The crowdfunding site’s failure to vet campaigns and guarantee that money goes to intended causes points to larger issues around nonprofit and charitable giving regulation
Brad Erichsen said his biggest fear is that he’ll look back on 2020 as “the last normal year,” and his year has been anything but normal. After wildfires rendered him homeless in September, he moved from a motel room filled with rescue animals to an RV in the woods in southwestern Oregon. All while a global pandemic rages on.
“If it wasn’t for having to take care of my mom, I’d be having the time of my life right now,” Erichsen said.
In addition to his mother, who is recovering from a bone marrow transplant and leukemia, Erichsen is caring for rabbits, chickens, dogs and cats that he evacuated from a temporary rescue shelter he was running near Cave Junction.
After having some minor success raising money for his mother’s cancer treatment on the crowdfunding site GoFundMe, he returned to the platform with an appeal:
“We’re in a pretty dire situation. Please help us get back on our feet and back to rescuing rabbits.”
Unfortunately, nobody answered.
Erichsen’s most recent appeal vanished into the sea of over 100,000 annual emergency fundraisers on the site, which advertises itself as “the leader in online emergency fundraising.”
As the company leverages its dominance of social crowdfunding by expanding into charitable donations, raising millions of dollars for disaster relief and social justice issues, researchers warn GoFundMe’s platform is perpetuating systemic inequalities that lead to poorer fundraising outcomes for those most in need.
According to a 2018 study conducted by the Lilly Family School of Philanthropy at Indiana University, 1 in 3 U.S. households made disaster-related donations in 2017 and 2018. A separate study released a year later yielded the same statistic.
Aside from raising hundreds of thousands of dollars for individual fundraisers related to statewide fires, GoFundMe has also raised over $440,000 dollars for a general wildfire relief fund that will be distributed by the company’s nonprofit arm.
The company declined to provide any specific figures on how much money from the fund had been allocated to date, and how much of that money ended up in Oregon.
Between March and September of this year, GoFundMe raised over $625 million through more than 9 million donations to COVID-19-related causes alone.
The company had previously distanced itself from its reputation as a clearinghouse for individuals and families whose medical bills left them at a crossroads between bankruptcy, debility and death.
“We do not aim to be a substitute social safety net,” the company wrote in a statement to The Nonprofit Quarterly in 2018.
“A crowdfunding platform can not and should not be a solution to complex, systemic problems that must be solved with meaningful public policy.”
But in the absence of federal intervention to address a pandemic-induced recession, historic levels of unemployment and a fatally mismanaged national public health crisis, many Americans have few other places to turn.
Erichsen said his experience raising money through the platform has been mixed at best.
“It only works if you have a network of people already, or you can get lucky and go viral or something,” Erichsen said. “But for most people, it doesn’t really work.”
In multiple studies analyzing hundreds of fundraisers for medical care on GoFundMe, researchers found that 9 out of 10 campaigns don’t reach their financial goals, and marginalized race and gender groups are associated with poorer fundraising outcomes.
Highly competitive markets for basic needs “reinforce a centuries-long history of racism in our country (that) has ensured people of color — and Black people in particular — are often perceived as less deserving, particularly of charity and aid,” wrote Nora Kenworthy, an Associate Professor of Nursing and Health Studies at the University of Washington, Bothell.
However, because fundraisers have the ability to update their financial goals on the site, GoFundMe does not track how many fundraisers meet their goals, company spokesperson Heidi Hagberg said. “We’re constantly thinking about how we can create bigger networks for people that might not have them, and how we can remove friction make it easier for people to ask for help in a vulnerable situation.”
Nearly 4 million fundraisers were started on GoFundMe last year, according to the company’s 2019 annual report. It has raised over $9 billion since its inception in 2010.
Approximately 300 employees — a third of the company’s workforce — address complaints and monitor campaigns for potential fraud, according to Hagberg.
Hagberg said that less than one-tenth of 1% of fundraisers annually are deemed to be fraudulent, but declined to provide any additional figures or details supporting that number.
Adrienne Gonzalez, who started a website chronicling fraud on GoFundMe in 2016, said she believes the platform has prioritized exponential growth at the expense of accountability and transparency.
“In a lot of cases, they don’t know if misuse has occurred,” Gonzalez said. “They don’t follow up. I have people calling me all the time saying, ‘somebody put up a GoFundMe for my child who died, and I never saw the money.’”
Marketing materials and company statements provided to Street Roots often directly contradict language included in the company’s terms of service and privacy policy.
Despite claiming “Nearly all GoFundMe fundraisers are accurate and funds are delivered and used for their stated purpose,” the site also cautions users: “We do not and cannot verify the information that Users or Campaigns supply.”
The company also does not “represent or guarantee that the Donations will be used in accordance with any fundraising purpose prescribed by a User or Campaign or in accordance with applicable laws.”
GoFundMe has long dominated the social crowdfunding market, further entrenching its position with several acquisitions of competitors in recent years.
“We want to be the first and only choice that people think about when they think about social fundraising,” company CEO Rob Solomon told FastCompany in 2018 after buying out rival crowdfunding site YouCaring.
Two years later, in a letter announcing the hiring of new CEO Tim Cadogan, Solomon told employees, “We have reached the rarefied status of ubiquitous Internet brands.”
“Charitable organizations across the world raise more than $500 billion annually,” Solomon wrote. “This is a BIG category with endless opportunities!”
