Donor Vetting: The Key to Mitigating Funder Risks and Conflict at Your Organization

Green is green. Or is it? Regardless of which color comes to mind when you think about philanthropy, it’s increasingly important for nonprofit organizations and their advisers to assess gifts holistically and engage in donor vetting practices to minimize financial, legal and reputational risk. Depending on your organization, it may also be worth considering whether a donor’s support aligns with your organization’s mission, impact and vision.

Donor vetting is increasingly top of mind and a consideration both when we engage in frontline fundraising and as we develop and manage prospect pipelines, particularly for significant gifts.

Before accepting a donation or soliciting a new donor, nonprofits should pause to consider how a gift or donor could impact the organization — in both positive and negative ways. This isn’t to say that most philanthropic gifts cause problems, but in the age of the 24-hour news cycle  providing access to vast amounts of information every minute of the day, it’s more important now than ever before to remain conscious of headlines to inform decisions around prospecting, gift acceptance and partnership with donors. 

Negative news directly affects nonprofit institutions and their funders regularly. If you’ve watched the film “Operation Varsity Blues: The College Admissions Scandal” or read about the removal of donor names from cultural institutions and other prominent buildings, then you know what we’re talking about here.

Addressing Financial and Legal Risks

When it comes to financial or legal risk, a gift that jeopardizes an organization’s financial stability, or that may lead to embroilment in a lawsuit, usually isn’t worth the trouble of accepting it. To mitigate these concerns, it’s the responsibility of an organization’s development department, individual fundraisers and the leadership team to conduct due diligence, understand and adhere to established policies, and engage the organization’s legal counsel for advice.

Creating and sticking to an organization-specific donor acceptance policy is an important place to start. Strong donor acceptance policies should include rules about what kinds of monetary and in-kind gifts can or can’t be accepted, guidelines for naming policies, anonymity, and more. Donor vetting can become more complex, however, when we additionally consider reputational risk and issues related to ethics, particularly for high-profile organizations.

Addressing Reputational and Ethical Risks

Each organization will (and should) have different standards and means of determining when a donation has the potential to do more harm than good. There are a number of factors to consider, depending on the organization. Some nonprofits are unlikely to accept gifts from donors who don’t support — whether by their personal affiliations or occupations — the values or mission the organization promotes, regardless of the donor’s intention with their gift. This can also be an important factor to consider in ensuring that one donor doesn’t deter other major donors from supporting the organization in the future. Similarly, the ethicality of the funding source should also be a consideration. Even if a donor’s gift is derived from a traceable and legal source of wealth, it’s up to the organization’s development and leadership teams to determine if the funds should be accepted.

To help guard their organizations against reputational and ethical risk, fundraisers and leadership should consider these guiding questions as part of the donor vetting process.

• Is this funding source inherently antithetical to the work that our organization is trying to accomplish? For example, does a potential donor also fund lobbying groups or political candidates whose platforms and policies our organization disagrees with – or is actively fighting against?
• Will the acceptance of this gift publicly damage our organization’s reputation? Has this potential donor recently made headlines for a criminal offense or been implicated in questionable financial dealings?
• Are we comfortable not knowing exactly where this money came from? This question surfaces more often when a nonprofit operates internationally or receives funding from donors based outside of the United States or, as of late, accepts cryptocurrency donations, many of which may be anonymous. It’s important to know your organizational stance when specific financial information may be more obscure and difficult to track and confirm.  
• Will accepting this donation give other potential donors reason to reconsider their support of our organization? If accepting a gift from a particular donor is likely to offend or deter other significant prospective donors, it’s worthwhile to weigh the cost against its benefit.

Protecting Your Organization From These Risks – Before They Arise

Donor vetting can also be proactive as well as reactive. Before cultivating and soliciting a funding prospect, intentional prospect research can help identify and eliminate potential donors that may present financial, legal, reputational and ethical risks. Some strategies for including preemptive donor vetting in prospect research include:

• Flagging prospects based outside of the United States and/or who have unclear or difficult-to-trace sources of wealth.
• Conducting a news search and reviewing recent articles that reference the prospect to note discrediting press.
• Using fundraising research tools to determine which organizations (if any) the prospect has previously funded and any other philanthropic activities the prospect is currently involved with.

Donor vetting doesn’t have a one-size-fits-all method or solution. How organizations assess and identify risky gifts will depend on their mission, visibility in the public eye and the leadership team’s priorities. But asking the right questions, and crafting and implementing a strategic plan for vetting, provide a solid base from which to start.