Nonprofit Fundraising Platform Due Diligence Essentials

As a lawyer who works with charities and nonprofit boards, I spend much of my time talking about risk. Most leaders think about risk in terms of funding shortages, staff turnover, or regulatory audits. Few expect that the platform they use to collect donations could put their organization in financial jeopardy.

That is why the recent bankruptcy filing by the fundraising platform Flipcause has been so troubling. According to reporting, the company filed for Chapter 11 bankruptcy after delaying or withholding millions in donated funds owed to the nonprofit organizations that used the service. Oakland Voices reported that Flipcause filed for bankruptcy in December 2025 and listed more than 3,200 nonprofit organizations as unsecured creditors, owing roughly $29 million in unpaid donor funds.

Oregon news coverage has highlighted the fallout for local organizations struggling to get answers and recover funds after Flipcause’s collapse.

Nonprofits small and large are now trying to navigate what it means when the platform they trusted to process donations suddenly becomes part of a bankruptcy case.

The Real Issue Is Stewardship

Charitable organizations hold donated funds for the benefit of the public or a defined mission. Boards and executives have a legal duty to safeguard those assets. When a nonprofit uses a third-party platform to collect and hold donations before they reach the organization’s bank account, the organization is placing its donors’ money in the hands of an outside provider.

Many organizations assume that once a donor gives through an online platform, the money is simply on its way to the nonprofit’s account. In reality, depending on the platform’s structure, funds may be held for a period of time, pooled with other funds, or not fully segregated from the company’s operating accounts. When that platform becomes insolvent, those structural details suddenly matter a great deal.

When payment processors or fundraising intermediaries delay or withhold funds, it directly affects a nonprofit’s ability to meet payroll, pay rent, or deliver services.

California’s Attorney General also issued a public statement addressing funds being held and urging affected nonprofits to document their transactions and seek guidance.

Questions Every Board Should Ask

Selecting a fundraising platform should not be treated like choosing a software subscription. It is a financial and legal decision that deserves scrutiny similar to hiring an auditor or selecting an investment manager.

Below is a practical due diligence checklist nonprofit leaders and boards can use when evaluating fundraising platforms or fiscal sponsors.

Nonprofit Fundraising Platform Due Diligence Checklist

1. How Funds Are Held

• Where are donated funds deposited immediately after processing?
• Are funds held in a segregated account for the benefit of client nonprofits?
• Are funds ever commingled with the company’s operating funds?
• Is there a written trust, custodial, or escrow arrangement?
• How long does the platform hold funds before transferring them?

2. Financial Health of the Vendor

• Is the company profitable or venture-backed?
• Are recent audited financial statements available?
• Has the company disclosed any pending litigation, regulatory investigations, or financial distress?
• What happens to client funds in the event of insolvency or bankruptcy?

3. Regulatory Compliance

• Is the platform registered where required as a commercial fundraiser or fundraising counsel?
• Does it comply with state charitable solicitation laws?
• Are required disclosures made to donors at the point of donation?
• Has the company been subject to enforcement actions by state regulators?

4. Contract Terms

• What does the service agreement say about ownership of funds?
• Does the contract clearly state that donations belong to the nonprofit?
• Are there indemnification provisions?
• Is there a right to immediate termination and prompt transfer of funds?
• What notice must be given if the company changes terms or financial structure?

5. Internal Controls and Reporting

• How frequently are donation reports provided?
• Can funds be reconciled in real time?
• Who within your organization is responsible for reviewing transfers and discrepancies?
• Is there a backup plan if the platform becomes unavailable?

6. Governance Oversight

• Has the board or finance committee formally reviewed and approved the vendor?
• Is vendor risk included in the organization’s risk management discussions?
• Are platform relationships reviewed periodically, not just at the time of onboarding?

The lesson from the Flipcause situation is not that nonprofits should avoid technology. Online tools and fiscal sponsorship models can expand reach and improve efficiency. But outsourcing does not eliminate responsibility.

Boards and executives remain stewards of charitable assets. Understanding where donated funds sit, how they are protected, and what happens in a worst-case scenario is not optional. It is part of protecting the mission and honoring donor trust.

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.