How to Choose an International Vetting Method
I’ve always been the person who donates the extra $1 at the grocery store to the charity of the month. Maybe I’m an easy target, or maybe I appreciate the ease of doing good without having to think too hard about it. Either way, I give my dollar and move on, not thinking twice about what happens to that dollar after it’s out of my possession, and I truly don’t know if it’s going to the correct place or not. But what happens when that $1 is actually $1 million, and it’s coming out of a corporate foundation instead of my personal bank account. How can we rest assured knowing that our donations, both large and small, are going to a valid charity?
Either way, I give my dollar and move on, not thinking twice about what happens to that dollar after it’s out of my possession, and I truly don’t know if it’s going to the correct place or not. But what happens when that $1 is actually $1 million, and it’s coming out of a corporate foundation instead of my personal bank account. How can we rest assured knowing that our donations, both large and small, are going to a valid charity?
In the United States, we’re fortunate to have a database through the IRS that clearly tells us a charity is valid, but when we want to validate a charity overseas, it can be confusing, daunting, and overwhelming. While the global expansion of CSR programs is still an imperfect concept, know that you are not alone, and all of the resources you need to determine your international vetting are right at your fingertips.
Using Equivalency Determination
The highest, and strictest, level of international vetting is referred to as Equivalency Determination (ED). This is the process of determining whether or not an international charity is comparable to a US 501c3.
Your company may require ED if:
- Your legal team requires it from a risk-adversity standpoint
- You are paying your grants out of a US foundation
- You need to process grants to appease a certain tax situation
Equivalency Determination can be a timely, expensive, and resource-heavy process, so typically companies will steer away from this unless it is required (this seems like a lot of work for my lowly $1 donation). The challenges can span from language barriers to differences in time zones, and often times each charity needs to be re-vetted every 1-2 years. The requirements for Equivalency Determination are defined by the IRS and are outlined here.
The Good Faith Approach
The second international vetting option is referred to as a “good faith determination”. This consists of using (mostly) public data to verify the grant-recipient is in fact a valid organization. While this approach may not define a nonprofit as a 501c3 equivalent, it can be enough for some companies to execute a grant. For most US companies, a core attribute of good faith determination is OFAC checking for Patriot Act Compliance.
A good faith determination is much more flexible than the Equivalency Determination and requires fewer resources. While this method is faster and easier, since it does not legally define an organization as the international equivalent of a 501c3, we as a grant-making entity, end up facing a bit more liability.
The Self-Defined Approach
Often times our clients have an idea or framework of the information they would require to vet a charity to feel comfortable with their dollars going there. Maybe they don’t want to face the timelines and work required for equivalency determination, and also don’t feel that a good faith determination is enough. This would lead them to create their own international vetting standards. These standards can be as strict or as lenient as needed, the only catch is finding a partner who can help you tackle your personal method.
This method of vetting is used for grant-making and is comparable to the Good Faith Determination. The requirements are looser than those used in the ED method, however, nonprofit organizations are required to report back to the grantee. This means, after a certain amount of time the nonprofit will have to come back and disclose how the grant is being used, and the impact that it had.
How to Determine Which Vetting Method is Right For You
If you are not sure which method your company needs, there are a few different people you can check with internally. One is your legal or compliance team. They typically know what level of liability they are comfortable with when processing funds overseas and can tell you what they would require in terms of vetting.
You can also check with accounting. They will most likely be able to work with you to determine what account, foundation or corporate, funds will come from. Remember that if your company plans to make their donations and grants out of a foundation, ED would be required.
Vetting an international charity can take on a lot of different forms, however, it’s important to note that it’s not entirely up to you to see that these charities are valid. Deciding which path to go down is not something you need to do alone, and we encourage you to share best practices and ask friendly resources for help. That’s where we (YourCause) come in.
How YourCause Can Help You Internationally Vet
Most CSR platform providers will have the ability to perform any of these vetting processes or are partnered with an organization that can perform them for/with you. Take YourCause for example, we have partnered with different partners who give us the ability to assist you in either Equivalency Determination or Good Faith Determination. We leverage our own technology to help us perform vetting against a variety of frameworks and standards. The flexibility of our vetting services is rooted in our consultative nature, so even if you’re not sure which standard is right for you, we can provide resources to help you make the best determination.
Overall, international giving and volunteering are becoming an integral part of CSR programs all over the world. We’re seeing companies reach engagement numbers that surpass those here in the US and more donors are expressing interest in non-domestic organizations. So, maybe you’ve been thinking about the possibility of a program expansion, or maybe you were asked at the grocery store if you wanted to add an extra $1 to your grand total to help support a charity. After reviewing the different methods: equivalency determination, good faith determination, self-defined approach, or expenditure responsibility; you’ll have a better idea how you or your company will vet charities. Vetting is critical to understanding where your money is going, whether it’s expanding your companies program overseas or simply donating $1 at a grocery store.