total amount of your organization’s current institutional budget, and a copy of your organization’s annual report and its audited financial statements. If these are not available, then please provide a copy of the organization’s internally prepared financial statements for the most recently completed fiscal year. (For organizations outside the United States, these documents do not need to be translated into English.)
If your organization is located outside the United States, then see the General FAQs and the Affidavit FAQs for additional requirements. For domestic grantees submitting a renewal requests, if your organization’s advance ruling period has expired, please provide a copy of your final IRS determination letter.
To apply for a renewal grant, you must submit the same request/proposal information. The grant period for a renewal grant cannot start until the current grant period has ended, however your renewal request should be submitted at least 60 days prior to the end of your current grant period.
In addition, please be aware that a renewal request cannot be processed if a required report for any grant your organization has with the Foundation is overdue or unacceptable.
Grant increases are awarded on a case-by-case basis. Please contact your program officer for details.
See General FAQs.
This portion of our grantee resources offers detailed information about a variety of financial issues. You will find detailed explanations of what the Foundation requires in a project or organizational budget, an explanation of various terms related to finances, and sample budgets that can be used when submitting a proposal.
Accounting resources include:
Multiyear Grant Issues
Detailed line-item budgets for the entire multiyear grant period must be submitted for specific projects. The budget should present each year of the project separately. General purpose budgets should be shown for each grantee fiscal year and should not be aggregated for the entire grant period. A statement as to whether future budgets are expected to be similar or differ greatly from the available year should be included.
It is not necessary for grantees to submit budget revisions to the Foundation unless there are substantial changes to their budget or unless a change would be contrary to the signed commitment letter. In most cases, minor variances between budgeted amounts and actual expenditures can be explained in the financial report submitted to the Foundation. If, on the other hand, funding levels change dramatically, the submission of a revised budget may be warranted.
If the Mott Foundation is the only funder of the project or provides substantial partial funding (one-third or more of the total project budget), the commitment letter will state that the grantee must notify the Foundation and receive approval for the addition of new line items to the budget. The commitment letter may also restrict actual expenditures charged to particular line items, such as equipment and indirect costs. The grantee must contact the program officer if it anticipates a problem regarding these line items.
When a new budget is deemed necessary, the grantee should submit the new budget along with an explanation of the reason for the changes to the program officer. Once the program officer has reviewed the new budget, it will be forwarded to Grants Administration. Once approved by grants administration, the program officer will notify the grantee in writing of the approval.
Some reports for multiyear grants require receipt and approval by the Foundation before additional payments can be made. If the grantee needs future payments of grants by certain dates, it should discuss this with the program officer prior to the grant being approved, so the Foundation can determine the proper report/payment schedule to include in the commitment letter. The Foundation prefers that requests for a grant extension or budget revision be addressed in a separate letter, rather than being included in the narrative of the report.
Indirect vs. Direct Costs
Mott Foundation Policy Regarding Indirect Costs
The Mott Foundation does not have a written indirect cost policy. Mott prefers to fund direct project costs, but understands that, particularly with smaller organizations, the recovery of indirect costs is a necessity. The Foundation calculates indirect costs as a percentage of direct project costs. Indirect cost percentages are up to the discretion of the program officer. If the percentage appears reasonable, the Foundation usually approves the inclusion of indirect costs in the budget.
If indirect costs exceed 20 percent of direct costs, the program officer will pursue the matter with the grantee. If the grantee can provide justification for the amount, it may be accepted and the grant approved. If the grantee’s explanation is insufficient to justify the higher rate, the grantee will be notified that its grant request may not be approved.
Indirect vs. Direct Costs
Direct costs are those for activities or services that benefit specific projects, e.g., salaries for project staff and materials required for a particular project. Because these activities are easily traced to projects, their costs are usually charged to projects on an item-by-item basis.
Indirect costs are those for activities or services that benefit more than one project. Their precise benefits to a specific project are often difficult or impossible to trace. For example, it may be difficult to determine precisely how the activities of the director of an organization benefit a specific project.
It is possible to justify the handling of almost any kind of cost as either direct or indirect. Labor costs, for example, can be indirect, as in the case of maintenance personnel and executive officers; or they can be direct, as in the case of project staff members. Similarly, materials such as miscellaneous supplies purchased in bulk — pencils, pens, paper — are typically handled as indirect costs, while materials required for specific projects are charged as direct costs.
