The use of blockchain technologies and donor-imposed restrictions on funding are two examples of systems and strategies donors can use to track their donations. On the other end, charity evaluators use rigorous processes that focus on many charity attributes, including the ability to operate cost-effectively.
SYSTEMS AND STRATEGIES DONORS USE TO TRACK DONATIONS
1. Donor-imposed Restrictions
- Donors may not know how charities spend their donations; however, strategies such as imposing restrictions on the use of their donations or gifts can help them track the usage of their giving.
- Donor-imposed restrictions are legally binding, and nonprofit organizations cannot lift the donor-imposed restrictions, even during crises.
- Many donors and charities extensively use this strategy of imposing restrictions on donations. Charities are bound by law to comply with donor restrictions made in writing when the restricted donation is made.
- To exemplify, donors may put restrictions on the use of donated funds, such as a restriction to use the donation for scholarships. Equally, they can restrict the spending of the funds by — for example, designating the funds as an endowment.
- 2019 saw strong growth in restricted giving across donor size categories under $1 million. A total of $35 million out of $54.1 million donated to Givewell were restricted. In 2018, the restricted funds donated reached $25 million.
- In 2019, Givewell’s donors allocated 64% of restricted donations to grants to recommended charities, whereas unrestricted funding to Givewell reached $19 million.
2. Using Blockchain Technology to Track Donations
- Blockchain technologies are being used in the charity’s space to track donations to foster trust. Globally, about 60% of the people do not trust charities to use their donations correctly.
- The dwindling trust has led to the emergence of third-party websites that track charities, how they use donations, and their donation transparency quality. These platforms aim to promote peace of mind when they donate to a cause.
- An example of a platform is LUXARITY, which recently partnered with ConsenSys Social Impact to register and track donations.
- The platform allows donors to select which cause they want to support, such as “education on ethical consumption, environmental causes, recycling efforts, etc. “
- LUXARITY leverages Ethereum’s Rinkeby Testnet Blockchain technology to develop a platform that engages donors in a transparent donation.
- The blockchain technology helped allocate 25% of Consensys donations resulting in 33% of the total donations being directly allocated by customers.
CRITERIA PLATFORMS USE TO SELECT TOP CHARITIES
- GiveWell’s top charities are analyzed based on evidence of effectiveness, i.e., it donates to charities with a big impact on the larger population, preferably those supporting health and wellness related causes.
- Second, GiveWell explores the cost-effectiveness of a charity when determining its top charities. In this regard, it examines aspects such as “cost per life saved” or “cost per total economic benefit to others, normalized by base income.”
- GiveWell also seeks charities with more room for funding, especially those that can raise more funds without GiveWell’s recommendation.
- Lastly, GiveWell selects transparent charities through a rigorous criterion to identify more transparent charities, such as those reviewed positively. Unluckily, GiveWell has not shared any pricing information for the platform.
2. Charity Navigator
- Charity Navigator, which uses a seven-item process to rate charities it works with, has not disclosed its pricing information. Unfortunately, it has not provided its pricing information on its website.
- It considers items like the tax status of a charity, revenue, whereby qualifying charities must have had annual revenues of at least $1 million for two consecutive years.
- The platform prefers charities located in the U.S., registered with the IRS, and with at least seven years of operations.
- Charity Navigator’s top-rated charities must have $500,000 in public support, which should account for at least 40% of annual revenues for two consecutive years.
- Top charities selected by Charity navigator must have at least 1% of their expenses allocated to fundraising and administrative expenses for three consecutive years.
3. Animal Charity Evaluator
- Animal Charity Evaluator selects its top charities based on a seven-item criteria too. It seeks to works with charities that run programs deemed impactful, for example, farmed animal advocacy.
- Second, the platform goes after charities with more room for funding and well-thought plans for growth.
- Animal Charity Evaluator prefers charities that operate cost-effectively and those with a strong record of success.
- Equally, the platform wants charities that identify their areas of failure and success and act accordingly.
- To become a top Animal Charity Evaluator member, the aspiring charity must have strong leadership and a well-informed strategic vision.
- Overall, the charity must also have a great culture and a sustainable structure.
- Unfortunately, Guidestar has not released a more recent and updated procedure it uses to evaluate charities.
- Its website features information from 2003, and there is no other recent information on its website regarding charity selection. Equally, none is shared across third-party websites.
- The 2003 information on the Guidestar website focuses on educating donors on how to research and evaluate charities. Under evaluation, Guidestar focuses on verifying a charity’s legitimacy, i.e., are registered with the IRS or meet specific IRS requirements.
- Guidestar goes after charities with a clearly defined mission and programs, measurable goals, and those with elaborate criteria to describe its achievements. It avoids charities that do not disclose information to the public.
- Guidestar offers two packages, Guidestar Pro plus for $2,500/year and GuideStar Pro for $2,000/year. Enterprise clients are required to contact Guidestar for a tailored and customized solution for the entire organization/.