Meeting the Charity Commission's expectations on checking on donors
Safeguarding reputation is crucial to the future of any charity. That’s why the Charity Commission continues to refine guard rails in place that keep charities safe as the world changes around us. With recent updates in guidance, we look back on compliance failures and what charities can learn from them to prevent such situations from happening again.
KNOWING WHEN TO REJECT OR RETURN DONATIONS. The Charity Commission updated its guidance this year, advising charities to accept donations unless there’s a clear reason not to. But what exactly does a "clear reason" look like and how can teams be sure they have enough information to make the right decision?
Different charities face different risks. International charities, in particular, deal with complex challenges related to funding sources. For example, government donations might come with conditions attached, or corporate donors might carry reputational risks — especially if their values or practices are at odds with the charity’s cause.
Decision matrix
Fundraising teams interpret risks based on their specific missions and values, but this can lead to varying perspectives and bias on donation acceptance. To standardise the process, charities should consider implementing a decision matrix.
An example of a decision matrix might include categories such as donation amount, reputational concerns, ethical concerns and conditions attached. These categories guide which steps need to be taken, who should be consulted, and when a board-level decision is required.
When making decisions based on values, it’s crucial to have that conversation within your wider organisation. A large part of that is knowing who to involve in those discussions. There are often many different stakeholders, so ensure you're involving the right people.
COMPLIANCE FAILURES SEEN IN THE PAST. In July 2024, the Charity Commission for England and Wales investigated a charity over potential ties after discovering that a news agency had been promoting the charity through messaging platforms. The agency and its founder were subjected to an asset freeze by the government due to suspected involvement in terrorism. By monitoring public information, the charity could have been alerted to the news agency’s terrorist affiliations.
The Charity Commission also opened a compliance case in the same month against another charity following complaints about the end use of charitable funds and the charity's due diligence on its partner organisations in Yemen.
Background checks
Most recently, an investigation was launched into four charities after potential risks were identified due to shared trustees or founders with another charity under investigation. Thorough background checks on trustees could have revealed these ties. Had these checks been in place, the charity, which was publicly named, might have avoided the regulatory scrutiny that led to its damaged reputation.
IMPLEMENTING MEASURES TO PREVENT SUCH INSTANCES HAPPENING AGAIN.The saying "history is the best teacher" rings true here. Charities can learn a great deal from past cases, particularly the importance of putting prospects through a rigorous due diligence process before investing resources in cultivating the relationship.
However, before we get it how to conduct due diligence, it is crucial to understand what underpins a strong process: a clear policy to guide it, documentation to support it, trained staff to implement it, and the right technology to streamline it.
Values and principles
A due diligence policy should set out your charity's values and principles to guide decisions on whether to accept or reject donations. It should identify key risks and problematic donors, specify who reviews and makes decisions on risky donations, and detail how and when due diligence reviews are triggered. The policy must also outline how to handle problematic cases, such as high-risk donations or anonymous gifts.
A lack of consistent procedures in many charities highlights the growing pains of due diligence programmes. Training is crucial to standardise the process and ensure staff can manage potential donor risks effectively. Staff will often encounter situations where a donor has been accused in the media or reported to have associations with controversial figures or organisations. Recognising these red flags is just the beginning.
Effective training programmes teach staff how to identify red flags, escalate high-risk cases, and evaluate donor backgrounds against the charity’s ethical standards. For example, when potential financial crimes or ethical concerns arise, staff with legal or compliance responsibilities should step in to assess the donor. They would then apply enhanced due diligence measures to conduct a thorough risk assessment.
High-risk cases may be immediately rejected, while others should be sent to the CEO or even trustees for further review.
Gift acceptance committee
Implementing a gift acceptance committee can support this. Over half of charities recently surveyed were found to deploy a gift acceptance committee. A gift committee is a great way to handle more complex cases by bringing together diverse perspectives. This might include senior leaders from different activities or departments, as well as the CEO or a representative.
ESTABLISHING A DUE DILIGENCE PROCESS. A robust due diligence process is essential for ensuring compliance, managing risks, and maintaining transparency. Rather than a loose collection of tasks, establishing a well-defined process involves clear, structured steps that enable efficient and comprehensive risk assessment.
The starting point in any process is producing a comprehensive report that consolidates relevant information about the individual or entity in question. This involves conducting essential anti-money laundering (AML) screening checks, which include reviews of politically exposed persons (PEP) lists, sanctions databases and watchlists.
