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Crowdfunding: The Wild West of Charitable Giving

   Nov 24, 2022

Originally published on 9/20/2021. Updated with Video on 11/24/2022. 

Crowdfunding continues to be a popular way to give. In a survey of 1,535 adults conducted in September 2020 by the Indiana University Lilly Family School of Philanthropy (the Lilly School), roughly 32% reported having donated to a crowdfunding effort. Of all the crowdfunding dollars given in 2019, 57.6% went to support individuals, including friends, family, acquaintances, and strangers, according to the Lilly School's report. The majority of donors surveyed expressed concern about the transparency and accountability of this type of giving, but these concerns were seemingly outweighed by the convenience offered by crowdfunding platforms, with 69.1% of crowdfunding donors agreeing with the statement, "Crowdfunding makes it easy for contributors to give and support a project."

While this type of giving may be easy and convenient, donors who contribute to crowdfunding campaigns do have legitimate cause for concern. Donating through a crowdfunding website is not much different than handing cash over to a stranger on the street. Unlike registered charities which are subject to formation filings and reporting requirements like articles of incorporation, bylaws, tax exemption applications, annual IRS tax reporting, state solicitation filings, and in many cases, annual audits, crowdfunding campaigns are often conducted by individuals for whom no public financial reporting is required.

'How an Instagram star's $7 million mission to rescue Afghan civilians struggled to get off the ground'

A September 29, 2021 article in The Washington Post  (WAPO) describes recent crowdfunding efforts made by an Instagram star, Tommy Marcus, aka "Quentin Quarantino," who recently crowdfunded over $7.2 million in less than two weeks via the GoFundMe platform. His campaign, "Operation Flyaway," promised to pay for evacuation flights for Afghan civilians fleeing Taliban rule. The original fundraising goal was only $550,000, intended to pay for two flights meant to rescue at least 300 people. Marcus and the nonprofit leaders he partnered with on the effort were startled by the windfall of donations, but, according to the WAPO article, Marcus wrote on his Operation Flyaway GoFundMe page that "everything raised will go to either pay for flights, or support these humans through various non-profits," and that the operation "will be running flights until they tell us we can't anymore." 

Sadly, $3.3 million was spent by Flyaway on flights that were canceled, and these costs have yet to be refunded. Exactly zero Afghans have thus far been evacuated on flights chartered by Flyaway, according to an examination by The Washington Post. Flyaway claims it has rescued or helped rescue 435 Afghans, according to figures it supplied to WAPO. Marcus had claimed that "every $1,500 raised represents a seat on one of the planes." Based on this projection, Flyaway should have only spent $652,500 on its rescue efforts thus far. In all, according to WAPO, it has spent a whopping $5.2 million on flights and ground operations. This computes to expenses of $11,954 per Afghan helped by Flyaway. 

"Laurie Styron, executive director of the American Institute of Philanthropy [CharityWatch], described crowdfunding campaigns as the 'Wild West of charity fundraising' and said that influencers should instead urge their followers to support nonprofits with experience and expertise. 'Good intentions mixed with hubris is a dangerous combination,' Styron said."

Because many crowdfunding campaigns are run by individuals or groups of people versus incorporated nonprofit organizations, these campaigns are not subject to the public disclosure rules that would reveal to donors how efficiently their donations were raised and spent. They also are rarely scrutinized by the government. Even in the best cases when crowdfunders are well-intentioned, they often lack the operational and financial expertise necessary to use the donations they receive efficiently or effectively. Donors interested in supporting a registered nonprofit organization participating in efforts to assist Afghan civilians may view CharityWatch's Hot Topic for a list of highly rated charities providing aid.

'Why it took an Edmonton social media star over a year to donate crowdfunding proceeds'

A Canadian fashion and beauty social media influencer, Ishini Weerasinghe, raised nearly $83,000 via the GoFundMe crowdfunding platform to help victims of the Easter Sunday attacks in Sri Lanka, her birth country, in 2019. Though the fundraiser was a success, she struggled to get the money to victims, telling the Canadian Broadcasting Corporation (CBC) that she "slowly entered into a depression mode" in the wake of online bullying and harassment over what happened to the funds, according to a December 2020 CBC News article. The $20,000 she donated to Alpha Trust, a social arm of the Church of the Foursquare Gospel in Sri Lanka, was later returned (minus tax and travel expenses) after members of the church, having done "extensive interviews and fact-finding," determined that all the victims who needed help were already being taken care of by other groups, according to the CBC News article.

