February 4, 2025

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In recent years, nonprofit organizations have faced a surge in government investigations, ranging from state attorney general inquiries into potential violations of charitable solicitation laws to U.S. Department of Justice investigations into alleged failures in nonprofit tax compliance. Congressional committees have also launched investigations into conflicts of interest within nonprofit entities.

How a nonprofit responds to a government inquiry, whether a routine regulatory review or a criminal investigation, can significantly affect its operations, reputation, and ability to raise funds. This guide offers an overview of common government investigations and provides strategies to help organizations navigate the process effectively.

I. Understanding Government Investigations

Government investigations can take various forms, including civil, criminal, or both. They may cover a broad range of issues, from financial misconduct, such as embezzlement, accounting irregularities, and contract fraud, to corruption, kickbacks, and conflicts of interest, all of which are of particular concern to law enforcement agencies and prosecutors. Civil regulators, on the other hand, typically focus on alleged violations of charitable solicitation laws, nonprofit reporting requirements, lobbying and political campaign restrictions, employment laws, and other regulatory matters. In many cases, civil and criminal authorities conduct parallel investigations, especially when the allegations suggest both regulatory infractions and potential criminal conduct.

II. How Investigations Begin

Government investigations involving nonprofit organizations can arise from various sources. Complaints from disgruntled individuals, including former employees, donors, or other stakeholders, often prompt regulators or law enforcement agencies, such as state attorneys general, to take action. Likewise, insiders may act as whistleblowers, reporting alleged misconduct to agencies like the Internal Revenue Service. Media coverage of potential wrongdoing can also draw the attention of regulators and prosecutors, including state district attorneys and the U.S. Department of Justice. In some cases, an existing government investigation may expand as new allegations emerge from cooperating witnesses or newly discovered evidence. Routine regulatory audits can also escalate into formal investigations, particularly when the findings suggest widespread issues rather than minor compliance violations. Similarly, allegations raised during litigation often make their way to government agencies for further scrutiny. In some instances, a nonprofit organization itself may trigger an investigation by voluntarily disclosing potential misconduct after conducting an internal review of its operations.

III. Types of Government Inquiries and What They Mean

The nature of a government investigation determines how a nonprofit may first learn of it. In some cases, agencies initiate contact informally, sending investigators to ask employees about their work, the organization’s donors, or other areas of interest. These informal inquiries may seem routine but should be approached with caution, as they can signal deeper regulatory concerns. For more formal investigations, federal and state law enforcement agencies may issue civil investigative demands (CIDs) or administrative subpoenas to gather evidence. These legal requests typically seek documents or information relevant to the agency’s inquiry. While CIDs and administrative subpoenas are civil investigative tools, the evidence collected may later be used in criminal proceedings. Similarly, congressional committees can issue subpoenas requiring organizations to produce materials or testimony as part of legislative investigations. Nonprofits and their employees may also receive grand jury subpoenas, a tool prosecutors use in criminal investigations to obtain documents or compel testimony before a grand jury. Unlike civil investigative demands, grand jury subpoenas are often a precursor to potential criminal charges, either against the organization or others, and should be taken seriously. In the most serious cases, law enforcement may execute a search warrant. Signed by a judge, a search warrant authorizes agents to enter and search a nonprofit’s office or other property, seizing records or devices specified in the order. Unlike other forms of inquiry, a search warrant must be complied with immediately, leaving little room for negotiation. ‍

