It’s fascinating how many fraudsters prominent in the past year’s local and national news have beengreat philanthropists. As an auditor of nonprofit organizations the question comes up: How should an organization react if it has received donations from accused or convicted individuals? How will the recipients of these tainted donations be affected? And should donors boards or management of South Florida’s community organizations change their fundraising procedures in the future?

The first concern is whether the money will need to be turned over to investigators or regulators. According to legal counsel the key question is whether the recipient had knowledge of the source of the funds. For example if your development director targeted a specific donor knowing he was trying to place illicitly earned cash the donation you received is at risk. From an accounting perspective you would need to book a liability since these funds may not be yours to keep. But if your board chair solicited a gift from a community leader without any knowledge of illegal activity the funds are unlikely to be “clawed back.” The burden is on the investigator to prove that your organization had knowledge of the fraud. One thing investigators are likely to pursue is any relationship a board or staff member had with the now-disgraced donor.

Nonprofit organizations should consult their auditors and legal counsel if they have received donations from questionable sources.

If your organization received funds from a donor who turned out to be engaged in illegal activity would that taint your reputation and affect future donations? From my auditing experience that’s unlikely. Nonprofits may see a drop in revenue if internal fraud is discovered — misappropriation of funds by staff for example. But donors are unlikely to hold the organization responsible for the misdeeds of contributors.

Perhaps most important is how community organizations should protect themselves going forward. Unfortunately perpetrators of sophisticated fraud schemes are expert at concealing their misdeeds; the strongest internal controls wouldn’t be triggered by a large donation from a well-known philanthropist. Yet it’s important to make sure to exercise caution if large amounts are donated.

If a member of your organization (board or management) is actively soliciting donations from major potential donors do some due diligence. Be particularly careful if a contributor wants to give a large donation anonymously. Consult with legal counsel regarding complicated structured asset protection contributions. There are many good reasons for these circumstances but it’s a wise idea to understand the specifics. The research you would do to identify how to approach the donor and attract the donation is a good start. It’s prudent to gain an understanding of their reputation in the community and know the people with whom they associate. Search the Internet for any information about the person particularly in the news. Do a background check paying particular attention to credit issues judgments and lawsuits. Set up a Google alert so you’ll know if anything new comes out during the time you’re nurturing the potential donor. This will be useful even if it’s positive news. It shows you’re paying attention to their successes in the community which is always a positive in relationship-building.

A heightened level of skepticism is warranted at every level. Management should review internal controls and add additional vetting of large donors. Board members should make themselves aware of these procedures before pursuing large donations. And donors would be wise to ask about an organization’s financial controls when considering large contributions.

Tanya Ferreiro is an audit principal with the CPA firm Kaufman Rossin.