Expenditure Responsibility PLUS
Expenditure Responsibility PLUS (ER PLUS)
Expenditure Responsibility (ER) enables U.S. private foundations and donor-advised funds to make compliant grants to non-501(c)(3) recipients through structured oversight. It requires a Pre-Grant Inquiry, a written grant agreement specifying charitable purposes and prohibited uses, ongoing grantee reporting until funds are expended, and grantor reporting to the IRS, preventing taxable expenditures.
- Regulatory compliance: Satisfies IRS requirements through mandatory inquiry, agreement terms, grantee reporting, and IRS disclosure.
- Broad accessibility: Available when equivalency determination isn’t feasible, covering foreign organizations without IRS recognition and domestic non-501(c)(3) entities.
- Project accountability: Ensures grant-specific tracking through binding agreements and monitoring reports, with required grantor oversight.
The ER PLUS SERVICE
Paragon’s ER PLUS service delivers a complete, end-to-end framework to support compliant, well-documented cross-border grantmaking under U.S. expenditure-responsibility rules. Designed for funders seeking both procedural rigor and practical protection, ER PLUS combines all required IRS steps with enhanced risk-screening and verification safeguards to help clients protect charitable assets, reduce exposure to fraud or diversion, and maintain clear, audit-ready records from start to finish:
- Expenditure Responsibility (ER) Pre-Grant Inquiry (see steps below)
- Expenditure Responsibility report collection and review (see steps below).
- “PLUS” services deliver a targeted set of safeguards: anti-terrorist financing screening, facilitation of grant agreement signatures when required, re-verification of wire instructions, and an updated review of basic foreign country requirements. By combining these steps into one service, PLUS helps clients protect charitable assets, reduce the risk of fraud or diversion, and maintain audit-ready documentation.
1. ER Pre-Grant Inquiry
Paragon conducts a structured, analyst-led Pre-Grant Inquiry to evaluate whether a proposed grantee appears capable of using grant funds exclusively for the purposes of the grant, in line with IRS expenditure-responsibility requirements. The process includes:
- Collect and review documentation: Obtain key organizational, governance, and financial documents from the grantee and assess their completeness, authenticity, and alignment with the purpose of the grant.
- Assess organizational and financial integrity: Evaluate registration status, governance, management capacity, financial health, and project feasibility using Paragon’s standardized ER Pre-Grant Inquiry Summary form.
- Identify and manage special circumstances: Review for factors such as scholarships and prizes, aid to individuals, capital expenditures, endowments, or re-granting; flag any issues involving lobbying, electioneering, or potential donor control.
- Integrate compliance and risk checks: Confirm watchlist clearance through Paragon’s Anti-Terrorist Financing Screening (ATFS) and verify any relevant foreign-country requirements for receiving cross-border grants.
- Deliver ER Pre-Grant Inquiry Package: Provide the client with a complete, audit-ready package summarizing findings, supporting documentation, and Paragon’s assessment of whether the grantee is reasonably likely to use grant funds solely for the specified grant purposes.
Deliverable: ER Pre-Grant Inquiry Package
Paragon provides the client with a complete, audit-ready ER Pre-Grant Inquiry Package summarizing all documentation reviewed, findings, and factual assessments. The package includes the completed ER Pre-Grant Inquiry Summary Form, supporting organizational and financial materials, watchlist and country-requirements checks, and Paragon’s concise summary of findings on the grantee’s capacity, governance, and program alignment. This documentation enables the client to demonstrate compliance with IRS expenditure-responsibility requirements and to make an informed determination about whether to proceed with the proposed grant.
2. ER Reporting
Paragon oversees the full expenditure responsibility reporting cycle, ensuring that grantees submit clear, accurate, and compliant reports on the use of grant funds. Using Paragon’s standardized Annual and Final Report templates, grantees document both narrative progress and detailed financial expenditures by cost category and cost detail. Paragon manages all communication with grantees, provides tailored instructions, and tracks deadlines to ensure timely submission. Upon receipt, Paragon reviews each report for completeness, verifies consistency with the approved grant purpose and budget, confirms that unspent balances and interest are reported, and requests clarifications as needed. Each report is evaluated for factual conformity with expenditure responsibility requirements under IRC §4945, helping clients maintain defensible, audit-ready records for their IRS filings and internal compliance reviews.
Deliverable: ER Reporting Package
Paragon provides the client with a consolidated ER Reporting Package containing the grantee’s submitted annual and/or final reports, supporting financial spreadsheets, correspondence and clarifications, and Paragon’s summary review memo confirming whether the reports meet factual expenditure responsibility standards. The package demonstrates that funds were used as intended, that all required financial and narrative elements were obtained, and that the client’s records are complete for IRS and audit purposes.