Costs usually charged directly
- Project staff
- Project supplies
Costs either charged directly or allocated indirectly
- Telephone charges
- Computer use
- Project clerical personnel
- Postage and printing
- Miscellaneous office supplies
Costs usually allocated indirectly
- Audit and legal
- Administrative staff
- Equipment rental
In-kind contributions include materials, equipment or services that are given without charge to the program or organization. These items should not be included in the budget of cash revenues and cash expenditures submitted with proposals to the Foundation. However, in-kind contributions should be noted in the project budget narrative. The final accounting on the grant must report against the approved budget submitted with the proposal and the actual cumulative expenditures since the start of the grant. In order to determine if all sources of funds were disbursed, actual cash expenditures are compared with actual cash revenues received; in-kind contributions are excluded from this calculation in determining if a refund is due to the Foundation.
The Foundation may grant funds to an organization for payment entirely or in part to one or more organizations that are selected “completely independently” by the grantee organization. For those organizations re-granting with Mott funds, see the USA PATRIOT Act and Re-granting Compliance page for additional information and requirements.
Additional procedures are necessary for grantee organizations that:
- Are classified as the foreign equivalent of a private foundation.
- Are for-profit organizations [those not exempt under Section 501(c)(3) as its foreign equivalent, or as a governmental entity].
In these cases, the grantee must comply with expenditure responsibility rules. Once this requirement has been imposed on the grantee, the Foundation’s own expenditure responsibility is fulfilled (as long as appropriate monitoring is conducted).
A grant to an organization may include the purchase of capital equipment, which generally includes such items as computers, office furniture and other like items. Books purchased to enhance a library may also be considered capital equipment. On the other hand, office supplies and other consumable items are not generally considered capital equipment. Books purchased for limited research purposes are not considered capital equipment.
The designation of grant funds for the purchase of capital equipment presents no additional requirement if the grantee organization is one for which the Foundation is not required to exercise expenditure responsibility. However, if the grant is to an expenditure responsibility grantee organization, the Foundation may be required to obtain additional reporting with respect to the use of the capital equipment.
Occasionally the Foundation will make a grant to encourage a grantee organization to broaden its base of support by requiring that the grantee match all or a part of the Foundation’s grant. The grantee is required to match Foundation funds at a fixed rate (e.g., $1 of Foundation funds is matched by $2 raised by the grantee). In most cases, the Foundation asks that the matching requirement be met by cash contributions, not pledges. Payment by the Foundation is contingent upon the grantee submitting verification in writing of the source, date and amount of the matching contribution.
Proposals should contain four basic budget elements:
- Itemized budget for the entire project (or for the amount requested) including all revenue sources known to date.
- Budget justification showing how each budget line item relates to the project and how the budgeted amount was calculated.
Budgets are generally broken down into two main sections: personnel costs and non-personnel costs. Salaries and benefits should include all staff salaries allocated to the project. Each position and percentage of time devoted to the project should also be identified. Contracted services, including an estimation of the hours and hourly rate, should be listed separately from salaries. Supporting detail should also be provided for all other major non-personnel line items.
Preferred Budget Format
The Mott Foundation prefers to see budgets classified by object (salaries, consultants, travel, printing, etc.) rather than by function (planning, training, conferences, evaluation, etc. or Phase I, Phase II, Phase III). See the Budget Examples.
Often times, budgets are submitted that include columns for various funders (including one for the Mott Foundation) along with a total column. The Foundation tends to provide funding for the total project rather than have its funds be designated for just a portion of the budget. This usually provides more flexibility for potential grantees. However, some grantees’ accounting systems are structured so that they have a difficult time reporting the total project and can provide information only for one particular funder. It is important that the Foundation and the grantee come to an agreement on how the financial reports will be presented so the Foundation obtains the information it needs and the preparation of the report is not over-burdensome to the grantee organization.
Sample budgets can be used as examples for grantees to follow when preparing their general purpose or specific project budgets. Please note that these are samples only; this format is not required. Grantees should submit budgets that are the easiest for them to develop and monitor, keeping in mind that financial reports that are submitted to and approved by the Foundation are based on project budgets. (See also Multiyear Grant Issue in the Accounting section.)
Grant Acceptance and Payments
After a grant has been approved, an original commitment letter and one copy are mailed to the grantee. The grantee should keep the copy for its files and return the original, with an original signature, to the Foundation as proof that it agrees to comply with the terms and conditions of the grant. The Foundation refers to this as the acceptance letter.
All recognizable acceptance letter envelopes are forwarded to grants administration for processing. The grantee signature is examined to 1) verify that it is an original signature and 2) that it is a signature of a properly authorized officer of the grantee organization.
Grant payments will be made only after the Foundation receives the properly executed acceptance letter back from the grantee. Multiyear grants generally require the submission and approval of interim reports before subsequent payments can be made.
