Blockchain — Improving Accountability For Charities
Bringing accountability and transparency to charitable giving.
The accountability and transparency delivered through blockchain and distributed ledger technology provide an opportunity to vastly reduce corruption and fraud across many sectors of society. Cryptocurrencies were themselves created in direct response to corruption within our global financial systems.
Now that blockchain technology has proven itself over the last decade it is becoming possible to start using these capabilities to address glaring issues within charitable corporations and humanitarian giving.
Charity — generosity and helpfulness especially toward the needy or suffering.
Not all charitable organizations practise charity in a manner which the public might expect. Many charities are vehicles created specifically to avoid taxes as they provide legal loopholes which are exploited by the unscrupulous. Apart from tax avoidance, there are several other ways in which charities can behave in inappropriate manners. To put these concerns into perspective, during 2018 the 100 largest charities in the US collected $51.5 billion in donations.
Charities require reasonable amounts of money to operate and this is entirely acceptable. There are operating expenses which are needed to run programs and employ good staff. These expenses are vital for charities to deliver quality programming and provide assistance to those in need.
Charity Watch assumes that it is reasonable for charities to spend up to 40% of their budgets on operating expenses. The rest of the 60% that is donated should be spent on their causes. Other sources have created benchmarks of 30–35% for operational expenses. It is important to note that some of the world’s best grassroots charities deliver incredibly successful programmes with operating expenses under 10%. There is a wide spectrum in how organizational costs are spent within charities and greater transparency of these processes would allow donors to make informed choices.
In truth, there are often no laws specifically stipulating what percentage of operating expenses a charity should be spending. For further perspective on this topic a look into the chief executive paycheques for some of the biggest charities during 2018 is enlightening:
- Craig Thompson MD — President/CEO Memorial Sloan Kettering Cancer Center — $3,077,522
- Scott Blackmun — CEO United States Olympic Committee — $2,99,737
- Robert Stone — President/CEO City of Hope & Affiliates — $2,411,030
It can clearly be profitable to run a charitable organization for a year. Hopefully, as blockchain technology begins to be implemented in the charity sector there should be greater transparency for doners regarding CEO salaries and operating expenses.
During the Haitian earthquake disaster, the American Red Cross collected almost $500 million dollars as donations for the victims. It transpired that they had spent 25% or approximately $125 million dollars donated on their internal expenses. Although this is less than 40% it is still an enormous amount of money and observers are left wondering where the money has been spent.
Many of those who donated to the Haitian victims did not expect that a quarter of their donation would be internally absorbed by the American Red Cross. Even more distressing was that the American Red Cross tried to conceal this huge internal payment and top officials were alleged to have stonewalled congressional investigators by releasing incomplete information.
A report on the incident concluded that “there are substantial and fundamental concerns about [the Red Cross] as an organization”. Although this happened before blockchain technology had become widespread it paints a picture of how large charities benefit from collecting donations for the needy.
Another popular misuse of charities is through manipulating their names. While there are good charities undertaking inspiring work there are also scammers who set up charities and websites with very similar names hoping to confuse would-be donators. In may of these cases, none of the donated money goes to any charitable activity.
To combat this blockchain technology is able to provide unique account addresses which could be used for charities wishing to chase impostors out of the industry.
In 2020 it is beginning to seem possible to eradicate inappropriate spending and misleading names through the use of blockchain technology. The opportunities which are presenting themselves now could change the landscape of charitable giving and provide methods to ensure that funds donated are directly delivered to the intended recipients.
During the recent bush fires in Australia, millions of dollars were donated to victims by people from around the world. More than $216 million has now been donated to the Australian Red Cross alone for bushfire victims, although the Salvation Army and St Vincent de Paul also collected large sums.
Outrage erupted when it became clear that the Australian Red Cross had only disturbed around 30% of the money they had collected. The other 70% had been earmarked for projects over the next three years and internal expenses. Cricket Australia is in the process of trying to get answers as to how the $8 million they donated is being spent. The perspective of much of the nation was accurately articulated by NSW Liberal MP for Bega, Andrew Constance.
“How dare they (the Red Cross) say publicly they’re only going to spend a third of the donations on people when people are traumatised and in crisis? We’ve got people in tents, on lounges, in caravan parks, in showgrounds, people sleeping rough on their burnt-out properties and they don’t want to hear about a three-year program. The money is needed now, not sitting in a Red Cross bank account earning interest so they can map out their next three years and do their marketing. We need a very real change, very quickly so that the money can get to those who need it most … people are on their knees and we can’t have a drip-feed.”
This articulate statement highlights the need for accountability and transparency in the world of charities. Instead of using compromised middlemen to distribute charitable funds, the blockchain could facilitate direct and instantaneous giving to disaster victims. It would not be difficult to create smart contracts to determine a fair distribution of funds. The world of charities has long been murky, hopefully shining a blockchain light on it will improve our ability to help each other.
Sonata Capital is registered in the Labuan International Business & Financial Centre, and invests in companies successfully exploiting the vast opportunities of the digital economy.
100% of the equity in our funds have been tokenised, and will be listed on digital securities exchanges in Labuan and elsewhere. The equity of Sonata Capital Ltd (LL16076) has also been tokenised, and the rights to the equity is represented by the SONATA security token issued on the Ethereum network.