What nonprofits should consider when formalizing donor due diligence

This blog explores effective donor due diligence, and how it ensures donations align with your nonprofit’s values. It explains the importance of a gift acceptance policy as a decision-making framework, the role of comprehensive due diligence in safeguarding reputation, and how AI technologies like Xapien enable efficient donor assessment.

It starts with a transparent gift acceptance policy

A gift acceptance policy, also known as a donor acceptance policy, serves as a guide for philanthropic organizations when accepting or declining donations. When a nonprofit’s gift acceptance policy is unclear, understanding institutional risks and finding the right balance when accepting a gift becomes challenging.

A robust policy removes any grey areas. It clearly defines who is responsible for making donor decisions, outlines the principles that donations must align with, and sets criteria for rejecting donations. Most importantly, this policy defines an organization’s standards for donor due diligence and guides decision-making based on the findings.

Why do you need a gift acceptance policy?

The court of public opinion has a strong influence that nonprofits need to be aware of when considering a potential donor. In today’s digital age, bad publicity can quickly and severely impact donor confidence, leading to potential funding problems. Rebuilding trust with existing and future donors is difficult once it’s lost.

A real-life example is a cancer charity that faced a significant drop in revenue, plummeting from $47 million to less than $17 million in just three months following a brand ambassador scandal.

Should thresholds determine donor due diligence?

Organizations strive to set the right threshold for their gift policy to manage resources while ensuring fundraising integrity. Thresholds determine the level of due diligence needed based on the donation’s value. The challenge lies in what’s just below the surface.

For instance, a quick scan may suffice for a $10,000 gift, while deep due diligence is reserved for gifts over $100,000. But if a $90,000 donor is involved in financial crime, it poses a significant reputational risk.

This is where AI technology helps. By automating the due diligence process, the threshold for deep due diligence decreases. This ensures thorough due diligence on every donor, protecting the organization’s reputation.

Introducing AI to your donor acceptance strategy

AI is making donor due diligence more integrated, efficient, and strategic, allowing nonprofits to optimize their fundraising efforts without the added costs and complexities of expanding their teams or overloading their current staff.

It does this in a few, really impactful ways:

1. Integration with existing processes

AI allows donor due diligence to be seamlessly incorporated into broader research activities. This means that teams can conduct due diligence in parallel with prospect research, making the process more efficient and less disruptive.

2. Reducing manual workload

Automating the legwork minimizes the manual effort needed from research teams. This automation frees up staff to focus on more strategic tasks so they can provide more value to their organisation.

3. Enhancing decision making

AI-powered due diligence searches, analyses and summarises online information much faster than a human researcher. This accelerates the decision-making process so that fundraising efforts are focused on prospects with the highest potential.

4. Improving conversations with donors

AI-generated due diligence reports offer fundraisers better insights into the backgrounds and interests of potential donors upfront. Empowered by this knowledge, fundraisers can engage in more meaningful conversations, customizing their approaches based on the findings from due diligence.

Eight hours of research in eight minutes at Dartmouth College

Previously, Dartmouth College’s due diligence strategy involved about one hour of research per prospect, a method that often resulted in only superficial assessments due to the sheer number of prospects, the size of the donor database, and time constraints. 

This approach sometimes led to uncomfortable situations later in the solicitation process if a deeper due diligence check uncovered problematic information.

Dartmouth College now uses Xapien right at the start of the evaluation phase. Xapien quickly analyzes a prospect’s background and generates a detailed, fully sourced report in just ten minutes. 

These reports offer comprehensive insights into the prospect’s business affiliations, achievements, philanthropic interests, wealth markers, and risk profile, all presented in a clear and concise report that’s easily accessible to analysts and decision-makers. 

This not only accelerates due diligence but also ensures that potential issues are identified early, enabling more strategic and informed interactions with your donor base.

Why use Xapien’s AI for your organization?

Xapien is the golden path to comprehensive due diligence for every donor, no matter the gift size or value. Integrating it into your donor acceptance strategy results in a more efficient process.

Read more: Why nonprofits should use open source intelligence for prospect research

Xapien was first adopted by the University of Cambridge. Today, its capabilities have been recognized and adopted by several academic institutions across the UK and the US, including Dartmouth College, other Ivy League universities, and state universities such as Michigan, North Carolina, and Illinois.

What makes Xapien different from other due diligence tools?

Xapien is a sophisticated AI tool that goes beyond risk identification. It provides in-depth profiles covering philanthropy, personal networks, family connections, and professional achievements. It enables nonprofits to conduct thorough research at the outset, preventing time-consuming and unproductive discussions later in the process.

Xapien meticulously analyzes data from millions of registries and screens trillions of web pages to gather and interpret relevant information about subjects. These findings are compiled into a fully-sourced, summarized report that is easily shareable among team members, trustees, and other key stakeholders.

All that’s required is the subject’s name and some contextual information, which you enter into a web-based browser. Book a call with our expert team to learn more.