The Foundation generally processes grant payments every two weeks, on Tuesdays, with wire transfers being effective the following Friday. However, the exact dates of the check runs vary according to staff schedules. The commitment letter contains projected payment dates. The grantee should contact its program officer or review the grantee toolbox to learn when a payment will be processed. The Foundation sends payments by regular U.S. mail for all domestic grantees and uses express delivery service for foreign grantees that are not able to accept wire transfers. Foreign grantees must complete the wire transfer form that is mailed with their commitment letter and return it to the Foundation with their acceptance letter. This form provides the Foundation with all the necessary banking information for processing the wire transfer. (A copy of the form is available in the forms section of the Grantees Resources.)
Grantee Reporting Overview
Mott Foundation grantees are required to submit periodic progress reports on the status of grants provided by the Foundation. For multiyear grants, some reports are required before additional payments can be made. All required reports are listed in the commitment letter. This section provides background on the requisite components of the report and links to sample report formats.
Narrative and Financial Progress Reports
The Foundation requires grantees to provide periodic progress reports on both the financial and programmatic status of their grants. Mott has developed standard reporting forms that are sent with all project support commitment letters. The narrative section of the report helps monitor the grantee’s progress toward the project objectives and provides an important measure of accountability for the grantee. The financial section of the report allows Foundation staff to monitor the grantee’s progress based on the project budget vs. actual expenditures and funding received.
For most multiyear grants, the Foundation must approve interim reports before releasing the next payment of the grant.
The Foundation requires that domestic private foundations and foreign organizations treated as private foundations submit a “Redistribution Statement” periodically to comply with IRS regulations. These forms are used to verify that the organization has complied with the “out-of-corpus” rules associated with expenditure-responsibility grants.
Out-of-corpus means that the organization is required, during the fiscal year of the grant, to make expenditures equal to or greater than 1) the full amount of the grant 2) plus 5 percent of the value of the organization’s investment assets (the value of investment assets is defined as the value as of the previous fiscal year). If the organization does not have investment assets, as is the case with many foreign operating foundations, then item 2) above is not applicable and can be treated as having been met. Submission of the “Redistribution Statement” will be outlined in the grant agreement. Grantees are encouraged to contact their program officer if they have questions regarding this requirement.
Special reporting requirements also apply to expenditure-responsibility grants that involve re-granting of Mott Foundation funds to sub-grantees. These reporting requirements will be listed under the “Reports” section of the grant agreement.
Financial Reporting Guidelines
Grantee project support reports must include the following:
- Actual cumulative expenditures against the total approved cumulative budget that is referenced in the commitment letter. If the total approved budget includes other funders, the grantee must report on all expenditures and funding received.
- Details of the other funding for the project (source, amount and grant period).
- Line items presented in the approved budget.
- Clear explanations for line items that vary from the approved budget.
Grantees outside the United States may submit reports in their local currency.
For general purposes grants, an organization may submit a non-U.S organization financial report (unaudited), a copy of its audited financial statements or IRS Form 990 for the fiscal year that falls within the reporting period.
Non-U.S. Organizations Overview
In order for the Mott Foundation to make a grant to a non-U.S. charitable organization, certain rules and procedures must be followed. We must determine that foreign grantees would qualify as a public charity in the United States. Mott makes this determination based on a document, which is referred to as the “affidavit packet.” The affidavit packet requires that various organizational documents be submitted by the prospective foreign grantee. Organizations regranting Mott Foundation funds are also required to complete and submit special forms. This section provides information that may be required from foreign grantees.
Note: All correspondence for grantmaking related to Central and Eastern Europe should be sent to the Foundation’s home office in Flint, Michigan.
The Internal Revenue Service (IRS) ruling known as Revenue Procedure 92-94 offers a simplified affidavit procedure that allows private foundation grants to be made to organizations outside the United States. Foundations follow this procedure in order to determine whether a foreign grantee is equivalent to a United States 501(c)(3) public charity or private foundation under U.S. tax law. Procedure 92-94 involves the review and reliance on an affidavit provided by the foreign organization requesting the grant.
Click here to view a chart that helps explain why the information in the affidavit form is requested.
To meet the first part of the two-part equivalency test, a grantee must provide sufficient information to demonstrate that it is organized and operated exclusively for charitable, educational or other exempt purposes — that is, the equivalent of a 501(c)(3) exempt organization in the United States. For this reason, the affidavit procedure requires that the grantee confirm in the affidavit that:
- It is operated exclusively for specified charitable purposes.
