Philanthropy: The Darkside of Giving…Getting

We like to think of philanthropy as pure altruism… making a gift, and it often is, but philanthropy also has its dark side.

Criminal Theft and Deception

Among the darkest is that there are charities legally registered as non-profits that are merely scams collecting money for owners and sponsors.

Charity Watch, the charity rating service of the American Institute of Philanthropy(AIP), is as close to an independent charity-rating service as donors will find. They do most of their own analytical research (as opposed to charity-supplied data) on non-profits seeking your charitable dollars. Charities are rated on the percent of their overall income they spend on program, on fundraising, and on management i.e. how much they spend on executive compensation and overhead, how much they spend to raise $100, as well as the size of their unspent reserves. But even then, Charity Watch’s analyses are limited somewhat by their use of comparative financial ratios derived mostly from 990 and tax filings. There’s little or no direct research on factors such as effective delivery-on-mission, a more difficult process to quantify.

Then there are the real scam charities, the lion’s share of which are associated with causes that elicit deep and immediate human empathy. Breast cancer leads the pack. Professor Mara Einstein’s book Compassion, Inc. explains why “breast cancer,” aimed at women 26-55, is the most lucrative of all the fundraising calls-to-action.

According to Charity Watch’s last annual report, the Cancer Recovery Fund reported $14 million in contributions in 2017 but only $17,485 was spent helping 70 women with cancer pay overdue rent and utilities. The United Breast Cancer Foundation spent $163,520 of its $24 million in 2018 donations helping 14 women with breast reconstruction and providing cancer screenings. The United Cancer Support Foundation spent $67,783 of its $2.5 million in 2018 contributions on “cancer detection.”

Veterans, pets and animals, fire and police, the homeless, and indigenous Americans are also high on the list of fraudulent fundraising categories.

Volunteer Firefighters Alliance (one we hear from at home annually) spent none of the $4.6 million they raised in 2018 contributions assisting firefighters with new equipment. The Organ and Transplant Association spent no money supporting or helping transplant patients. Kids Wish Network spent less than 5% of its donations of $43 million raised from 2016-2018 and Foundation for American Veterans spent only 0.0008% of the 13.7 million in donations per its 2016 tax filing providing direct financial aid to 15 veterans. Charity Watch also has a lot to say about Crisis Relief Network.

Having said all this, I’ve chaired a number of Vermont nonprofits including Vermont Journalism Trust, the parent organization of VTDigger. As we watch the steady decline of for-profit journalism, it’s revealing to watch the powerful emergence of nonprofit journalistic enterprises like VTDigger.org.

I know the Vermont nonprofit community quite well. In my 50 years doing nonprofit work I’ve run into few, if any, overtly fraudulent Vermont charities and only a few I would characterize as ego-driven rather than mission-driven.

Although I am agnostic on the subject of an afterlife, I believe there is a special circle in hell for the outbound telemarketers and spammers who prey on the elderly, especially those who design their pitches based on elderly people’s empathy, loneliness, and lack of tech-savvy.

Over $1.7 billion dollars is stolen from the elderly (over 60) annually. Not all of this is “philanthropic,” some are get-rich-quick scams. There’s been a 74% increase over the last year of such scams and the average dollar loss per person is over $18,000, some 3100 losing over $100,000.

Donor-Advised Funds

Another questionable side of philanthropy is the donor-advised fund(DAF). According to Alan Cantor, a nationally known consultant with deep expertise in philanthropy and DAF abuse, there’s $142 billion “philanthropic” dollars parked in DAFs.

A DAF’s funder can claim the full tax benefits of a philanthropic donation at the time of creation of the DAF but then has no subsequent obligation to make any charitable donations from that fund. Were that donor to set up a foundation, they would be required to actually donate a minimum of five percent of the full amount annually.

The lion’s share of donor-advised funds are managed and held by Vanguard, Schwab, Fidelity, and other financial services firms not by community foundations like Vermont’s own Vermont Community Foundation(VCF) which manages a significant number of Vermonters’ DAF’s and educates and encourages funders to actually help nonprofits by making grants.

Cantor goes into well-researched and documented detail about the significant abuse in the donor-advised fund industry, detailing how little it actually supports philanthropy.

According to Giving USA, charitable giving has remained remarkably consistent for the last four decades. Two percent of American’s disposable income is contributed annually to charity. One can infer from this that the rise in giving to donor-advised funds has significantly reduced the charitable giving going directly to working charities.

As for overall giving to charity? There’s been virtually no movement relative to our economic capacity over the last five years.

Religious Donations

The issue is further complicated by religious donations, some of which are social-service oriented and some of which are used only to support religious institutions.

According to the Chronicle of Philanthropy, About 41% of American charity is religious. This explains Vermont’s apparently low rate of charitable giving, as Vermont has the lowest rate of religiously affiliated people in the country at 21%. That does not necessarily mean Vermonters are less generous in supporting social mission-driven nonprofits, only that they are less likely to support churches. Churches are also not required to file 990 forms, with the result that there’s no regulatory oversight over how churches spend their donations.

“Dark Money” Philanthropy

The abuse of the federal 501c(3), c(4), and DAF donation tax-deductibility statutes demands serious legislative review.

The IRS defines nonprofit donations as tax-exempt if recipients are not organized for profit and are operated “exclusively to promote social welfare.”

Where politics is involved  ̶  in the c4 category  ̶  it’s becoming more evident that abuse is widespread with the infusion of “dark money” into politics and lobbying,  something that is significantly altering the face of American democracy. This is especially so now that corporations have achieved “personhood” legally with the Citizens United decision.

Argued in 2009 and decided in 2010, the Supreme Court held 5-4 that the free speech clause of the First Amendment prohibits the government from restricting independent expenditures for political campaigns by corporations, including nonprofit corporations, labor unions, and other associations.

To further endanger democracy, conservatives have lobbied hard for a “starve-the-beast” strategy whereby Congressional funding is reduced, inhibiting, for example, the enforcement effectiveness of the IRS, the capacity of the U.S. Postal System, and exhibiting a preference for a business-operated U.S. transportation system and infrastructure rather than one supported by tax dollars. Of course, if you “starve the beast” its operations deteriorate and can then be unfavorably compared with for-profit management.

The beacon of philanthropy dims when it is touted as an alternative to federal funding, as many wealthy philanthropists have suggested it should be. The problem here is that the one bearing gifts usually has an agenda that comes with the gift, so the philanthropist, in essence, is buying strategy and outcome. This has happened on many college campuses where ideologically driven donors on both left and right seek to influence curriculum.

Given all these issues, the integrity of a philanthropic gift can be hard to assess. It’s either altruistic or self-serving, depending on the hearts and minds of the givers. Most worthy nonprofits make clear that gifts must be the former and will not be accepted if they carry a donor’s agenda. But this can be a difficult decision, especially for a worthy but struggling nonprofit.

One should ask oneself these questions each time one considers a donation: Do I understand the true mission of the non-profit and is it effective? Is my giving for the benefit of others or for myself? Am I truly giving because I care about individual and community wellbeing?

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