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Donor due diligence:

Due diligence and risk management: Bridging the divide

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Automating due diligence helps charities protect their reputations

Not only do charities need to raise the funds they need to fulfill their mission, they also need to ensure those donations do not damage their reputation. Due diligence is a time consuming yet vital task charities take to mitigate risk.

To be effective, it must go beyond the regulatory, box-checking minimums. In the past, charities were able to conduct a relatively simple due diligence on potential donors or partners, which involved verifying their personal information, checking for any criminal convictions, assessing their financial status, and searching for any publicly available evidence that would make them unsuitable.

However, in today’s switched-on, hyper-connected world, due diligence requirements for charities have become more comprehensive, necessitating deeper analysis. Accepting money that is linked to tax avoidance, forced labor allegations, or greenwashing are but a few ways charities have damaged their reputations in recent years.

Charities must therefore consider whether they should accept a donation, rather than if they can accept it. Donations that would not breach any regulations can still be a reputational risk that will lead to employees, clients and the public turning against you.

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There are many cases of failures to carry out effective due diligence

In 2021, the charity Kids Company was accused of financial mismanagement and poor governance after receiving significant donations from high-profile individuals and corporations. The charity ultimately closed down.

How did it happen?

Due diligence was not adequately conducted, resulting in the charity receiving donations from individuals who were unsuitable to be donors.

In 2022, the UK government was sued for the use of gloves manufactured by Malaysian company, Supermax. The glove manufacturer was given a £6 billion contract, despite allegations of forced labor in its factories. The manufacturer’s migrant workforce reportedly had to work for 30 days straight without time off and pay high fees in their home countries to secure their jobs.

 And, how did that happen?

There was plenty of evidence of Supermax’s controversial labor practices, including news articles and bans on Supermax by international authorities. If all possible sources of reports and information on Supermax had been surveyed, the controversy would likely have been avoided.

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What is effective due diligence for risk management?

Effective due diligence involves a range of checks, including:

  • Reviewing the donor’s financial background   
  • Checking for any legal issues      
  • Assessing their reputation       

It is essential to ensure that the donor’s values align with those of the charity and that the donation is not tied to any sinister motive.

There are three key stages of due diligence: research, analysis, and delivery.

Research

The first stage involves gathering and collating information from all available sources, including publicly available open-source data. To handle the vast amount of data, a tool that can mine all online data sources and deliver specific insights is crucial.

Analysis

Next comes deciding what data is relevant and drawing actionable insights. An AI-powered solution can disambiguate data, resolve entities and events, translate sources, and analyse results for relevance simultaneously.

At this point a robust due diligence process will go back to stage one and research again on the basis of the facts and analysis it has managed to gain so far. It will keep on going until it has investigated every avenue to ensure that all relevant information has been gathered and analysed.

Delivery

The final stage requires providing accurate data quickly through comprehensive, clear and shareable reports. Automated platforms with fit-for-purpose templates can provide unambiguous output that can be incrementally updated with further research.

The limitations of manual due diligence

Historically, due diligence has been a time-consuming and costly process that can still leave charities exposed to risk.

Huge resources are needed to look into a potential donor’s financial and personal background thoroughly enough to ensure that their donation is legitimate and minimise the risk of reputational, compliance-related, or financial risks.

Carrying out this research using search engines and databases can take hours or days as results are often buried under promoted content and misinformation. The amount of outdated and unreliable data online can make it challenging to verify the sources of information, requiring an even greater time investment.

The permanent, widespread distribution of information today can threaten charities’ survival. There is an almost infinite amount of information to sift through.

For most charities, this is an unrealistic use of resources – which makes it challenging for them to balance risk management and fundraising goals. As a result, charities are leaving themselves exposed to reputational damage.

When done manually, due diligence can only offer as much risk management as the organisation’s resources allow.

Software helps charities connect due diligence and risk management

Some 89% of charity leaders believe technological change is relevant to their organization, according to the Charities Aid Foundation’s  2022 Charity Landscape Report.