- Its country’s laws and customs, or its governing documents, do not permit substantial noncharitable activities or lobbying.
- Either its country’s laws and customs, or the organization’s governing documents, prohibit any direct or indirect intervention in a political campaign.
- Its country’s laws and customs, or the organization’s governing documents, do not permit any of its assets or income to benefit a private person.
The affidavit procedure also requires that the grantee provide English-language copies of its charter, articles of incorporation, bylaws and other governing documents. This requirement mandates that the Foundation obtain copies of the grantee’s organizational documents.
Finally, to ensure that the grantee is organized and operated exclusively for charitable purposes, the affidavit procedure requires the following:
- Affirmation that its assets will be distributed on dissolution to another nonprofit organization for charitable or other exempt purposes or to a government instrumentality.
- A copy of the relevant statutory law or provisions in the grantee’s governing instruments controlling the distribution of the organization’s assets on liquidation.
Requiring the grantee to provide this information via the affidavit procedure allows the Foundation to determine that the grantee’s assets will be distributed to another charitable organization for exempt purposes upon dissolution.
The Foundation may be asked on occasion to make a general purposes grant to a foreign grantee that does not have an acceptable dissolution clause in its governing documents and is located in a country in which the law is unclear on this point. In such cases, the Foundation cannot make the grant.
The second part of the equivalency test involves completion of a public support schedule and major donor support schedule that are attached to the affidavit. In those schedules, the organization details the sources of its support over the last four years (or such shorter period that the organization has been in existence). The Mott Foundation uses the schedules to determine whether the organization is equivalent to a public charity or a private foundation in the United States. See the Affidavits FAQs for more details.
|What the affidavit asks for||Why the information is necessary|
|The purposes for which the grantee was organized.||To determine whether the grantee is organized exclusively for purposes within the scope of Section 501(c)(3).|
|A description of the grantee’s past, current and future activities and operations.||To determine whether the grantee is operated primarily for Section 501(c)(3) purposes.|
|A copy of the grantee’s organizational and governing documents.||To determine whether the grantee is organized exclusively for Section 501(c)(3) purposes.|
|A statement that none of the grantee’s income and assets confer an improper private benefit.||To determine that the grantee complies with Section 501(c)(3)’s prohibition against private benefit.|
|A statement that no person has a proprietary interest in the income or assets of the grantee.||To determine that the grantee complies with Section 501(c)(3)’s ban on private inurment.|
|A copy of the relevant statutory law or provision in the grantee’s governing instruments controlling the distribution of the grantee’s assets upon dissolution.||To determine whether the grantee meets the requirements of Section 501(c)(3) regarding the distribution of assets upon dissolution.|
|A statement that the grantee is not engaged, beyond an insubstantial amount, in activities that further non-exempt purposes or in influencing legislation.||To determine that the grantee complies with the operational test and other limitations on activities set forth in Section 501(c)(3).|
|A statement that the grantee does not engage in candidate campaign activity.||To determine that the grantee complies with the ban on candidate campaign activity set forth in Section 501(c)(3).|
|Whether the grantee is controlled by another organization and, if so, what organization.||To determine whether the grantee is controlled by a for-profit entity (which can lead to stricter scrutiny by the IRS) or is controlled by the American grantor charity (which results in stricter requirements under Rev. Proc. 92-94 for a “currently qualified” affidavit).|
|A statement of what type of publicly supported charity the grantee is: a school, a hospital, a church, or an organization satisfying one of the public support tests.||To determine what public charity standard to apply: the statutory and regulatory tests for school, hospital, or church status, or the mathematical public support tests of Sections 170(b)(1)(A)(vi) or 509(a)(2).|
|If the grantee is a school, whether it is operated pursuant to a racially nondiscriminatory policy as to students.||To determine whether the grantee meets the requirements imposed by various Revenue Procedures on domestic organizations seeking public charity status as educational institutions.|
|If the grantee claims to meet a public support test, a Public Support Schedule for the four most recently completed fiscal years.||To determine whether the foreign charity satisfies one of the public support tests:
Mott Foundation funds may not be used for lobbying activities. In general, lobbying consists of communications — either to a legislator or to the general public — intended to influence specific legislation.
What is lobbying?
The income tax regulations divide lobbying into two categories of communications — direct and grassroots.
Direct lobbying is defined as any attempt to influence legislation through communications with:
- Any member or staff of a legislative body; or
- Any government official or employee (other than a member or employee of a legislative body) who may participate in formulating legislation, but only if the principal purpose of the communication is to influence legislation.
