Due Diligence Isn’t Just for Gift Acceptance Policies Anymore

What would you do if…

• As a principal gift officer, you meet with a donor you have worked with closely for many years to present a proposal and the donor doesn’t seem to know who you are or that you’ve met before?
• As a gift processor, you receive a large money order that indicates it is from a large crowdfunding effort initiated by a local cannabis shop?
• As a trustee, you open the morning newspaper to learn that a donor who just gave your organization a $10 million gift with naming rights was indicted for embezzlement and fraud?
• As a gift planning officer, an estate attorney approaches you about setting up a multimillion-dollar charitable remainder trust for a donor who will not reveal their identity?
• As a researcher, you learn that the donor who the organization wants to chair the annual gala faced accusations of physically abusing their former spouse?
• As a director of corporate relations, you get a call from a large restaurant chain that you know is vying for a contract with your organization’s dining services about where they can send a donation?

Would you know your responsibility and your organization’s guiding principles for handling each of these scenarios or something similar if it were to occur? Would you know with whom to raise the issue(s)? Would you know how to communicate and capture the suspicious or worrisome information you just learned in a way that protects your organization and the privacy of the donor? If your answers to these questions are no, then you are not alone.

For most nonprofits, gift acceptance policies cover general guidelines for what gifts the organization will and will not accept, but few address end-to-end fundraising situations and even fewer organizations translate their policies into specific procedures and training for staff and volunteers. Even in the U.K., Europe, and Australia, where organizations are more likely to have due diligence-specific policies, our surveys suggest that few organizations have devoted the necessary resources to support their policies (see Due Diligence Survey: UK & Europe vs. Australia and Due Diligence Survey Results–UK & Europe). In today’s complex ethical and philanthropic environment, more attention is needed to address the full scope of risks involved.

Due diligence is not a policy or program any organization wants to implement. Who wants to turn away much needed support or gifts to an organization, much less divert additional hard-earned resources to implement a process to support it? But as fiduciaries of our donors’ resources, we must. So where do you begin?

1. Define your scope and all interested parties
   Due diligence discussions are primarily focused on the advancement and development departments, which is natural since that is where the incoming funds are centered and where the potential for a scandal could begin. Unfortunately, the nonprofit scandals of recent years have shown us that all areas of the organization are susceptible to external influencers—from program leaders wanting more funding and attention to recruiters competing to lure the best staff and participants. We all want to achieve more both personally and professionally, especially when it benefits our organization. The process, thus, needs to begin by defining which area or areas will be impacted by the due diligence policy and, from there, who should be involved in the discussions.
2. Identify your risks
   Risks come in all forms—both direct and indirect. They can take the form of dependency risks, in which the donor, company, or foundation seeks undue influence. The risks can be reputational, in which engagement with specific people, companies, or foundations might reflect poorly on your organization. Even geographic locations can become problematic if local or state issues run counter to an organization’s mission or constituency. Such engagements include the obvious controversial relationships and the less obvious relationships with vulnerable populations. Situations can also pose risks involving legal, regulatory, or professional standards, whether it’s the nefarious estate attorney using your organization to launder their client’s money or overly relaxed data security practices that transgress privacy policies and laws.
3. Define your values, ethics, and guiding principles
   Every nonprofit should use their mission as the basis of their decision-making, but a mission alone is not enough. Organizations must be able to define which specific categories of support and conditions are unacceptable and which may require additional consideration. To ensure a thorough consideration of perspectives, those involved in the formation of a policy should represent different areas of the organization, different levels of employees and volunteers, and different cultural and ethical perspectives, as well as different types of donors and service recipients.
4. Develop a due diligence policy
   A due diligence policy should detail how leadership expects the organization to address certain issues while providing broad guidance for unforeseen situations and changing times. It should be positive in tone, ensuring the general public the organization greatly welcomes support, while at the same time clearly outlining the circumstances under which support will be reviewed. Leadership should also define how often the policy will be reviewed and updated.
5. Put your policy into practice
   Every organization will handle implementation of a due diligence program a bit differently; however, every program should include the four core elements of staffing, training, planning, and systems. Staffing is needed to conduct due diligence research (which is different than prospect research even if conducted by the same professionals), as well as to coordinate all aspects of your overall due diligence process. Training is needed for all involved in any level of the process. Systems are needed to ensure data protection and to automate and streamline the adopted due diligence process so that expectations can be fulfilled amidst various competing organizational priorities. Lastly, planning is needed to ensure that when things do not follow the initial plan, a crisis plan is in place to manage any potential fallout.
6. Continuously learn and refine
   None of us are perfect—there will always be times when our policies and procedures are not enough to avoid the risks we face, and times when our best donors face problems of their own. The goal is not risk elimination but risk mitigation. The good news is there has been a lot learned in our profession and can still be learned as we move forward. Keeping the best interests of our organizations and donors front and center is paramount to ethical fundraising practice.

BWF is here to help guide you through the process of developing a due diligence policy or program and/or assessing and updating what you currently have in place. We take a holistic approach to our work with clients, assembling a team for each of our projects. For an organizational due diligence review, this could include experts in due diligence, philanthropic counsel, relationship management of vulnerable populations, training, systems, and communications. Our team will review your organization’s policies, procedures, documents, infrastructure, and capabilities, providing recommendations for a strong and successful due diligence program. We often also provide direct development and implementation of the recommendations by creating the policies, procedures, and systems for the program.

For more information, contact Shannon Cooper, Philanthropic Services (scooper@bwf.com); Lani McCollar, Philanthropic Counsel (lmccollar@bwf.com); or Carole Arwidson, Strategic Communications (carwidson@bwf.com).