Pass-through entities are organisations that receive grant funding and then distribute it to other delivery partners. They play a vital role in international development, philanthropy, and public sector grant making. Whether acting as lead partners in consortia or intermediaries for funders, these entities carry a unique burden. They must ensure that every pound, dollar, or euro entrusted to them is used effectively, ethically, and in line with the grant’s objectives.
Crucially, the responsibility for managing and safeguarding grant funds does not end when money is passed on. The original recipient remains accountable to the funder for the performance, compliance, and integrity of all downstream partners. This makes grantee due diligence not just a pre-award formality but a strategic and ongoing obligation.
Why due diligence matters for pass-through enities
Due diligence is the foundation of responsible grant management. For pass-through entities, it is essential to understand that they are not simply conduits for funding. They are stewards of public or philanthropic resources and must demonstrate that they have taken reasonable steps to ensure those resources are used appropriately.
Effective due diligence helps to:
- Identify and mitigate financial, operational, reputational, and legal risks.
- Ensure that downstream partners have the capacity and integrity to deliver.
- Comply with funder requirements and audit standards.
- Build trust and transparency across the delivery chain.
Without proper due diligence, pass-through entities risk funding organisations that may misuse funds, fail to deliver outcomes, or expose the funder to reputational harm.
Core components of due diligence
A comprehensive due diligence process typically covers five key areas:
1. Governance and Internal Controls
Assess the leadership, decision-making structures, and ethical standards of the grantee. Look for evidence of fraud prevention policies, safeguarding procedures, whistleblower protections, and board oversight.
2. Financial Health and Systems
Review audited financial statements, internal audits, previous grant audits, risk registers, internal financial controls, procurement practices, and budgeting systems. Ensure that the organisation can manage funds responsibly and deliver value for money.
3. Delivery Capacity and Track Record
Evaluate the organisation’s experience in delivering similar programmes, its staffing and operational capacity, its ability to manage risks and adapt to challenges, and its ability to comply with previous donor funding.
4. Safeguarding, Fraud, and Ethical Standards
Confirm that the organisation has policies and procedures in place to protect vulnerable populations, prevent fraud and corruption, and uphold ethical standards in all aspects of its work.
5. Oversight of Downstream Partners
For pass-through entities, this is a critical area. Assess how the organisation selects, monitors, and supports its sub-grantees (if applicable). Ensure there are mechanisms for oversight, reporting, and escalation of issues.
Tailoring due diligence to the pass-through model
Due diligence should be proportionate to the size, complexity, and risk profile of the grant and the delivery partners involved. Pass-through entities must assess both their own organisation and the sub-grantees they intend to fund.
A risk-based approach is recommended:
- Basic due diligence for low-risk, well-established partners.
- Standard due diligence for medium-risk partners with some history of delivery.
- Enhanced due diligence for high-risk or new partners, or those operating in fragile contexts.
Tools such as checklists, scoring matrices, and document templates can help standardise the process.
Common challenges and how to address them
Pass-through entities often face practical challenges in conducting due diligence, especially when working with smaller or local organisations. These include:
- Limited visibility into sub-grantee operations, especially in remote or insecure areas.
- Capacity gaps in financial management, safeguarding, or compliance.
- Balancing trust and verification, particularly in long-standing partnerships.
To address these challenges, pass-through entities can:
- Provide capacity-building support to sub-grantees.
- Use third-party assessments or certifications
- Embed due diligence requirements into grant agreements and onboarding processes.
- Maintain clear documentation and audit trails.
Case examples
Several UK government departments and international NGOs have developed robust due diligence frameworks for pass-through entities.
For example:
- The Foreign, Commonwealth & Development Office (FCDO) uses a four-pillar framework covering governance, delivery, financial stability, and downstream activity.
- The Freedom Fund applies a three-tiered due diligence model based on risk and partnership type.
- Some funders use external certifications, such as the Core Humanitarian Standard, as part of a streamlined due diligence process.
These models emphasise proportionality, transparency, and continuous improvement.
Due diligence is not a one-off exercise. For pass-through entities, it is a continuous responsibility that underpins effective grant management and protects the integrity of funding. By adopting structured, risk-based approaches and investing in oversight mechanisms, organisations can ensure that funds are used responsibly and that all partners are held to high standards.
At Menzies LLP, we support grant recipients, including pass-through entities, with tailored due diligence frameworks, policy reviews, and independent assessments. Whether you’re preparing for a grant audit, onboarding new delivery partners, or strengthening internal controls, our team can help you meet funder expectations and safeguard your funding. Get in touch with our Grant Audit specialist Chirag to explore how we can support your organisation.
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