Direct lobbying also includes attempts to influence the general public on a measure that is the subject of a ballot initiative, referendum or similar process; in that case, the general public is deemed to be the “legislator.”
To be considered direct lobbying, a communication must:
- Refer to specific legislation; and
- Reflect a view on the legislation.
The term “specific legislation” includes both legislation that already has been introduced and specific legislative proposals that your organization either supports or opposes, even if no actual legislation has been introduced. For a ballot proposal or referendum that will be submitted to the voters, a proposal becomes specific legislation as soon as the first petition is circulated among voters in order to gather the signatures necessary to put the measure on the ballot.
Examples of direct lobbying include:
- Meeting with legislators or their staff to discuss specific legislation.
- Drafting or negotiating the terms of a bill.
- Discussing potential contents of legislation with legislators or staff.
- Meeting with officials of the executive branch to influence testimony on a legislative proposal.
- Urging a Presidential or gubernatorial veto.
Grassroots lobbying is an attempt to influence legislation by influencing public opinion.
To be considered grassroots lobbying, a communication must:
- Refer to specific legislation;
- Reflect a view on the legislation; and
- Encourage the recipient to take action with respect to such legislation — that is, it includes a “call to action.”
A “call to action” communication includes any one or more of the following:
- The communication states that the recipient should contact (1) a member or employee of a legislative body, or (2) any other government official or employee who may participate in the formulation of legislation, if the principal purpose of the contact is lobbying (direct call to action).
- The communication states the address, telephone number or similar information of a legislator or an employee of a legislative body.
- The communication provides a petition, tear-off postcard or similar material for the recipient to communicate with any such individual (direct call to action).
- The communication specifically identifies one or more legislators who will vote on the legislation as (1) opposing the organization’s view with respect to the legislation, (2) being undecided with respect to the legislation, (3) being the recipient’s representative in the legislature, or (4) being a member of the legislative committee or subcommittee that will consider the legislation. However, merely naming the main sponsors of the legislation for purposes of identifying the legislation does not constitute encouraging the recipient to take action (indirect call to action).
Examples of grassroots lobbying include:
- An action alert urging recipients to contact their legislators about a pending bill.
- Attending a coalition meeting to help plan a grassroots lobbying communication addressing a pending bill.
The following are exceptions to lobbying and are not considered lobbying activities under the income tax regulations. Therefore, Mott Foundation grant funds may be used for the following:
- Nonpartisan Analysis, Study or Research. The communication must be nonpartisan — contain a “sufficiently full and fair exposition of the pertinent facts to enable the recipient to form an independent opinion or conclusion.” The communication must also be widely distributed (not only to persons interested in one side of the issue). Finally, the communication may not include a “direct call to action.”
- Technical Advice or Assistance must be made to a government body, committee, or subdivision of either. The communication must be in response to a written request by such body. The communication must be made available to every member of the body. Opinions are acceptable as long as specifically requested by the body or related to materials requested by the body
- Organization Self-Defense is a communication with a legislative body or an individual legislator. It must be regarding one of four areas: existence of the organization; powers and duties of the organization; tax-exempt status of the organization; or deductibility of contributions to the organization. By contrast, a communication supporting the organization’s programs or mission generally will not qualify as self-defense.
- Examination of Broad Social Issues is a communication regarding a general subject, which may also be the subject of specific legislation. The communication cannot address the merits of a specific legislative proposal. It also cannot involve a direct call to action.
USA PATRIOT Act and Re-granting Compliance Overview
Pursuant to the provisions of Executive Order 13224 and the USA PATRIOT Act, the Charles Stewart Mott Foundation requires all organizations doing re-granting with Mott funds to check the terrorism watch lists issued by the U.S. government and to refrain from providing financial or material support to any listed individual or organizations. (See your Mott grant agreement for this requirement.)
The list-checking requirement applies to our grantees — in the United States and abroad — that make their own grants to other individuals or organizations, using proceeds of the Mott grant. As explained in the “Distinguishing between ‘grants’ and ‘contracts for services’” section, grantees who only subcontract with Mott funds are generally not required to list-check their contractors.
This section of the Grantee Resources also contains a brief background on the counter-terrorism measures adopted after September 11, 2001, our compliance procedures, what re-grantors need to do, further resources and software products to enable compliance, frequently asked questions, and a glossary of terms.
Because of the manner in which the lists are created and maintained and the similarity in names or portions thereof, the Foundation recognizes there can be mistakes on the list or the list-checking can create false positives. The Foundation is committed to working with its grantees to address any issues that may arise during the list-checking process.
