Financial Health & Controls Screen

The Financial Health & Controls Screen gives grantmakers a structured view of a prospective or current grantee’s finances and internal controls, drawn from the grantee’s own documents. Funders request it when they want to know whether readily observable financial or internal control concerns are present before deciding whether deeper review is warranted.

This service looks for observable red flags in how a grantee reports, holds, raises, spends and oversees its money. Its eighteen criteria, applied to the grantee’s audited statements, budget and governance documents, fall into six areas, each tied to a distinct risk to the grant.

Financial position

Reliability of financial reporting

Whether the statements are independently audited, and what the audit opinion says. Every other indicator depends on these figures.

Liquidity and leverage

Reserves, current ratio and leverage. Thin reserves or heavy debt limit the capacity to sustain a program through a setback.

Financial trajectory

Surpluses or deficits and net assets over three years, plus the budget and contingent liabilities. Shows whether the finances are under strain.

Funding and stewardship

Funding concentration

Reliance on one donor, restricted funds and revenue mix. Losing a major funder can put the funded work at risk.

Use of funds

Program spending, fundraising costs and unexplained shifts in spending. Shows whether funds reach the programs.

Financial controls and oversight

Internal controls, from the auditor’s management letter where one exists, plus board oversight and finance staffing. Weak controls let funds be misspent by error alone.

Targeted screening

Financial and Control Indicators

The Financial Health & Controls Screen examines a defined set of documents provided by the grantee using standardized, checklist-based criteria. The grantee provides audited financial statements for the most recent three fiscal years available, governance documents, its operating budget, the auditor’s management letter, its top five donors with annual amounts for those years, its registration certificate, the Organization Information Form, and the titles and bios of its finance staff or contractors. Other materials, such as financial policies or grant budgets, are outside the scope of this service. Review is limited to materials made available by the organization and does not involve independent verification, testing, or third-party confirmation.

The eighteen criteria fall into six areas:

Financial position

Reliability of financial reporting

Audited financial statements: whether three years of statements carry an independent auditor’s report or, failing that, were reviewed or compiled by an independent accountant.
Audit opinion and findings: whether the opinion is modified, qualified, adverse or disclaimed, and whether weaknesses the auditor identified remain uncorrected in later years.

Liquidity and leverage

Operating reserves: unrestricted liquid assets measured against average monthly expenses, and their stability from year to year.
Current ratio: current assets measured against current liabilities.
Leverage: total liabilities measured against total assets.

Financial trajectory

Annual balance: total revenue against total expenses in each of the three years, and any pattern of deficits.
Net assets: the position with and without donor restrictions, and any decline in unrestricted funds.
Operating budget: whether a budget is provided with revenue sources broken out, and whether projected revenue departs from past results or projected expenses exceed revenue.
Legal and contingent liabilities: litigation or potential payouts disclosed in the audit notes, and whether they are quantified.

Funding and stewardship

Funding concentration

Revenue composition: the variety of revenue sources and the clarity of their disclosure.
Top donors: the share of annual revenue from any single donor, based on the grantee’s top five donors over three years.
Restricted funding: the share of revenue subject to donor restrictions.

Use of funds

Program spending: program expenses as a share of total expenses.
Fundraising efficiency: contributions raised measured against fundraising costs.
Income and expense categories: material or unexplained changes from year to year, and whether program, administrative and fundraising costs are broken out.

Financial controls and oversight

Auditor’s management letter: internal control concerns the auditor raises, including limited segregation of duties.
Board financial oversight: whether governance documents require an audit and provide for a treasurer, finance committee or audit committee.
Finance capacity: whether finance, accounting or bookkeeping staff or contractors fit the organization’s budget size and complexity.

This service is intentionally scoped to identify clear anomalies, gaps, or patterns that a prudent funder may consider when deciding whether to proceed, seek clarification, or determine if additional review is appropriate.

Relationship to the Four-Tier Framework

The Financial Health & Controls Screen sits outside Paragon’s Four-Tier Framework by design. The Four-Tier Framework is structured to address terrorism financing risk, sanctions exposure, integrity, governance, ownership, and reputational concerns through proportionate escalation. It does not analyze basic financial controls or an organization’s underlying financial operating reality. This service exists to address that specific and intentional gap.

Where this service identifies concerns, it can inform a funder’s decision about whether escalation to further review, including integrity-focused due diligence, is warranted. It does not, on its own, trigger escalation requirements and does not replace any tier of framework-based review.

Deliverable

Funders receive a written report indicating whether observable financial or internal control red flags were identified based on the documents reviewed. Whether a flag warrants further review is the client’s decision.

Contents

What the Financial Health & Controls Screen Report contains

01Assessment of eighteen criteria

Paragon’s observation on each of the eighteen criteria listed under Financial and Control Indicators above, marked no flag, partial flag or flag; a criterion is flagged where the documents needed to assess it were not provided

02Documents collected

Each document requested from the organization, marked as provided in full, provided in part or not provided, with notes on what each document covers

03Backing documentation

The documents the organization provided, attached to the report

The report is intended to support internal discussion and decision-making and to document that basic financial signals were considered as part of a proportionate, risk-based diligence approach. It is not designed to function as a standalone diligence conclusion or a substitute for further review where warranted.

Paragon Philanthropy is not a CPA firm, and this service does not provide a financial audit, formal review, or professional certification of an organization’s financial statements, nor does it assess solvency, sustainability, or long-term financial viability. Its findings are indicators, not conclusions about an organization’s financial fitness.

When Funders Use This Service

Grantmakers typically request the Financial Health & Controls Screen early in the review process, alongside baseline screening, when considering a new grantee with limited prior financial familiarity or one operating in a jurisdiction where financial transparency varies. It also suits lower-risk contexts in which a funder wants reasonable assurance that no readily observable financial concerns are being overlooked, without initiating deeper review.

Get started

All Services