All ER services are administrative, risk-screening, and facilitative in nature. Paragon Philanthropy does not provide legal or tax advice.
3. PLUS Service Components
In addition to the core Expenditure Responsibility steps described above, Paragon’s ER PLUS service integrates a suite of targeted compliance safeguards designed to protect charitable assets, mitigate reputational and operational risk, and maintain clear, audit-ready documentation throughout the grant cycle.
Anti-Terrorist Financing Screening (ATFS)
ATFS is Paragon’s baseline anti-terrorist financing screening service. We handle all communications with the foreign grantee; collect and verify core organizational documents; confirm the organization’s current legal registration status; and obtain either a certified list of key staff, board members, founders, controlling entities, and financial institutions, or formal confirmation that no changes have occurred. We verify whether there have been any updates to banking relationships, screen all names and entities against OFAC, UN, EU, UK, FBI, Interpol, and other watchlists, conduct follow-up analysis on any potential matches, secure secondary information from the grantee as needed, and generate a written report with full supporting documentation for your file.
Why
Anti-terrorist financing screening is essential for cross-border grantmaking because funders must ensure that charitable funds are not diverted to organizations or individuals associated with terrorism, money laundering, or other sanctioned activities. Risks can arise at any time due to changes in leadership, board composition, controlling entities, banking relationships, or registration status. Global watchlists (OFAC, UN, EU, UK, FBI, Interpol, and others) are updated continually with new designations. By verifying updates, confirming no changes, and re-screening the grantee before each disbursement, ATFS protects funders against inadvertent transfers to sanctioned entities and provides clear, documented assurance for due diligence and institutional accountability.
Grant Agreement Signatures and Communications
Facilitating signatures on the grant agreement by the grantee and client representatives via DocuSign. Facilitating communications between the grantee and client for any questions that may arise about the grant agreement. Using DocuSign helps ensure signatures are secure, time-stamped, and verifiable, creating a clear record for compliance and audit purposes. This service expressly excludes any legal review or analysis of the grant agreement.
Why
A signed agreement allows the grantor to reaffirm protective language around the charitable use of funds, compliance with anti-terrorist financing and sanctions laws, and adherence to reporting obligations. By requiring grantee and client signatures for each installment, the agreement ensures that funds are disbursed only under updated, enforceable terms, protecting the grantor against misuse, diversion, or reputational risk while aligning with IRS, OFAC, and broader international compliance expectations.
Wire Information and Confirmation of Receipt
This service includes the following steps:
- Securing wire information via DocuSign
- Verbal verification of wire details
- Confirming receipt of funds by the grantee
Paragon compiles these steps into a report, creating a clear record that the payment was authorized, transmitted, and received as intended.
Why
Reconfirming and verifying wire details prior to each payment helps prevent costly errors and fraud, such as misdirected or spoofed wires, and ensures funds are documented as received as intended. By securing wire instructions in writing, verbally confirming no changes, and obtaining confirmation of receipt from the grantee, the client reduces diversion risk and maintains clear, defensible records for compliance reviews.
Basic Foreign Country Requirements Review
This is a three-step review: (i) check the ICNL Civic Freedom Monitor for the relevant country; (ii) review the Council on Foundations (COF) Country Note; and (iii) request that the grantee identify which requirements apply when receiving foreign funding. Because these rules can change between payments, the review reconfirms applicable obligations each time. Information is included only if published by ICNL or COF. For countries not covered by these sources, clients may request Paragon’s Enhanced Foreign Country Requirements Review (EFCR). This review is informational only and does not constitute legal advice.
Why
Reviewing foreign country requirements before each grant payment is important because many jurisdictions impose registration, reporting, or approval obligations on nonprofits that receive foreign funding, and sometimes on U.S. grantmakers as well. Since these rules can change quickly, monitoring them before each disbursement provides an important safeguard. Failure to comply may delay transfers, expose the grantee to penalties, or risk suspension of operations. By consulting authoritative sources (ICNL, COF) and confirming or reconfirming requirements with the grantee, this review provides clients with current reference points on restrictions that may affect a grant’s legality or safety, helping protect both funder and grantee.
Timeline and Delivery
Paragon aims to deliver Expenditure Responsibility (ER) projects efficiently while maintaining accuracy, documentation integrity, and adherence to established Expenditure Responsibility procedures consistent with IRS guidance. Upon receipt of all requested documentation and information from the grantee, ER projects are generally completed within two weeks, depending on project complexity and grantee responsiveness. Timelines may vary if translation, additional verification, or follow-up with the grantee is required. Paragon provides clients with status updates at each stage, from document collection through report delivery, to ensure transparency and predictable completion.