Corporate registry checks
Alongside this, researchers should perform corporate registry checks to establish the identity of the ultimate beneficiary behind corporate donors or third parties. However, basic AML checks alone are insufficient to provide a complete picture of the risks associated with certain donors.
To achieve a more nuanced understanding, a charity should supplement AML screening with wider contextual information gathered from reliable public sources. This might include an initial summary of the subject, biographical details, analysis of their source of wealth, and any associations with criminal activity or reputational controversies.
The next step is analysing and interpreting the findings. This process isn’t just about identifying obvious red flags, but also about scrutinising inconsistencies or areas of concern, such as discrepancies between public records and self-reported information. A detailed review of the subject’s source of wealth can provide additional clarity on the legitimacy of their financial standing.
If any concerns arise, this stage should determine whether further investigation, such as enhanced due diligence (EDD), is required.
Mitigating potential risks
The final aspect of the process is using the gathered information to identify and mitigate potential risks. Whether it’s a question of financial crime, regulatory non-compliance or reputational damage, charities need to assess the risk and develop a strategy for mitigating it. This could involve setting clear thresholds for acceptable risk levels or establishing ongoing monitoring mechanisms to ensure long term compliance and vigilance.
Conducting these steps manually is hard. Manual due diligence isn’t only time consuming but also prone to human error, with the risk of missing crucial information or failing to keep up with real-time data updates. For charities operating globally, access to international data can be another hurdle, further complicating the process.
Automating parts of this workflow through technology allows compliance teams to scale their efforts and enhance the accuracy of their assessments, thereby reducing the risk of aspects being missed.
Ultimately, a clear and structured due diligence process is essential for making informed, strategic decisions about donors and third parties. By focusing on both comprehensive data gathering and the ability to manage risks effectively, charities can maintain compliance and protect themselves from potential threats.
ARTIFICAL INTELLIGENCE CAN HELP BUT IT WON’T REPLACE HUMAN THINKING. Without the right tools, due diligence is slow and costly. As a result, many charities will have defined due diligence thresholds specifically tailored to their organisation, based on previously established giving benchmarks, to better preserve resources.
While traditionally this has been the only way to ensure the due diligence process is sustainable and manageable, advancements in technology mean this is no longer the case.
Greater assurance
Adopting the right tools has enabled many charities to lower their thresholds and use AI to perform due diligence across a wide range of donors, not just a select few. Adopting AI can provide charities with much greater assurance that they are gaining the most comprehensive view of a donor's potential risks, while also uncovering additional factors that might otherwise be missed.
Advances in Natural Language Processing mean AI tools can now read and understand content as a human researcher would. Furthermore, advances in generative AI enable it to synthesise the information it has analysed into a human-like written due diligence report.
With AI tools that can handle the manual steps, researchers can work quickly and confidently to provide information to decision makers, allowing donor funds to be onboarded and put to use quickly. Thresholds can be lowered, and there’s no longer a risk of being unaware of potential issues below the surface with the donor.
Human oversight essential
But while AI is powerful, it’s important to note that it won’t make the final call. Human oversight is essential. Charities should ensure that AI tools are used to enhance research, not replace decision making. This includes carefully considering whether AI might inadvertently recommend rejecting donors for reasons that are more about personality than legality or ethics.
For example, a donor accused of bullying behaviour might appear problematic, but does their behaviour truly violate the charity’s values? Combining AI-driven insights with human judgement ensures a balanced approach.
Protecting a charity's reputation is critical to its future, and due diligence plays a pivotal role in achieving this. The Charity Commission continues to emphasise its guidelines on identifying and mitigating risks.
Even if a donation is accepted, appropriate measures should be implemented, such as renewing due diligence to monitor the donor's activities or scrutinising unusual donation patterns or red flags that may indicate suspicious behaviour. While the traditional approach to this was only done on a subset of riskier donors, it left process gaps that could be exploited by unscrupulous donors.
Scalable solution
However, the advent of AI technology offers charities a more comprehensive, efficient and scalable solution. By lowering thresholds and applying AI-driven tools, charities can assess a broader range of donors while ensuring that hidden risks are not overlooked.
With the ability to process and synthesise vast amounts of data, AI makes the due diligence process robust, facilitating faster decision-making without compromising on the depth of research. But as powerful as these tools are, human direction remains essential. It is through the careful balance of AI’s efficiency and human judgment that charities can continue their critical work with integrity.
