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When a donation offer lands on your desk, the instinct is to say yes. But in the fundraising space, it is important to ask the question, "Is the gift safe?"
Reputational threats, funding from opaque sources, and increasing donor scrutiny have changed the rules of engagement. Development officers and prospect researchers now face a new reality: every donor relationship is either a potential risk or a reputational asset.
A robust due diligence search should be at the top of any fundraiser’s priority list. In this article, we’ll outline why due diligence is important, go over some common challenges to the due diligence process and give you best practices for risk management with donor due diligence tools.
Managing risk and compliance for a nonprofit involves getting the full picture of any potential donor or partner. Just as for-profit institutions must ensure that their partners and employees are fulfilling the legal and ethical standards of practice, nonprofits need to do this as well. And, they must check that the donations they receive come from viable, trustworthy sources.
Many nonprofits and university advancement teams still rely on basic vetting: a quick Google search, a name-check against the major watchlists. But modern threats are more sophisticated. Consider:
Any one of these could turn a seemingly generous gift into a public liability. And once donor trust is broken, it’s incredibly difficult to rebuild.
“Even a single donor scandal can overshadow your mission.” — A Guide to Smart, Scalable Due Diligence for Nonprofits & Universities
MORE: Why donor due diligence is the key to your nonprofit’s success
Several high-profile cases show just how fast things can go wrong:
Sackler Family & Tufts University
Tufts faced backlash for accepting millions from the Sacklers, owners of Purdue Pharma. Despite removing the Sackler name from campus, the reputational damage lingered.
Jeffrey Epstein & MIT
Despite Epstein’s criminal history, MIT accepted donations totaling $850,000. The fallout led to resignations and deeply shook the institution’s credibility.
Martin Shkreli & Community Solutions
After accepting a $15,000 donation from Shkreli, who was later arrested for securities fraud, the nonprofit returned the funds and publicly disavowed the association.
Each case underscores the same truth: no gift is worth sacrificing public trust.
The solution is a smarter approach. This begins with a risk map which is a structured framework for helping to identifying potential threats such as reputational, financial, and compliance risks before they surface. It's almost like a GPS for navigating donor relationships with confidence.
When vetting becomes a strategic habit, organizations protect their ability to fundraise and grow with integrity.
After the initial searches have been conducted, remember that circumstances may change. Ongoing efforts to continually vet donors, like monitoring news alerts, can help ensure that your thoroughly checked sources are still viable and accurate throughout time.
Donor tracking tools will often set alerts for donors and affiliations to ensure fundraisers can stay up to date on media mentions for potential issues that might build into larger public stories or donor scandals. For instance, a nonprofit might set up an alert for each major donor’s name and see that one of their larger contributors was recently charged with embezzlement. This would give them the opportunity to sever the relationship and remove the donor from all future outreach campaigns to combat any negative association before it gets out of hand.
Beyond wanting to avoid donors whose public actions don’t align with the nonprofit’s ethos, there is also the question of legality. In some rare cases, donors might be caught up in sanctioned businesses or be on watch lists, making it illegal to conduct business with them.
Legal liability checks are important and can be done with the help of due diligence tools that will watch these lists, as well as arising legal cases, to steer clear from anyone who might put the nonprofit in harm’s way. Fundraising employees can also manually check the sanctions lists at places like the SEC website for immediate access.
MORE: Ask the right questions for complete due diligence
Failure to vet donors stands as an organizational liability bearing potential risks.
After its founder’s scandal, one cancer nonprofit saw donations fall from $47M to under $17M in just three years. The price of overlooking donor risk is steep.
If you’re unsure about where to start, begin here:
Prospect researchers and development professionals need fast, reliable tools to reduce research blind spots. That’s where platforms like Nexis® for Development Professionals step in.
With Nexis for Development Professionals, you can gain easier access to insights about a prospect or donor, so your organization can build strong, lasting relationships.
Download our free guide, A Guide to Smart, Scalable Due Diligence and get the tools, actionable frameworks, and real-world examples to build a resilient donor vetting strategy.
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