If you have any questions about the Foundation’s process or your responsibility under the terms of the Grant Agreement, grantees should contact their program officer or use the feedback link at the bottom of this page.
Remember that this area is complex and rapidly evolving. While we intend to update this section of the Grant Resources from time to time, this area — and Mott’s own compliance procedures and requirements — may change without being promptly reflected in the Grant Resources.
Background on Counter-Terrorism Measures
The threat of terrorism is a concern shared around the globe. Nonprofits and grantmakers of all types are committed to ensuring that funds do not go to support violence and/or terrorist activities, and recognize that increased vigilance is justified.
Soon after the terrorist attacks of September 11, 2001, President George W. Bush declared a national emergency and issued Executive Order 13224, “Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism.” The following month, Congress passed and the President signed into law the USA PATRIOT Act (“Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001”).
The Executive Order freezes all property and interests in property of certain “persons” (both individuals and organizations) identified as terrorists or otherwise associated with terrorism. The Executive Order also prohibits any transactions involving such persons or their property or property interests. Prohibited transactions include “any contribution of funds, goods or services to, or for the benefit of, [specifically listed persons].” In addition to its ban on transactions with specifically listed persons, the Executive Order prohibits transactions with, and freezes assets of, unnamed persons who “assist in, sponsor, or provide financial, material or technological support for, financial or other service to or in support of, such acts of terrorism or [listed persons]” or are “otherwise associated with” specifically listed persons.
Title 18 of the U.S. Code already included criminal sanctions for persons who provide material or financial support for terrorism and for foreign terrorist organizations (FTOs) in particular. The USA PATRIOT Act supplements these existing provisions, enhancing criminal penalties and expanding jurisdiction over the crime of providing support for terrorism. The provisions of Title 18, as amended by the USA PATRIOT Act, include “persons” (including, again, both individuals and organizations) known or suspected to be engaged in terrorism. Further, the relevant provisions of Title 18, as amended by the USA PATRIOT Act, impose fines and terms of imprisonment of up to 15 years for any entity that provides material support or resources knowing or intending that they be used in terrorist acts or by FTOs. Title 18 also provides a specific civil cause of action against those who violate the criminal prohibitions against providing support for terrorism.
“Persons” or “listed persons” are designated on watch lists of individuals and organizations issued by the U.S. government, the European Union, the United Nations, and other governments and/or governmental bodies. The U.S. government lists have been consolidated and are being maintained by the Office of Foreign Assets Control (OFAC) at the Department of the Treasury. This list is typically referred to as the “OFAC SDN” list (“SDN” refers to “specially designated nationals and blocked persons”). All of these lists can be found online.
The Council on Foundations has posted a Handbook on Counter-Terrorism Measures: What U.S. Nonprofits and Grantmakers Need to Know on its website. The handbook is an excellent resource, written in plain language, on the laws, regulations and enforcement measures put in place in the post-September 11, 2001, environment. Please review this resource for additional information.
Mott’s Compliance Procedures
In addition to program officer, grants administration and management due-diligence procedures, Mott is complying with the provisions of the Executive Order and USA PATRIOT Act by:
- Cross-checking contact and organizational information in our grants database with OFAC-SDN terrorism watch lists (list-checking); and
- Adopting changes to our grant agreement.
First, in order to perform the required list checking, we purchased software from LexisNexis. Bridger Insight is a cumulative tracking solution using data lists required by the Executive Order and USA PATRIOT Act. It is customizable, fast, and has the ability to check names individually or in batch. The software creates and maintains clear audit trails and allows the Foundation to compile and print detailed reports. On legal counsel’s advice, we are crosschecking our grants database with Bridger Insight prior to each bi-weekly check run and once a month for all open grants. We cast a broad net, checking all contacts and organizations affiliated with either the request or the organization.
Second, on legal counsel’s advice, we have changed our grant agreement to include prohibitions against violence or terrorist activities and re-granting (unless re-granting is specifically approved in the grant budget). Legal counsel has advised us to require all approved re-granting organizations to check the terrorism watch lists and refrain from providing financial or material support to any listed individual or organization.
The Mott Foundation’s step by step list-checking process
- Using a database utility developed internally, we export a file listing organization and contact names appropriate for the crosscheck we are performing (pending payments and open grants).
- We launch our list-checking software (Bridger Insight), verify the government watch lists are up to date, and execute a scan of the export file.
- Any “hits” are reviewed and documented as either a false positive or true positive.
- Any matches (true positives) are likewise reviewed and documented. A hold is placed on the pending transaction with the grantee, and program staff is contacted to notify the grantee and seek clarification. Thus far, we have not encountered a match.
