Charitable organisations exist to empower civic society and to tackle urgent problems. It is then important to ask whether the charity sector is maximizing its possible impact and is equipped with the necessary tools and methodologies to work effectively. Here, we present an overview of the state of trust in the charitable sector and discuss possible ways to improve it.
State of trust in the charity sector
This section is an attempt to present an overview of the state of trust in the charity sector. We realize that many factors can impact the amount of money people donate to charities and the time they spend volunteering. A combination of income, age, marital status, sex, religion, political party affiliation, and social position can significantly influence donating and volunteering habits. While we recognise the impact of these factors, they are not included within the scope of this article but I hope I will get the chance to elaborate extensively on them in future writings.
The Charities Aid Foundation (CAF), has published a report on giving behavior across the continents. The report indicates that Oceania is the continent which donates the highest amount of money on average (70% one-year score) followed by Europe (37%), Asia (33%), the Americas (25%), and Africa (18%). The report highlights that the Americas has seen a decline in donations since 2016.
The 2019 Edelman Trust Barometer revealed that trust decreased strikingly in the previous year. People have shifted their trust to their relationships with their employers. Globally, 75% of people trust their employers to make the right changes regarding major social and political events or facing crises, which is significantly more than NGOs (57%), business (56%), and media (47%).
In the United Kingdom
nfpSynergy, a UK-based research consultancy published a report highlighting that trust in charities dropped from 65% in mid 2009 to 54% by the end of 2018. The methodology of nfpSynergy was based on an online survey of 1000 people representative of the Great Britain population by age, gender and social class.
The charity commission revealed that public trust in charities declined in both 2016 and 2018 in the UK with a dramatic fall already happening since 2014.
This growing mistrust is mirrored in the report UK Giving 2019 published by CAF UK giving 2019 which highlights that, the number of people in the UK regularly giving to charity has been declining since 2016. This report also indicates that trust in charitable organisations has fallen below 50%.
In the United States
In the United States, the situation seems to be different. “After reaching record-breaking levels of giving in 2017, American individuals and organisations continued their generous support of charitable institutions in 2018”, said Rick Dunham, chair of Giving USA Foundation and CEO of Dunham + Company. But, Laura Otten, the director of the nonprofit center La Salle University, in Philadelphia, Pennsylvania argues that “much of that growth is fueled by mega gifts and fewer donors.”
An in-depth study presented by the BBB Wise Giving Alliance in the U.S. indicates that while 73% of its survey’s respondents acknowledged the importance of trust in a charity before making a donation, only 19% were willing to score their overall trust in charities above 90%, and just 10% were optimistic about the sector becoming more trustworthy over time. According to Edelman’s annual Trust Barometer 2018, in the United States, trust in nonprofits dropped to 43% and lost 9 points from 2017 to 2018, down to 49%.
From causes of mistrust to earning trust
Several factors contributed to the drop in charity trust but we will focus mainly on the impact of media representations of charities and, in particular, charity scandals and insufficient information on financial and intervention data disclosure in the charity sector.
In 2016, market research firm Harris Interactive reported that “media stories have made 33% of the public to think worse of charities.” In 2017, in an article published by the Commission on the Donor Experience (CDE), it is indicated that the media too often focuses on the minor poor performing charities rather than the excellent practices of most charities and argues that outlets tend to report on the charitable sector selectively.
In 2013, American newspaper The Tampa Bay Times identified and ranked America's 50 worst charities based on solicitation (i.e., fundraising) costs. CNN reported on the ranking too.
A research article published in 2018 studied the effect of the news on donating behaviour. The study found that, three years after the news emerged, donors still remembered it. The majority of them reported that it negatively influenced their thinking (63%) and philanthropic donation behavior (62%). The study concludes highlighting that negative media stories about nonprofits can, potentially, damage a nonprofit's reputation as well as the reputations of other nonprofits or even of the sector as a whole, resulting in decreased financial donations.
This becomes even more evident when we look at the neurobiological understanding of the human brain’s reaction towards negative news. As part of our survival mechanism, we pay attention to emotionally charged events and form long lasting memories of those events. This is how we are neurologically programmed to stay away from danger and feel content and aware. Unbiased media coverage of both poor and excellent charitable practices is then essential to help public awareness.
The importance of financial data disclosure
Apart from the influence of the media, it is important to ask what charitable organisations could have done differently to gain better trust, and how they project themselves in terms of data perception and disclosure.
In the United States, the Internal Revenue Service (IRS) Form 990 has provided a good service to empower financial data disclosure preventing nonprofits from abusing their entitled tax-exempt status.
However, its approach is to some extent selective as only certain nonprofits are required to provide a more comprehensive Form 990 (e.g. as hospitals and health care organizations).
Charity navigator, an US-based charity evaluator, examines financial transparency of US charities using publicly available tax returns (IRS Form 990) filed with the IRS and information posted by charities on their websites. It has a selected pool and only audits organizations with more than US$1 million in their annual revenue.
GuideStar, another charity evaluator, chooses a more inclusive approach and provides paid access to comprehensive data sets of forms that also include lower annual revenues filled by more than 400,000 public charities. The minimum threshold to be considered by GuideStar is US$ 150,000 in annual contributions.
While these selective policies are essential to prevent financial misconduct in charities with access to big money, their selective approaches do not encourage the majority of charity organisations to disclose their finances to the public. This means that donors will have less or no access to the financial statements of charities that raise lower amounts of money, which can result in less assurance that charity money is being spent efficiently on their intended cause, dampening trust in charities that perform at smaller scales but effectively. This can also result in a vicious circle where no obligation to financial data transparency brings no obligation for self-reflection, making charities more prone to missteps.
Understanding data in the charity sector
There is a substantial gap in record to examine the state of data collection and perception among advocacy groups, charities, and their stakeholders, which makes it difficult to come to a clear conclusion on the state of understanding data in the charity sector. The lack of comprehensive evidence suggests little is known about the state of charitable organisations in terms of effectiveness and competency. The absence of or inefficiency in data understanding and transparency can rightfully play a role in feeding ineffectiveness and adding to the mistrust factors.
The outcome of our own vetting framework shows that from all the charitable organisations vetted to date, a paltry 13% achieved good transparency scores regarding their output data and just 30% show a clear distinction between output, outcome, and impact in their results. These findings are in line with the current notion of data ambiguity in the field. The present concerns and considerations call for charity evaluation services with more inclusive policies to strengthen data understanding and disclosure at a worldwide scale with the aim of empowering the charity sector and its reliability.
We at Kinder, have closely examined the falling trend of trust in the charity sector in recent years. Concerned about this downward trend, we have focused on some of the main underlying causes that negatively affect the public trust in charities. Kinder’s evaluation service is here to address mistrust and to provide solutions. We don’t want to just verify charitable organisations around the world but also promote a widespread culture of data perception, collection, reflexivity and transparency as crucial requirements for earning trust and saving the longevity of philanthropic efforts.
Kinder takes an inclusive approach in evaluating and consulting charitable organisations across the globe. We believe this approach is a crucial element in the cultural movement within the charity sector that aims to promote the fight against discrimination. Neglected causes need to be brought to public awareness for further necessary actions.
Of course, Kinder's inclusive approach does not automatically accompany endorsement, which is why we have put together an assessment magnifier to shed new light on charitable organisations to aid better recognition.