In the days following the Boston Marathon bombing, crowdfunding sites reported more than $2 million raised to support victims of the tragedy. Because online giving provides a quick, easy mechanism for supporting those in need, it is of little surprise that the public went online to support victims of the tragedy. But the speed at which people turned to this latest trend in fundraising has BBB concerned.
In mid-2007, BBB Cincinnati had its first experience with a rudimentary crowdfunding site. Local newspapers touted the site’s ability to aggregate small donations for a big impact, but BBB was skeptical. We asked the operators of the site to substantiate a variety of claims and prove that recipients selected by donors received the donations that were made online. The site’s operators never responded to our requests for information, nor did they verify that the intended recipients received the pledges. Within a couple of years, the site’s operators closed up shop.
“They told us they raised large sums of money online, but we couldn’t account for where the money was going,” says Jocile Ehrlich, President & CEO of BBB Cincinnati. “We still don’t know what happened to the funds they raised.” This lack of independent oversight leaves BBB skeptical of crowdfunding.
Caveat emptor is the name of the game when it comes to crowdfunding, because the sites allow virtually anyone to solicit money for any purpose. Unlike with traditional charities, there’s no Board of Directors or third-party operating at arm’s length to ensure the funds are used as solicited. Plus, it’s unlikely the public would ever know if the funds are misused or never given to their intended beneficiaries, because there’s no mechanism in place for third parties or government agencies to monitor the use of funds. The recipients are not required to file informational tax returns to publicly disclose how the funds are used. (This is only a requirement if recipients of the funds are 501(c)(3) tax-exempt charities). In BBB’s experience, this lack of transparency often breeds misuse of funds.
“Giving to victims of the Boston Marathon bombing is commendable,” says Ehrlich. “No one is saying don’t support them. What we are saying is if you decide to support the victims through crowdfunding, do it with your eyes open. Be fully aware of the risks you’re taking and understand that money given to individuals on these sites is not tax deductible.”
If crowdfunding appeals to you, consider funding campaigns and projects that have appointed a trustee or attorney to disburse the funds collected. Although this added layer of oversight is not failsafe, a variety of legal and ethical rules require trustees and attorneys to disburse funds only for the purposes for which they were solicited. As an alternative to crowdfunding, donors should consider researching and giving to established charities that are assisting the victims.
BBB | New York City, BBB | Richmond (Virginia), and the BBB Wise Giving Alliance (Arlington, Virginia) contributed to this blog.