"Laurie Styron, executive director of CharityWatch, a non-profit charity watchdog, said social media influencers can better leverage their fame by encouraging people to donate directly to a charity with experience in helping victims of tragedies. 'Cutting out the unnecessary middleman will improve the chances that your donation will get where it's supposed to go and will really help people,' she said."

After an almost 20-month ordeal, most of the funds ultimately were donated to a nonprofit in Sri Lanka, the Samadhi Community Development Foundation. Weerasinghe told CBC News that "if she could have done things differently, she would have handed the money to one organization or found someone more qualified to take over."

'After Cannon Hinnant's death, fake GoFundMe pages appeared. What happened to the money?' 

It's bad enough when well-intentioned people waste crowdfunded donations due to getting in over their heads on a project they lack the expertise to effectuate. It's even worse when predatory fraudsters exploit emotionally-charged tragedies in an effort to line their own pockets, as was the case after the death of Cannon Hinnant, a five-year-old boy from North Carolina who died tragically after being shot in the head while riding his bike in his yard. 

A legitimate GoFundMe campaign was started by the boy's grandmother. It had an initial fundraising goal of $5,000 to cover the costs of the boy's funeral but raised more than $800,000, according to an August 2020 article in The Charlotte Observer. Sadly, dozens of fake campaigns were also started on the platform by people taking advantage of the family's highly publicized loss in the days following Hinnant's death, using the tragedy to raise money for themselves. A GoFundMe official told The News & Observer that it had removed several of these fake pages and said it was continuing to monitor the situation to ensure that funds were transferred to the family.

"'Opportunists swoop in on the coattails of legitimate tragedies to capitalize on emotionally charged moments at their most viral peaks,' Styron told The News & Observer...'They often disappear just as quickly before anyone has a chance to scrutinize their legitimacy or reasonableness.'" 

Crowdfunding campaigns posted by individuals or families—even the legitimate ones—are often not the best way to ensure the people most deserving of support get the help they need. This is because they are often designed to provide direct assistance to one person or family that is experiencing a singular tragic event rather than to a nonprofit that is working to address the underlying societal issues that have created the needs in the first place, like institutional racism and poverty, medical and education debt, or other complex issues. 

"'A few individuals whose stories are highly publicized are sometimes flooded with more resources than they could earn in ten lifetimes, while leaving most others in similarly dire situations to fend for themselves,' Styron said. She said the platforms are 'not equipped to distribute funding in a way that will improve the lives of entire communities.'"

A similar windfall reached the family of George Floyd, whose death at the hands of police in Minneapolis in May 2020 catalyzed protests across the country by Black Lives Matter and other social justice activists. By the Juneteenth holiday the following month, donations to the official campaign on GoFundMe had topped $14 million. In March 2021, the family later reached a $27 million settlement to be paid by the city of Minneapolis. While it is not possible to place a dollar value on the suffering experienced by a family that has lost a loved one to violence, when observing that a crowdfunding campaign has far exceeded its original fundraising goals, donors should stop to consider that other families in similar situations with far fewer resources can likely put their donations to better use to address urgent needs. 

One way to help donors spread their contributions among more people in need who have suffered from similar tragedies, such as gun violence, is to ask crowdfunding platforms to put a cap on the amount any one campaign is allowed to raise. Styron told The News & Observer:

"'That step could encourage people to 'think more about how to address the underlying issues affecting all the people impacted by a societal problem,' she said, 'as opposed to flooding only one highly publicized victim of a tragedy with a lottery winning level of donations.'"

Read CharityWatch's article, Crowdfunding Popularity Continues to Soar Despite Risks to Donors, to learn more about the rise of crowdfunding and to see additional examples of why this type of giving can go wrong.

Crowdfunding: Don't Rely on the Wisdom of the Crowd

Donors should consider these giving tips before making a donation via a crowdfunding website:

  • When you encounter a crowdfunding campaign that promises to pass funds on to a charity, skip the middleman and donate directly to the nonprofit instead. 
  • If a campaign claims to benefit victims of a tragedy or disaster, find financially efficient registered charities with a track record of performing good work in similar crises and donate to these instead. Doing so will better ensure that funds get to legitimate victims in a timely manner and are distributed equitably. 
  • If you are moved by the plight of an individual or family asking for funds to help with medical bills or other personal expenses, donate at your own risk. You could be helping a family in dire need or lining the pockets of a fraudster. There is rarely a way to know for certain. If you do decide to take a leap of faith and make a donation to an individual, make sure you are on the official campaign page of that individual or family and not a copycat page created by a scammer.