Despite claims that GoFundMe and its charitable arm remain independent of one another, nonprofit tax filings reveal an intimate and profitable relationship.
Through an ongoing shared resource agreement, the for-profit company has paid for nearly all of the operating costs of its nonprofit charity, which first became active in 2017. It also loans company employees to help administer the allocation of charitable donations.
According to 2018 tax filings, the company paid itself nearly half a million dollars in service fees for hosting fundraising campaigns benefiting victims of hurricanes, a mass shooting in Las Vegas and historic wildfires in California.
The site now employs dark patterns, which influence user behavior and push users to give up their privacy unknowingly, to encourage donors to “tip” double the amount of a previously mandatory 5% platform service fee.
Fundraisers often include highly sensitive personal information about health conditions or financial hardship, and the company has also compiled a massive trove of data revealing how donors spent billions in charitable giving.
Charities that utilize GoFundMe’s platform retain ownership of donor data, but must also grant the company “a worldwide, non-exclusive, royalty-free, perpetual license” to use that data for a wide range of purposes — including “research and analytics” and “to develop new services.”
“GoFundMe relies on voluntary tips and is powered by the generosity of donors,” Hagberg said. “We do not sell any donor information to third parties.”
But according to the company’s privacy policy, personal information of donors and fundraisers can be sold without any prior notice as part of any deals involving the transfer of business assets.
The policy also states that personal data with some identifying elements stripped out can be used for any purpose, “and we can share this information with our affiliates, agents, business partners, or other third parties (e.g., Google Analytics).”
According to a law firm that specializes in shielding its clients from privacy and data security investigations, third parties can often fill in the blanks to “re-identify” customers by using outside data sources.
“These outside data sources can be used as, in effect, a key to unlock the identities of particular people in the supposedly de-identified data set” wrote Davis Wright Tremaine attorney Christopher Savage in a November 2019 blog post.
Because GoFundMe covers all the operating costs of its charitable arm, it is able to claim that a very high percentage of donations goes directly to those who need assistance. That percentage would be lower if administrative costs were factored in.
Donors who simply compare overhead percentages and choose the cheaper one can run the risk of sending money to non-local organizations who merely take a cut and re-grant the money later said Ben Smilowitz, executive director of the Disaster Accountability Project, a nonprofit watchdog group.
“If someone was offering to babysit your kids, would you go for the person offering $2 an hour?” he asked. “There will always be a flood of donations that follows a disaster,” he continued. “The question is, which organization will catch these funds?”
GoFundMe privileges its own charitable campaigns by covering donations through the site’s “GoFundMe Guarantee,” which reimburses donors up to $10,000 when certain conditions are met.
Donations made to GoFundMe campaigns organized by outside charities are not covered by the same guarantee.
Those donations are managed by the PayPal Giving Fund, the giving platform of PayPal Inc., which facilitates donations through a central investment fund that then distributes funds to charities chosen by the donor.
PayPal Giving Fund reached a settlement earlier this year with nearly half of the country’s state attorneys general following a 2017 class action lawsuit and investigation into allegations the nonprofit deceived donors.
According to the allegations, PayPal Giving Fund misrepresented its relationship with “hundreds of thousands” of smaller charities and redirected donations to different charities without providing receipts or prior notification.
The company denied any wrongdoing but agreed to improve its disclosures to users and donate $200,000 to a national fund for bankrolling litigation efforts and training for state charity regulators.
The first systematic analysis of state-level oversight and regulation of charities in the United States, a 2016 Urban Institute report, found the regulatory resources devoted to the nonprofit sector in general “are minuscule compared with the oversight they are expected to provide.”
The report stated that “a million charities, thousands of fundraisers, and hundreds of thousands of other types of nonprofits and trusts are overseen by 355 (full-time employee) charities staff, which includes non-lawyers spread across agencies who often have other responsibilities.”
In the humanitarian section, Smilowitz said, “There are no standards. This is a very non-nation specific, very international issue.”
Gonzalez said she encourages the many callers who reach out to her with allegations of fraud on GoFundMe to contact their local law enforcement agencies’ cybercrime or financial crime unit — if they have one.
“People in the middle of nowhere in Nebraska, they don’t have that. So they just call up the police. If that doesn’t work, go to the attorney general’s office,” she said.
“Believe it or not, it was worse four years ago,” she continued. “But to this day, you still have departments that don’t know how to handle these cases. There is certainly sort of a hot potato situation.”
The Oregon Department of Justice’s Charitable Activities division published a guide on its website with advice on vetting charities and how to file complaints online or over the phone.
Liz Grant, the attorney in charge of department’s charity work, said her division doesn’t track enforcement actions against charities, in part because charities receive far fewer complaints compared to consumer complaints, which are made available to the public.
“Relative to many states, (Oregon) has a larger (charity) unit, with 3.5 attorneys, and 7 investigators,” Grant said in an email to Street Roots. “It also has registration and reporting staff to process filings by the more than 22,000 registered charities.”
Grant also noted that no taxpayer funds are currently allocated to supporting charitable oversight work. That funding comes from fees charities pay when registering with the state every year.
“Donors need more information, and they need it in a way that is not exploitative,” Smilowitz said. “Because right now, there are hundreds of donation platforms that want to get in on this, so they can take a cut and make some money off people donating after a disaster.”
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