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Charitable Vetting: The Why and the How

As a Program Director with Legacy Global, part of my responsibility to donors is to vet the organizations that they are recommending grants to. At a minimum, vetting is done on an annual basis. This ensures that the recipient organization is in compliance with U.S. law and meets the standards of Legacy’s Disbursement Policy which safeguards Legacy donors.

Typically the vetting process can be completed without placing an undue burden on the recipient charity. This is a result of the availability of information from the charity’s website or public information databases.

In general, I look for 4 main documents:

  1. Letter of Determination from the IRS

  2. IRS Form 990

  3. Annual Reports

  4. Audited financial statements

These documents show that the organization is in good standing with the IRS and demonstrates their fiscal responsibility.

Step 1 – Tax Returns

First, I look up the organization on Guidestar. Through this website, I am typically able to get copies of the organization’s 990 (the non-profit tax return form) for the past 3 years. Guidestar often does not list smaller, new, or foreign charities. These organizations may need to provide tax returns and financials directly to Legacy.

Step 2 – IRS Status

I visit the organization’s website and look for a copy of their Letter of Determination from the IRS. This letter shows that the organization has been granted charitable status under section 501(c)(3) status of the internal revenue code. Next, I look for annual reports and audited financial statements. However, donor-advised funds are not permitted to give direct grants, however charitable the cause, if the organization is not currently qualified as a public 501(c)3 organization with the IRS. If this is the case, I look for a qualified charitable partner to facilitate the requested grant.

Step 3 – Domestic vs Foreign Recipients

If the organization only operates in the United States, I look up them up on the following:

  1. Homeland Security Watchlist

However, if the organization is based or operates in a foreign country, I look up the organization on the following:

  1. Homeland Security Watchlist

  2. OFAC (Office of Foreign Asset Control) through the U.S. Treasury Department

  3. NGO (Non-governmental Organization) Database provided by the U.N.

  4. ECOSOC List provided by the Economic and Social Council of the U.N.

The NGO Database and the ECOSOC List document the non-government organizations that have consultative status with the council.

Step 4 – Getting to Know the Organization

Charitable giving is about far more than numbers. Once an organization has passed the minimum legal requirements to qualify for a grant, I make sure that Legacy has direct contact with the organization. This includes discovering what the charities goals and needs are, what the financial and program plans include, what the most effective use of funding currently is, how the charity evaluates programs and reports to donors, and what the fundamental charitable mission of the organization is and is the charity implementing that effectively.

Step 5 – Vetting Follow Through

I encourage donors to be as involved as they want in this process. Knowing why donors select a particular organization makes a big difference … as well as knowing what donors would never want their donations to support. I ensure that the charitable intentions of Legacy donors are protected and maximized by the recipient charities. Often, this means customizing the grant to match the charities program needs, while still simplifying the administrative burden for the recipient as much as possible.

I follow up with the organizations to which Legacy issues grants to ensure that the intended use of funds happens.

When a grant recommendation is approved, the donor can know that the organization:

  1. Has been vetted

  2. Is financially responsible

  3. In good standing with applicable law and regulations

  4. Committed to being transparent and accountable to their donors

#Compliance #Vetting

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