How NPT Conducts Grantmaking Due Diligence—and How Donors Can Avoid Charity Scams

In the continued wake of the COVID-19 pandemic and as the busy upcoming Giving Season approaches, donors should be aware of the rising number of charity scams and fraud. The FTC reported that Americans lost more than $13 million to fraudulent charities in 2021 and it’s likely the total is much higher.

While headline-grabbing news of elaborate fake charity networks can set off alarm bells, donors should instead use this as a learning opportunity. They can avoid risk with some basic knowledge of due diligence, and rest assured that NPT has its own due diligence process to ensure charitable dollars from their donor-advised funds are reaching their intended recipients.

The Grants Team at National Philanthropic Trust has a rigorous due diligence process that begins as soon as a donor recommends a grant, whether that grant is for $250 or $25 million. Here are a few rules the Grants Team at NPT uses to conduct due diligence, and some steps donors can take on their own before recommending a grant.

• The most important factor in successfully delivering a grant is ensuring the grantee organization is an active, qualified charitable organization with a 501(c)(3) designation and classified by the IRS as a public charity. NPT’s Grants Team researches all grantee organizations before processing a grant. Informational databases, including the IRS’ search site dedicated to tax exempt organizations, are also available to the public. Look for “Pub 78 Data” to confirm an organization’s current status.
• Donors can also confirm a charity’s good standing by looking the organization up by name or EIN through third-party database services like Candid’s GuideStar or Charity Navigator.
• Be mindful of how an organization appeals to you. Plenty of legitimate charities use email, but so do fake organizations. Legitimate nonprofits do not typically reach out personally to donors via social media or text message.
• Typically, scam charities ask for immediate donations via cash, gift cards or wire transfers. Donating via your donor-advised fund, or with a credit card or check is more secure.
• Unfortunately, scams proliferate in the wake of natural and humanitarian disasters. While the impulse to give for relief is important, remember to also exercise judgment when giving. See some other strategies for giving after disasters here.
• Scam charities often have names that are close (but not quite exactly the same) as legitimate national charities. Others may be vague or unspecific. Keep a close eye on the name and contact information of organizations to which you donate.
• Finally, remember the rules of using your DAF. DAF grants cannot be used for any personal benefit. Grants cannot be used to support political parties, candidates or lobbying activities. DAF grants cannot support private, non-operating foundations. Grants to newer organizations (under five years in operation) and international organizations usually require enhanced due diligence on NPT’s part. And donors should also be aware that support for high school or college athletics will be investigated—the donor cannot be related to any member of the sports team in question. A DAF cannot be used to pay a specific student’s tuition. DAF funds can, however, support scholarship funding and financial aid programs.

Proper due diligence is extremely important. Grantmaking organizations can be audited and subject to an excise tax if a grant was not used in the way it was intended. These penalties are based on a percentage of the grant amount, so it can be extremely costly.

While the processing time of due diligence may vary, it’s all done to ensure your philanthropic efforts through NPT meet only the highest standards. Additional grantmaking rules and information can be found here.