IV. Should You Cooperate? Understanding Your Rights and Obligations

Law enforcement agents or regulatory investigators may approach individual employees for questioning. In most cases, participation in these interviews is voluntary. However, if an employee chooses to speak with investigators, it is crucial that their responses be truthful and accurate. Given the potential risks of an impromptu discussion, it is often best to politely decline an on-the-spot interview, request the agency’s contact information, and seek guidance from the organization’s attorney. If an interview is necessary, legal counsel can help ensure the employee is adequately prepared by reviewing relevant documents and communications beforehand. The organization’s attorney may also coordinate directly with the agency to arrange the interview under appropriate conditions. Compliance with CIDs or other administrative subpoenas is generally required. While these orders do not need prior court approval, agencies can seek judicial enforcement if a recipient fails to comply. Nonprofits may challenge overly broad or unduly burdensome CIDs in court, but judges typically grant only limited review of such challenges. Grand jury subpoenas, commonly used in criminal investigations, also require compliance. Failure to respond can lead to contempt charges, fines, and, in the case of individuals, imprisonment until compliance is met. While legal challenges to grand jury subpoenas are possible, courts rarely grant them unless exceptional circumstances exist. When law enforcement arrives with a search warrant, however, there is little room for negotiation or challenge. A warrant, signed by a judge, grants agents the authority to search the premises and seize specified records or property. In such situations, the only immediate option is to comply.

V. How to Respond to a Government Investigation

If a nonprofit organization receives a CID, administrative subpoena, or grand jury subpoena, it should immediately refer the request to legal counsel. An attorney can assess the appropriate response and ensure compliance while protecting the organization’s interests. Cooperation with government investigations is often beneficial, and legal counsel may be able to negotiate with investigators to narrow the scope of the requested documents or information. If law enforcement agents execute a search warrant, the organization must act swiftly. The attorney should be notified immediately, and a senior management representative should accompany the agents to observe and document what is seized. Retaining a copy of the warrant is critical, as it allows the organization to assess whether any records or devices were taken beyond the authorized scope of the warrant. Additionally, if agents seek to interview employees during or after the search, staff should be reminded that participation is voluntary. Once an organization becomes aware of a government investigation, it is crucial to determine its role in the inquiry. Legal counsel will typically engage with the investigating agency to clarify whether the nonprofit is a target of the investigation, a subject under scrutiny, or merely a witness providing information. If the organization is classified as a target or subject of the investigation, conducting an internal review may be necessary. This internal assessment can help determine whether a regulatory or criminal violation occurred, the extent of the issue, and who within the organization may be responsible. Understanding these facts can position the nonprofit to engage effectively with investigators, cooperate where appropriate, and, if necessary, negotiate a resolution. In cases of confirmed misconduct, proactive cooperation may help mitigate penalties and reputational damage. ‍

VI. Building a Strong Compliance Program to Mitigate Risk

The strongest safeguard against a government investigation, or successfully navigating one if it arises, is a robust compliance program and effective internal controls. Nonprofit organizations should establish clear policies and procedures for handling government inquiries, designating specific employees or officers responsible for responding to such matters. These protocols should outline the steps to take if investigators reach out, ensuring a coordinated and informed response. Additionally, the organization should have comprehensive compliance policies addressing key risk areas, such as prohibited conduct, conflicts of interest, and financial oversight. A structured reporting mechanism should be in place to allow employees to raise concerns internally before they escalate into regulatory issues. Regular compliance training is essential for both employees and board members to reinforce ethical obligations and legal responsibilities. Strong internal controls, including financial oversight and regular audits, help detect and prevent potential misconduct, reducing the likelihood of regulatory scrutiny. An organization is best positioned to handle a government investigation when it proactively identifies and addresses potential concerns before they come to the attention of regulators or law enforcement. If credible allegations of misconduct arise, the nonprofit should conduct an internal investigation to determine whether violations of law or internal policies have occurred. Taking corrective action, such as disciplining responsible individuals, strengthening policies, or improving oversight, can mitigate risks and demonstrate a commitment to compliance. In some cases, an organization may choose to make a voluntary disclosure to government authorities, potentially reducing penalties or legal exposure in exchange for cooperation.

VII. Conclusion: Be Prepared Before the Government Comes Calling

As government scrutiny of nonprofit organizations continues to grow, leaders must be prepared for the potential operational, legal, and reputational consequences of an investigation. Proactively strengthening compliance processes and internal controls is essential to reducing risk and ensuring the organization can respond effectively if an inquiry arises. Because a government investigation can happen at any time, nonprofits should have a clear and actionable plan in place. A well-prepared organization is not only better equipped to navigate an investigation but also to protect its mission, integrity, and long-term viability.