What re-granting organizations need to do
We ask organizations re-granting with Mott funds to comply with the provisions of the Executive Order and USA PATRIOT Act by:
- Cross-checking contact and organization information in their grants databases or grants listings with the OFAC-SDN terrorism watch list (see list-checking steps below); and
- Adopting changes to your grant agreements with your grantees to include prohibitions against violence or terrorist activities and re-granting.
- Permit the Mott Foundation to have access to your files and records for the purpose of verifying and documenting your organization’s list-checking procedures.
Step by step list-checking process for grantees
- For each grantee, check the organization name and address, primary project contact name, and primary organization contact name with the official terrorism watch list. The primary organization contact should be the individual that signs your grant agreement.
- Check the official terrorism watch list — The Specially Designated Nationals (SDN) List — prior to each payment processing.
- Any “hits” should be reviewed and documented as either a false positive or true positive. Your organization should take reasonable measures to confirm the identity of a “hit.” This may include, but is not limited to, (1) confirming the organization’s name and address by checking its governing documents, registration document, GuideStar tax status (U.S. organization), Form 990 or 990-PF (U.S. organization), and its employer identification number (U.S. organization); or (2) confirming the individual’s name, address, and identification number (if any) by checking his/her passport, driver’s license, or other identification.
- Any matches (true positives) should likewise be reviewed and documented. A hold should be placed on the pending transaction with the sub-grantee, and staff should contact the organization and seek clarification.
Distinguishing between “grants” and “contracts for services”
Mott has concluded that contracts for services or products generally do not present the same risk of diversion of funds to support terrorism as do outright grants. Therefore, the key is to distinguish between a “grant” and a true “contract for products or services.”
It is not always possible to distinguish between a grant and a contract for products or services. In those uncertain areas, prudent judgment is necessary. If there is doubt as to whether a particular payment is, or is not, subject to the list-checking requirement, the prudent approach would be to perform the list-check.
Grants primarily benefit a particular grantee by furthering the grantee’s own exempt purposes and programs. A grantor’s involvement with a grant generally is limited to grant administration and monitoring.
In contrast, a contract for services primarily benefits the payor’s own program directly, although the recipient of the contract payments may receive incidental benefits in addition to compensation for services (that is, use of the report or study for its own purposes). Usually there will be some direct tangible benefit, such as a report or study that is given to the payor. Common examples of contracts for services involve hiring consultants or other resource persons to prepare a report for the payor. The payor also may maintain some significant, direct involvement in the activities funded by a contract for services — for example, the right to review the work done, make suggestions, and the like.
Examples of grants
A. To organizations
- A payment to a Code section 501(c)(3) organization (or its foreign equivalent) to enable that organization to fulfill its own charitable purposes.
- A program-related investment (for example, a below-market rate loan) to a for-profit business to induce the business to locate in an impoverished area and employ minority, unemployed, and/or underemployed individuals.
- A payment to a municipality or other governmental unit to enable it to fulfill some public purpose.
B. To individuals (see your Mott grant agreement for possible restrictions on grants to individuals):
- A payment to an individual for travel, study, or similar purposes.
- A payment to an individual in the form of a prize or award recognizing a past accomplishment.
- A payment to an impoverished individual for food, clothing, housing, or transportation (for example, to enable the individual to get to and from work).
Examples of payments that are not grants
On the other hand, if a payment is made to an organization or individual to perform a service or to deliver some product to the Foundation or to the payor organization, the payment is not a grant. Some examples of payments that are not grants include:
- A payment to an individual or organization to prepare a research report for the payor, which the payor will own and use in its own activities.
- A payment to an individual to teach a class at a seminar or conference the payor is presenting.
- Payments for legal or accounting services performed for the payor.
The expenditure responsibility rules (that is, the U.S. federally mandated procedures that a private foundation must follow for any grant made to an organization that is not an IRS-recognized public charity) apply to grants, and provide an instructive definition. Not every payment made to individuals and other organizations is a grant. Treasury regulation section 53.4945-4(a)(2) defines grants as follows:
“Grants” defined. For purposes of section 4945 of the Internal Revenue Code of 1986, as amended (the “Code”), the term “grants” shall include, but is not limited to, such expenditures as scholarships, fellowships, internships, prizes, and awards. Grants shall also include loans for purposes described in Code section 170(c)(2)(B) and “program related investments” (such as investments in small businesses in central cities or in businesses which assist in neighborhood renovations). Similarly, “grants” include such expenditures as payments to exempt organizations to be used in furtherance of such recipient organizations’ exempt purposes whether or not such payments are solicited by such recipient organizations. Conversely, “grants” do not ordinarily include salaries or other compensation to employees. For example, “grants” do not ordinarily include educational payments to employees which are includible in the employees’ incomes pursuant to Code section 61. In addition, “grants” do not ordinarily include payments (including salaries, consultants’ fees and reimbursement for travel expense such as transportation, board, and lodging) to persons (regardless of whether such persons are individuals) for personal services in assisting a foundation in planning, evaluating, or developing projects or areas of program activity by consulting, advising, or participating in conferences organized by the foundation.”
