Due Diligence Playbook: What is Your Role?
The fundraising world is not immune to the 24-hour news cycle. We have all seen the headlines – from the removal of names from buildings, to bribes of admissions officials, to scandals involving a criminal’s donations to universities—negative news about fundraising is all around us. These stories remind us that, as fundraising professionals, we have a responsibility both to our donors and the reputation of our organizations, which is on the line every time we interact with our prospects.
To help mitigate these problems, we engage in due diligence to help vet potential contributions. We are all aware of the importance of due diligence, but many of us may not have built a process. Having a game plan is essential, and everyone involved in fundraising has a role to play in due diligence.
What is due diligence? Also known as “vetting” or “screening,” due diligence is a process of mitigating risk to your nonprofit organization. This vetting is typically led by the prospect development department and/or gift processing department and looks at prospective, current and/or lapsed donors through an ethical lens. This process looks at the potential risks the donor could present to your organization, which includes:
- Legal risk - Could engaging with a supporter or accepting a donation expose the organization to legal or regulatory challenges?
- Financial risk – Could engaging with the supporter or accepting the donation jeopardize your organization’s budget or ability to raise money in the future?
- Reputational risk – Could engaging with the supporter or accepting the donation be perceived as inappropriate or unethical by your organization’s stakeholders or the wider community?
- Dependency risk – Could engaging with the supporter or accepting the donation give the donor an undue level of influence over a charity, its staff or trustees?
These will vary by institution, but it is important to make clear what is and is not an acceptable risk for your organization.
What am I responsible for? Each area of advancement work has responsibilities in due diligence, and communication and collaboration between areas are essential.
- Leadership: Advancement leadership has the (difficult) privilege of making the tough calls. With the big picture in mind, leadership is responsible for maintaining your organization’s mission and values and determining the best course of action based on the uncovered research. It is important that decisions are made in a timely fashion and clearly communicated to gift officers and others involved. Leadership can also reach out to your organization’s legal counsel for advice as necessary.
- Gift Officers: Fundraisers need to know your organization’s gift acceptance and due diligence policies before approaching a prospect or donor. Additionally, gift officers work with prospect development to ensure the proper handling of prospective donors, particularly if unpleasant research is uncovered. As gift officers have direct donor knowledge and tend to have the strongest relationships with donors, they are also a kind of intelligence officer and can provide invaluable information based on their interactions.
- Donor Relations and Stewardship: Donor relations often know about solicitations that are in the works but may not yet have been put into the database, as they are likely focused on the largest proposals. Stewardship may also have more historical knowledge of the donor and know where the “skeletons” are. This inside information is vital for the due diligence process, so it is important for donor relations to have a seat at the table and to have a strong relationship with prospect development. Donor relations can also help mitigate complications with existing donors should problems arise.
- Communications: Writers and communications professionals are involved in creating gift proposals and should be aware of your organization’s gift acceptance policies so they can be incorporated into proposals as needed. Additionally, if something negative does arise, these teams may be involved in drafting press releases on behalf of your organization.
- Advancement Services and Gift Processing: Gift acceptance policies are especially important in due diligence, as they outline the kinds of gifts your organization will or will not take. Policies should consider the following: rules on not accepting funds or property acquired by extra-legal means; guidelines preventing donors from having a say in program content or staffing; rules on gifts from donors whose mission or values are inconsistent with your organization; procedures on anonymity; and transparency. Particular attention should be paid to naming policies and obligations, including language that would allow your institution to back out of naming requirements if the donor does something outside the bounds of acceptable conduct for your organization. Policies can also address the return of gifts to donors in order to preserve your organization’s integrity.
- Prospect Development – Prospect research in particular does the leg work and looks into the potential risks that a donor might present. This can be as basic as regular research conducted while screening or can include a negative news search or, when appropriate, a comprehensive deep dive. The depth of required research depends on the need, trigger or severity. Prospect development also provides recommendations to leadership, presenting what was uncovered and offering information for further review. The basics of what is discovered should also be stored or coded in the database. Prospect management can help disqualify prospects based on this research and leadership decisions made as a result. As due diligence work can be time-consuming and requests can be numerous for prospect development, utilizing a checklist with specific steps is highly recommended to maintain consistency. For more specific details on prospect development’s vetting work, please check out Apra’s Due Diligence Toolkit.
How do we create a game plan? When everyone knows what role they play, a due diligence game plan can be made. It will naturally vary by organization based on size, structure and type. Recommended next steps:
- Identify current policies in place that may or may not be consistent with each other.
- Develop a “trigger list”—a list of criteria, which, if met by a prospect, would require further review. Common triggers (or red flags) include: international prospects, questionable or unclear source(s) of wealth, known crimes or scandals, and solicitations above a certain dollar level, including naming gifts.
- Develop a clear, consistent risk rubric to guide due diligence research and recommend actions for leadership.
- Create a committee or team of stakeholders who touch base regularly.
- Create an overarching policy with workflows, decision timelines, contacts and communication outreach plan.
- Train gift officers on due diligence and gift acceptance policies and what the triggers/red flags are so they know when to go to reach out for further investigation.
Understanding due diligence is the responsibility of all fundraising professionals, and we can’t do it alone. The best defense is a good offense, and with each person knowing their role and developing a due diligence playbook, you can strengthen your organization and stay out of the scandalous headlines.
Megan Horton is the chair of the Apra Ethics and Compliance Committee and a prospect management and research analyst for UC San Diego. Apra is the premier organization for professionals who strategically harness information and data to drive fundraising for philanthropic institutions. Apra’s Ethics and Compliance Committee defines and advocates for the highest standards of performance and ethical behavior engaged in the prospect development profession. The committee has tackled due diligence, privacy laws, social media and others to make your life easier. For more information, please visit the Apra website https://www.aprahome.org/page/ethics-and-standards.