Due diligence is one of the most critical duties that a corporate compliance program handles. It can also be one of the most painstaking, frustrating, and prone to error. The solution, as compliance professionals have heard so often, is to use an agile, risk-based approach. So what does that mean, really? How does a compliance leader… Read More
What are Donations?
Donations are gifts of money or property conferred by a corporation or private individual on a non-profit charitable, educational, religious, or public service organization.
While a legal contract requires consideration (something of value given in exchange) from both parties, a donation is accepted by the recipient organization without any consideration.
Corporate giving has grown substantially in the past decade, as organizations seek to elevate the standing of their brand through contributions to high-profile causes. Corporations donated over $20 billion to charitable organizations around the world in 2017 (the most recent year for which data is available), with the top 10 companies donating a total of $2 billion.
With the high dollar amounts at stake, corporations must do their due diligence to ensure their donations reach reputable organizations who will use donated funds for their intended purpose.
Donating to a cause can have benefits for organizations as well. By giving back, organizations can foster a positive culture within their company and enhance their public reputation.
What is an Example of a Donation?
The world’s biggest companies donate millions or billions of dollars each year, much of it through donation matching programs. Companies like Google, Apple, and General Electric operate programs where they match donations from their employees to educational institutions and human services, cultural, civic, and environmental organizations.
In addition to a successful donation-matching program, Microsoft also runs a volunteer grant program where employees receive compensation to perform volunteer work in their communities.
Other organizations have tied themselves to specific causes—take Coca-Cola for example. The beverage company has donated over $800 million since its foundation in 1984, with a focus on:
- Entrepreneurial development and economic empowerment of women
- Youth education and development
- Supporting access to and conservation of clean drinking water
Is a Contribution the Same as a Donation?
Contributions and donations both sound like they’re describing the same thing—a gift. In the United States tax code, you’ll see terms like “charitable contributions” and “donated property” used alongside each other in reference to charitable donations, so there’s at least some evidence that contributions and donations are the same thing.
The important distinction here is between charitable donations and political campaign contributions. In the United States, corporations can benefit from a tax deduction when donating funds to a qualified organization.
Qualified organizations may include:
- The United States, or any political subdivision of the same (a state, city, etc.).
- Charitable, religious, educational, scientific, literary, or anti-cruelty foundations operating under United States law.
- Places of worship
- Volunteer firefighting organizations
- Military veterans foundations in the United States
- Civil defense organizations created under local, state, or federal law
- Fraternal societies operating under a lodge system
- Non-profit cemetery companies
In contrast, an individual or corporation may not claim a tax deduction for a political campaign contribution.
Anti-Corruption Compliance for Charitable Donations
As corporations have stepped up their charitable contributions, scammers have set up rogue non-profit organizations (NPOs) to collect and misappropriate their cash. If these funds find their way into the hands of corrupt foreign officials, it may create the appearance of a bribe that violates the Foreign Corrupt Practices Act (FCPA).
As a result, corporations must perform their due diligence to adequately screen and verify charities before making a donation.
At the very least, corporations should:
- Diligently screen and validate potential beneficiaries prior to making a donation
- Donate exclusively to organizations that can be trusted to utilize the funds for their intended purpose
- Keep detailed and accurate records of all philanthropic activities
- Avoid making donations to public officials or other organizations with regulatory oversight of your company’s business, especially where there is potential for a conflict of interests to occur