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Donor due diligence:

Don’t have a gift acceptance process? Xapien can help

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Beca Daniel, Philanthropy Account Manager • May 30 2024

No two organizations have the same criteria for accepting a philanthropic gift. Some follow a detailed process, applying varying levels of due diligence based on the donation’s value and different approval routes based on risk. Others take a simpler approach. They either reject the gift outright, immediately accept it if it’s low-risk, or investigate further if it’s deemed high-risk. A single decision-maker then decides whether to reject or accept.

Both processes vary in breadth and depth. However, they share one key aspect: due diligence informs the final decision.

Due diligence is the backbone of any gift acceptance policy to guide the outcome of a donation. Think of Sackler, Epstein, and Kanders. Each name reminds us of a gift decision gone wrong. While major donors seem reputable and generous on the surface, organizations must gather information to understand their background and the intended purpose of their donation. This includes their source of wealth, business associates, career history, sanctions exposure and more. Without this knowledge, organizations risk damaging their reputation and their ability to fundraise in the future.

Why your organization needs a gift acceptance policy 

Let’s say you receive a substantial donation offer from an attorney. The attorney refuses to disclose the client’s identity, which raises concerns about hidden motives. Or, a wealthy philanthropist approaches you with a significant endowment. Their links to fraud are well-publicized but they’re not criminally charged.

In another example, a generous donation comes from a company recently exposed for unethical labor practices. This raises concerns about aligning your organization’s values with the donor’s actions. Or, you receive a sizable contribution from a company known for aggressive lobbying. But these policies directly impact the community you serve.

Sometimes, it’s clear that funds come from illicit sources or are misaligned with your organization’s purpose. So, you instantly reject them. However, there are vast gray areas where gifts need careful consideration.

When a gift falls into a gray area, does your organization have established protocols for due diligence? Do you have a predefined set of questions to answer? These questions should guide the level of due diligence needed. Does the responsibility rest on one person, or do you have a designated committee? In larger organizations, this might involve the leadership team or a gift committee.

If your answers lean toward ‘no’, you’re not alone. Many organizations have policies for clear-cut scenarios. Obvious risks are flagged and donations are rejected. But nuanced gray areas require careful deliberation. It’s essential to have guidelines to ensure the right actions are taken, which is why investing time in creating a comprehensive policy is worthwhile.

Where to begin with your gift acceptance policy 

Define your institutional risks

These can be direct and indirect to your organization. Reputational risk is the biggest one for many organizations. For example, our client ClientEarth considers partnering with the wrong corporation one of their biggest reputational risks since they litigate against organizations harming the environment. There are also legal and regulatory risks for organizations to consider, like the example of an attorney using an organization to launder their client’s money.

Know what questions to ask

Is the gift genuine or could there be an ulterior motive behind it? There might be concerns about the source of the funds used for the gift or whether the person giving the gift has the financial capability to fulfil their commitment. Then, there’s knowing when the organization should scrutinize the donor and their history more thoroughly. For instance, naming a building after a donor might warrant closer scrutiny than a smaller donation to an annual fund.

Map your due diligence policy

Depending on the donation’s size, your process will vary in complexity. Traditionally, you’d establish thresholds for due diligence and guidelines to specify which online sources to use, the best keyword strings, and how far a researcher should go with their web search. You’d then establish criteria for triaging a ‘high-risk’ prospect. This could include institutional risks, significant discrepancies in their history, or indications of unethical behavior in the media. But what if due diligence wasn’t limited by thresholds, internal resources and page limits?

How Xapien can structure your gift acceptance process

Most organizations conduct due diligence when a gift’s value meets a certain threshold in their policy. Lower-value gifts are assumed lower risk, so cursory web searches and screening are enough. If nothing significant is flagged, they’re accepted as low-risk without further investigation. But if red flags appear, more comprehensive research is necessary.

This process is very manual, often following a guidance document that recommends a Google search of the company name and its directors using specific risk keywords. This approach has two problems. First, there’s a human risk in manual research and keyword limitations, resulting in missing or patchy information. Second, it’s time-consuming to sift through information and determine what’s relevant. 

Some of the world’s leading organizations, such as Dartmouth College and the University of Cambridge, use Xapien’s AI tool to perform upfront due diligence on prospects before fundraisers invest time in cultivating the relationship. 

For small to medium donations considered low or medium risk, Xapien provides an upfront view to assess the risk level. If no issues are flagged, the Xapien report can be filed and forwarded for senior leadership review, so the donor doesn’t have to wait around for manual due diligence to be completed at the final stage. 

For higher donations or those deemed higher risk from initial due diligence, researchers can dive deeper into the Xapien report. They can filter through categories to read flagged articles on potential risks. Each sentence is traced back to its source so users can verify it themselves.

Xapien automates the time-consuming work of information-gathering and cross-referencing, allowing researchers to focus on applying their judgment and triaging prospects accordingly. This automation enables fundraisers to eliminate those that won’t pass due diligence, creating a more targeted fundraising pipeline set up for success.

Speak with our philanthropy team to see how Xapien can help build out your gift acceptance process. 

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