Where is the Money Really Going?

Giving

Where is the Money Really Going?

When "a portion of the proceeds go to charity," how much is that - and does the charity know?

November 19, 2014

If you’ve done any shopping lately – and it’s a pretty good bet you have – you’re likely to have encountered a pitch to donate a dollar or two at the checkout line or been told that some percentage of what you spend online or in a catalog will go to a certain charity.

While many of these solicitations are legitimate, what’s known as “embedded giving” – packaging a donation into the purchase price of a product or products – has come under fire for a number of reasons. One big one is that charities don’t always know their names are being used in the promotions. Another potential problem is accountability: There’s really no way of ensuring that all of the donated money actually makes it to the named charity and no way of knowing who, if anyone, is claiming a tax deduction.

Another issue with embedded giving is that those donating have no idea as to how – or how much of – their money is actually being used to advance the stated goals of the charity. When you donate directly, you can first review the charity’s annual report and, perhaps more important, the Form 990 that charities approved for tax-deductible status must file annually with the IRS. Among other things, Form 990 shows how much the charity’s top management is paid, and how the organization’s total budget is divided among its programs, overhead and fundraising expenses.

Embedded giving, which is also sometimes referred to as “cause marketing,” benefits companies by enabling them to associate their brand or specific products with the “feel good” aspects of giving to a worthy cause. For their part, charities have embraced the practice because it makes it easy for someone to give. After all, what’s an extra dollar or authorizing the merchant to “round up” and donate the change from your purchase? Because both companies and charities stand to gain from embedded giving, the practice has become widespread, as you may have noticed; however, it’s unregulated. There are no agreed upon standards as to how much a company should pass on to a charity, and neither the companies nor the charities typically disclose how much money is involved overall.

The need to help others is undeniable, especially in difficult economic times. However, it’s also important to give efficiently and effectively, and to avoid scams. The Better Business Bureau Wise Giving Alliance recommends that charities participating in embedded giving programs spell out how much money in a purchase will go to them and how long each program will last. Further information is available at bbb.org/us/standards-charity.



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