Vetting a charitable organization

Making sure major gifts don’t put your company’s reputation at risk.

When Help Hospitalized Veterans raised $168 million over three years, the organization’s donors believed their money would assist people returning from the Iraq War. The organization secured major celebrity endorsements. It received endorsements from politicians.

Unfortunately, 75 percent of the donations went into the pockets of the founder and his associates.

The misuse of the contributions resulted in high-profile lawsuits and left its corporate donors unable to promote their partnerships and appearing as if they never really knew what they were doing by donating.

Corporate charitable relationships are sometimes formed as a result of informal relationships between individuals who have known each other a long time. While strong personal and professional networks are valuable, companies considering major partnerships or promoted contributions should do their due diligence to protect against reputational risk and financial waste of their contribution.

Similar to a due diligence investigation of a proposed business partner, merger or acquisition, the goal of your research should be twofold:

  • To protect and hopefully enhance your company’s reputation
  • To make the best investment that delivers effectively on an organization’s core mission

The same approach can be used whether the potential relationship came about through personal networks, through an application for a company foundation grant, or through a proactive search on behalf of the company.

Examine the reputation
Understand who is leading the organization, and their track record.

  • Take a close look at the executive director. Has the person actually accomplished everything she or he claimed in a biography. Does this person have a history of lawsuits or disputes?
  • Research the nonprofit’s reputation. Have other donors reported problems with the organization or its leaders? What about former employees? Speak with past donors and staff to find out.
  • What kind of press coverage has the organization generated?
  • Does the organization have a global presence? If so, has a foreign branch of the organization been involved with a dispute worth understanding further?

Examine operations
Find out how well the organization succeeds at fulfilling its mission — and what its plans are for the future.

  • Take a site visit. Most organizations should be happy to show you first-hand how they operate at their work site or sites. Meet with board members, key staff, and the clients being served.
  • Assess capacity. Is there capacity to successfully deliver their programs and services? How does the organization evaluate outcomes?
  • Assess potential. How effective is their fundraising? Do they have a strategic plan?
  • If the nonprofit works with children, what kinds of processes are in place to ensure the children’s safety?
  • If there is a global component, will any your funds be going internationally, or be used to fund international operations? International donations are subject to additional regulations.

Examine financials
Reviewing the organization’s financial reports is conducted as a basic part of the due diligence, but we mention it here as a checklist.

  • Confirm the organization’s tax-exempt status with the IRS.
  • Review their financials — generally their Form 990. Go beyond just looking at assets and liabilities. Ask yourself, do expenses seem reasonable given projected income? Are there diverse funding sources?
  • Assess their financial efficiency. Charity Navigator shows the percentage an organization spends administrative costs — a common way to assess efficiency. However, consider that some nonprofits require greater investments in staff in equipment in order to fulfill their mission effectively.

Building your reputation
Charitable donations, by their nature, have intrinsic value that can be hard to quantify. Generally, the hope is to extend the good work of a well-funded nonprofit aligned to corporate interests, while promoting the reputation of your company.

Vetting an organization thoroughly provides that peace of mind that you’ve given your company’s funds the best chance at succeeding in these goals.