Pairing with Complementary Risk-Based Services
Discounted pricing is available on Paragon’s Four-Tier Due Diligence Framework when paired with Expenditure Responsibility (ER). The framework offers progressively deeper levels of anti-terrorist financing and integrity screening, from a baseline Tier 1 check through to a comprehensive Tier 4 review. This approach enables funders to integrate proportionate due diligence into their broader compliance process at reduced cost. Importantly, ER PLUS already incorporates baseline Anti-Terrorist Financing Screening (ATFS) (Tier 1), ensuring this essential safeguard is automatically included within the equivalency determination package.
Limitations
In assisting Client with ER steps (see Example ER PLUS project, below), Paragon does not provide legal or tax advice. Paragon does not provide an opinion on whether any grant would be considered charitable, but only attests to the facts associated with the grantee and its anticipated and reported use of the grant funds. Paragon follows ER steps approved by the law firm, Silverstein & Pomerantz LLP (S&P). Paragon retains S&P for continued monitoring of Paragon’s standard ER procedures for compliance with expenditure responsibility under IRC § 4945, 26 CFR § 53.4945-5, and any applicable IRS guidance.
Example ER PLUS Project
Below is an example project timeline for an ER PLUS project. All steps are implemented by Paragon unless otherwise specified.
Phase I: Grant Request to Wire Transfer | |
1. Provide Client support | Throughout the process, respond to any Client questions via phone and email and provide status updates as requested. Standard response time: 1-2 business days or sooner. |
2. Obtain documents and conduct initial review | · Obtain from the grantee and review key organizational documents and other information to support the ER Pre-Grant Inquiry. · Coordinate translations as needed (additional fees apply if required) |
3. Screen for special circumstances and obtain relevant backing information | E.g. Scholarships and prizes; Grants for food, shelter, and aid to the poor; Capital expenditures/endowments; Re-granting. Alert client to red flags such as activities potentially related to lobbying or electioneering. |
4. Review special foreign country requirements for international grants | Review requirements in the foreign country affecting incoming cross-border grants, and secure evidence of any applicable registration by the grantee. Alert client to any foreign country restrictions on the operations of civil society organizations of particular concern. |
5. Conduct watch list screening (OFAC SDN and other lists) | Conduct Standard Anti-Terrorist Financing Screening (ATFS) |
6. Transmit ER Pre-Grant Inquiry package to client | Transmit to Client the ER Pre-Grant Inquiry package with our assessment of whether the proposed grantee is reasonably likely to use the grant for the specified purposes. |
7. Review the grant agreement for standard ER language | Conduct a check of the grant agreement (prepared by Client) for standard Expenditure Responsibility language. Note: Paragon does not provide a legal review of any grant agreement. We recommend that final grant agreement language be reviewed by Client’s legal counsel. |
8. Customize the reporting template; enter reporting deadlines for follow-up | · Customize the grant-specific reporting template · Adapt the template for any custom reporting needs · Enter reporting deadlines into Paragon’s system and schedule reminders |
9. Collect grant agreement signatures | Coordinate the collection of signatures on the grant agreement via DocuSign. |
10. Secure wire information | Obtain the grantee’s completed wire information via DocuSign. |
11. Verbally verify wire details | Conduct verbal verification of wire details. |
12. Confirm receipt of funds | Secure confirmation from the grantee that the wire transfer has been received. |
Phase II: Reporting | |
1. Collect and review grantee reports | · Collect reports from the grantee. As needed, request clarifications on expenditures and on the purposes for which funds were used, and secure additional information. · Review grant report(s) for conformity with the factual requirements of the grant, and recommend Client accept the report, or reject it in cases where the report does not meet these requirements. |
2. Provide information to support 990 report (additional fee applies) | Add-on service, upon request: collect and compile information requested by Client’s accountant to facilitate the accountant’s preparation of the foundation’s Form 990-PF expenditure-responsibility reporting. Paragon does not prepare or file tax returns. |
Proven Track Record
Founded in 2012, Paragon has facilitated the vetting of thousands of grantees across more than 100 countries, including higher-risk jurisdictions identified by FATF, the OECD, and Transparency International. Our analyst-led process delivers practical cross-border due diligence and risk screening that evaluates mission alignment, governance, financial controls, sanctions and watchlist exposure, and country risk to help protect funder reputation. We provide structured, defensible documentation to support board oversight and strengthen cross-border giving.