May 1, 2024

Awareness for Donors: Due Diligence When Choosing Nonprofit Organizations for Grant Recommendations

Author Mike Boyce, Senior Grants Manager

Grants from donor-advised funds (DAFs) experienced tremendous growth between 2020 and 2021, mainly in response to the urgent need for critical nonprofit support during the COVID-19 pandemic. However, as philanthropic efforts have increased, so have charitable scams and fraud, which typically spike during disasters—costing Americans more than $12.5 billion in 2023 alone.

While most philanthropists are at least tangentially aware of online fraud, it’s critical to re-examine individual due diligence related to charitable giving and nonprofit organizations, as fraudsters and scammers continue refining and improving their malicious endeavors.

Conduct Initial Research

The first step when considering a donation is to confirm the organization is a legal 501(c)(3) public charity. Donors can use the Internal Revenue Service (IRS) Tax Exempt Organization Search Tool to verify an organization’s standing. Nonprofits will most likely provide their Employer Identification Number (EIN) on their website for confirmation. Independent, third-party databases, such as Candid’s Guidestar, Charity Navigator, or Better Business Bureau’s Wise Giving Alliance, are also helpful in identifying equivalent organizations operating internationally and can help verify a nonprofit organization’s legitimacy.

Be on Alert for Common Red Flags

  • Fraudulent charities will often falsely use the name of—or present themselves as—well-known or established nonprofit organizations. If giving online, always go directly to an organization’s website rather than clicking through links. Be sure to rely on the organization’s unique EIN or tax ID number.
  • Crowdfunding through social media and email is a hotspot for scams. Pay close attention to details like spelling, grammatical errors and images, as they can be telltale signs of a fake organization or website.
  • Nonprofits rarely, if ever, reach out to donors directly through social media, nor will they use “pushy” tactics to get a donor to make a gift.
  • Scammers often set up new organizations. Look for a documented history of giving with any organization, especially if it’s new or unknown to donors.
  • According to the Federal Trade Commission, scammers often seek to obtain funds quickly through cash, gifts, cryptocurrency, or wire transfers and will refuse to send information or explain how they will use the donation. Legal nonprofits will provide secure methods of donation and detailed program information.

Reach Out to Your Trusted Advisors

In addition to conducting one’s due diligence, communicate with your circle of trusted advisors—including our staff at National Philanthropic Trust—throughout the grantmaking process. The team of professionals in NPT’s grants department facilitates a rigorous due diligence process that ensures a grantee organization is an active, qualified organization with a 501(c)(3) designation and is eligible to receive grant funding from a DAF.

What to Know When Giving Internationally

For donors looking to support international organizations, the first step may be to identify if they have any method of accepting donations from a U.S.-based sponsored organization or a “friend of” domestic public charitable organization. Suppose the organization has neither of these things. In that case, NPT donor-advisors can still enter a grant recommendation to the international non-government organization (NGO) using the donor portal by manually adding the grantee to their Charity List and submitting the grant recommendation. Our grants team will review the organization and conduct due diligence to determine if the organization is the equivalent of a U.S. public charity in its nation of origin, and therefore an acceptable grant recipient.

It’s important to remember that due diligence for donors and advisors is a smart and safe approach to grantmaking, allowing for philanthropic efforts to become a reality.

About the Author

Mike Boyce is Senior Grants Manager at National Philanthropic Trust and has over seven years of experience in DAF grantmaking and due diligence, providing quality service to donors and advisors as they explore their philanthropic interests. Mike is responsible for the oversight and administration of NPT’s grantmaking team and procedures to ensure compliance and timely processing of grants to provide charities with financial support.