Once a charitable foundation bestows a grant of money to a chosen recipient, or “beneficiary,” the foundation’s main defence against misuse/waste of its grant is the individual contractual agreement between foundation and beneficiary. These contracts tend to be idiosyncratic, varying with the specific purposes of the foundation and the grant; thus, they have not been the focus of much academic study. However, scholars have identified informal non-contractual control mechanisms by which foundations guard against misuse of their investment. Such mechanisms arise at three points: in the initial screening of projects, in the decision of how much funding to allocate, and in the contract between the foundation and the beneficiary.

Needless to say, a foundation’s power over its benefciaries’ activities is greatest before it has committed money to them. Foundations can best protect against unsatisfactory use of their grants by awarding grants only to beneficiaries which intend to use the money for projects which the foundation encourages. Screening may be done in two ways. First, foundations can issue public statements on types of programmes they will—or will not—fund. This will prevent
mistaken misuse by recipients, though not fraudulent abuse. Foundations may issue absolute (negative) prohibitions; for example, a clause that no money will be given for personal charity or religious education. Alternately, they may affrmatively announce types of projects that they will fund.

Second, foundations can take a proactive role, by working with promising applicants to propose new projects or defne the goals/parameters of existing ones. A foundation exercises considerable power through its grasp of the purse strings and the manner in which it doles out its grant. Most fundamentally, a foundation can specify what type of expenses it will, or will not, reimburse. Furthermore, foundations can grant themselves more discretion, and retain more of their bargaining power with benefciaries, by disbursing only part of the total projected cost at regular intervals. This allows them to monitor a project to ensure it has not strayed from the desired parameters, and it also encourages benefciaries to meet deadlines and disclose results.

Once the foundation has disbursed some or all of its funding and the benefciary’s project is underway, the foundation may want to continue monitoring progress to prevent misuse of funds or unwanted deviations from the originally-planned project. This supervision can be accomplished through several methods. The foundation can specify in its agreement with the benefciary that its grant is a conditional grant, contingent on specifed uses. An alternate approach is for the foundation to appoint monitors to work with the benefciary throughout the project. This is a common practice for venture capital “foundations” in monitoring the start-up companies which are the benefciaries of their seed capital.

1. What is the primary purpose of the passage?

(A) To describe why it is imperative for charitable foundations to keep a track of the activities of the benefciaries they have funded.
(B) To argue for the creation of more standardised contracts between charitable foundations and their benefciaries.
(C) To explain and support the proactive role certain charitable organisations play in the activities of their benefciaries.
(D) To discuss the different ways in which charitable foundations can control the misuse of their funds by the benefciaries.
(E) To provide an explanation for the seemingly overbearing behaviour of charitable organisations towards their beneficiaries.


2. According to the passage, each of the following is a method used by charitable foundations to control the use of their funds EXCEPT:

(A) making the grant of funds dependent on the fulfllment of certain obligations and deliverables on the part of the benefciary.
(B) explicitly detailing the types of expenditure that they will reimburse or not reimburse.
(C) prohibiting certain types of benefciaries from applying for their funds.
(D) acting as mentors to their benefciaries and guiding them in making appropriate use of the funds.
(E) giving out the total amount of the grant in a staggered manner.


3. According to the various criteria mentioned in the passage, which of the following entities will most probably not be funded by a charitable organisation?

i. An entity that requires the entire amount of the grant to be paid upfront.
ii. An entity that plans to undertake an activity prohibited by the charitable organisation.
iii. An entity that refuses to follow the subsequent instructions of the charitable organisation arising over the course of its operations.

(A) ii only
(B) iii only
(C) ii and iii only
(D) i, ii and iii
(E) i and ii only


4. What is the meaning of the term ‘discretion’ as used in the 3rd paragraph of the passage?

(A) Secrecy
(B) Responsibility
(C) Authority
(D) Credibility
(E) Gullibility