Such situations can be prevented by implementing a thorough due diligence process around the relationship with your donors. Actually, there’s a lot you can do in-house even if you don’t have the latest automated solutions or cutting-edge technology.
Your due diligence review should follow a risk-based approach and cohere with your internal risk management framework. You can take the following steps:
- Perform a basic online check on the donor’s background using internet search engines, corporate watch websites or, if accessible, research tools such as Factiva, World Check or Lexis Nexis.
- Study corporate registers and annual reports (when available).
- Check for adverse press and media coverage by using key search words such as scandal, corruption and fraud, allegation and accusation, investigation and prosecution, etc.
- Run database checks for potential litigation, sanctions, disqualifications and proceedings on the donating organization.
By performing these steps, you should be able to:
- Establish the identity, credibility and legitimacy of the donating organization.
- Understand the source of funding or business model of the donating organization.
- Clear any potential conflict of interest or dependency threat between your organization and a donor and understand the true motives behind the donation.
- Provide your organization with reasonable assurance that the donation isn’t from an illegal or inappropriate source.
By investing in a donors’ due diligence process, you’re significantly reducing financial and reputational risks as well as creating a solid base of mitigating factors in case the regulators decide to inspect your organizational structure and related relationships.
 Source: Report on abuse of charities for money-laundering and tax evasion
 Source: Donor due diligence: A necessary evil