Automating due diligence is a particularly strategic move. AI is a practical tool that frees up fundraisers to work on high-value tasks. By automating the bulk of the repetitive and resource-consuming elements of due diligence, fundraisers can conduct robust research early, quickly, and regularly. 

Decision makers, as well as the charity’s entire staff, can be sure their due diligence is minimizing risk, and focus on their charitable purpose.

What are the key features that fundraisers should look for in automated due diligence software?

Here at Xapien, we believe the best automated due diligence software offers three essential key features.

1. Rapid reporting

Rather than manually searching through hundreds of search results, the right technology will automatically compile reports using AI. This will massively reduce the time it takes to undertake due diligence, specifically when augmented with the following two capabilities.

2. Clear, comprehensive information

Due diligence research is an iterative process. Uncovering details about the research subject allows you to feed that information back into your due diligence process and follow new leads, expanding the investigation. The right automated due diligence software does that process for you so that you are presented with an understandable yet detailed report that you can base your decisions upon.

3. Automated verification and cross-checking

Words, and even names, without context are relatively meaningless. The technology should be able to parse differences in language and understand the context of the information it is presenting. This provides valuable insights and saves time that would be spent screening discrepancies manually.

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Software helps charities connect due diligence and risk management

Xapien is an advanced tool powered by artificial intelligence that automates the research process. It generates readable, shareable reports in less than thirty minutes on any individual or company. These equip charities with the full picture of their donor or partner client, so they can make fully-informed decisions.

Due diligence without Xapien

Due to the large volume of prospects, limited research time of one hour per prospect results in reports that only scratch the surface of an individual’s profile. Or, fundraisers have to spend days trawling through search engines and databases.

Sometimes problems come to light later in the solicitation process, creating awkward conversations and wasted time and resources for both fundraising staff and donors.

Sometimes, risks are missed altogether, and emerge after the donation has been accepted, leading to reputational damage.

Due diligence with Xapien

Two days of work now takes 30 minutes.

Senior Due Diligence Specialist, Cambridge University

Xapien’s automated background reports provide a full picture of any person or organisation, anywhere in the world, in five to 10 minutes. The platform reads and analyses data from across the internet to deliver consolidated, insightful reports including flagged risks, wealth estimates, assets, and associates.

As the report gives you valuable insights into prospects, as well as flagging any potential risks, due diligence can be done in tandem with prospect research.

Greater protection from risk

Xapien gives a clear, thorough picture of a potential donor, enabling you to make fully informed decisions, quickly.

It does this by searching the internet for all relevant and available information related to a person or organisation. From PEPs and sanctions databases, news and media articles, corporate records and wider internet data from sites such as LinkedIn, Wikileaks, offshore leaks, and more, you can be confident that it delivers everything available in the public domain about your subject.

Information is translated from over 130 languages so that no detail is missed, and risks are highlighted and sourced.

Xapien can uncover dubious and potentially damaging connections that would otherwise have gone unnoticed. It can also show when a donor that might at first seem unsuitable is actually appropriate.

Case study

A Xapien search was run on a prospect at Cambridge University. It revealed potential ethical concerns around their past investments in fossil fuels. The significant opposition to the use of fossil fuels from Cambridge’s students and stakeholders could have led to the proposed donation being pulled into ethics committees, or even rejected. However, Xapien’s report provided further context and allowed the donation to be accepted, resulting in a quick and positive fundraising process. Read full case study

Faster due diligence

When Xapien’s automated background research software is used for donor due diligence, speed increases and manual inaccuracies are removed. The reports are delivered within 20 minutes, not two weeks. Donations can be accepted almost immediately and put to good work.

The result is a faster, more efficient due diligence process that does not replace human efforts, but enables humans to use their skills and energy where they are most needed, maximising productivity.

Manual research teams, even when equipped with database and search tools, simply cannot match the power and speed of AI.

Build relationships

With Xapien, due diligence is no longer just a risk mitigation process but a tool for building positive relationships and instilling trust. Donors know they are in a safe company, while employees know that the charity is protecting itself from scandal.

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