Mott decided to distinguish between grants and contracts for products and services for several reasons:
- Many contracts involve the routine purchases of products [such as office supplies and equipment] and services [such as accounting, travel, or financial services] that involve little, if any, risk of diversion of funds to terrorist organizations or for terrorist purposes. In Mott’s view, the burden of list-checking all such contracts far outweighs whatever limited benefit list-checking might provide.
- As noted above, contracts, as opposed to grants, generally require the contractor to produce some specific work product or service for the payor, often at a contract price that is negotiated or which is set by the market for such products or services. Mott therefore concluded that this limitation on how the contractor spends the payor’s funds greatly reduces the opportunity for the contractor to divert funds to improper purposes.
- Finally, unlike the case with grants, most contracts involve some supervision or control by the payor over the expenditure of funds by the contractor [and on the ultimate product or service]. This again reduces the opportunity for an improper diversion of funds.
Still, as noted earlier, the line between a grant and a contract can sometimes be blurry and some contracts may represent some or all of the same risks presented by grants. Consider, for example, a contract with a public charity for the conduct of long-term project evaluation or study, where the organization often engages in project evaluations [for others] within its field of interest, sometimes using grant funds and sometimes on a contract basis. Therefore, Mott reserves the right in a particular case to require a Mott grantee to list-check a contractor [or to take other appropriate steps to assure funds paid to the contractor are not diverted].
Under applicable IRS rules and regulations, payments by a foundation to third parties for travel, lodging, and tuition (and reimbursements for these purposes) are typically considered grants. When a Mott grantee makes such payments to or on behalf of third party individuals or organizations using Mott funds, the payments normally would be considered re-grants by the Mott grantee. Thus, they would ordinarily be subject to the list-checking requirement. We believe that, under certain circumstances, payments for travel, lodging, and tuition expenses may qualify for an exception to the list-checking requirement. However, the exception to the list-checking requirement must have our approval. Therefore, please contact your Mott program officer for further information.
Glossary of Terms
- False positive — The “hit” of an individual or organization turns out not to be an exact match with any of those contained in an official terrorism watch list.
- Hit — An apparent match of the name of an individual or organization that is affiliated with a grantee or sub-grantee with one of those contained in an official terrorism watch list.
- True positive — The “hit” of an individual or organization turns out to be an exact match with one of those contained in an official terrorism watch list.
- List-checking — Cross-checking contact and organizational information with the OFAC-SDN terrorism watch list.
This section provides links to additional information and compliance requirements relating to the USA PATRIOT Act.
- USA PATRIOT Act
- Executive Order 13224: Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism
- U.N. Security Council Resolution 1373 (2001)
- United States Department of the Treasury:
- U.S. Department of State Terrorist Exclusion List (TEL)
- Handbook on Counter-Terrorism Measures: What U.S. Nonprofits and Grantmakers Need to Know
- United States International Grantmaking
There are a number of vendors offering software products to help you comply with Executive Order 13224, USA PATRIOT Act, and other laws and regulations. Depending on the nature of the purchasing organization or company, there is a sliding scale for the annual subscription fee. For most nonprofits, the annual subscription fees would be less than $1,000. However, if you only have one or two grantees, there are a few search options available to check the OFAC-SDN list directly.
- patriotAGENT — This easy-to-use web application accepts single entry or batch searches and has user-friendly reports that are archived. It is priced in the mid range, and it is available with annual contracts that include instructor-led training.
- ISTwatch© Online — This online application is competitively priced and has a pay-as-you-go pricing structure. Good for checking fewer than 500 names, it has a less polished user interface and reports. A free demo is available.
- WatchDog Pro — Designed for large batches, this application has an intuitive interface and navigation. Search history and reports are retained. This application is very savvy but has a higher price tag and is geared towards enterprise-level and large searches of data.
- Bridger Insight — This is an easy to use interface to run single entry and batch searches. It is especially effective if you need to check multiple watch lists. Search history and reports are retained. Online training materials are available.
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