American donors are a generous bunch. A study last year measured that over $358 billion dollars was donated to charitable causes in 2014. The majority of that, $258 billion, came from individuals giving to the causes important to them.
American generosity isn’t limited to our geographic borders. Over $15 billion dollars was given to international efforts. At American Endowment Foundation (AEF), the largest independent donor-advised fund in the United States, donors gave nearly $14 million in grants in 2015 to qualified U.S. charities that have field-based initiatives in foreign countries.
The term “qualified U.S. charities” is an important term to keep in mind. If people chose to donate toward providing disaster relief for a country affected by a natural calamity (for example, earthquake, hurricane, etc.), they’re likely providing their dollars to a U.S.-based charity such as CARE or Doctors Without Borders. Donating charitable dollars directly to an organization based in that foreign country can be problematic.
Phil Tobin, Chairman and Co-Founder of AEF, states, “Because the rules and regulations for evaluating whether a foreign-based charity is the ‘equivalent’ to a U.S. public charity are complicated and difficult to satisfy, an American donor’s options for international grantmaking might normally be limited.”
Recognizing those limitations is what prompted intermediary organizations to play a role in bridging the gap between an American donor and a charitable organization based in a foreign country.
One such organization, GlobalGiving, has the ability to evaluate foreign charitable organizations to ensure that they are a recognized charitable organization in their home country. According to Courtney Eskew of GlobalGiving, “In the U.S., we have the advantage of a regulated identity to determine what is considered a charitable organization. This is not necessarily the case in other countries. Each country has its own rules, laws and regulations as to what defines a charity.”
She described GlobalGiving’s vetting process as follows:
1. All organizations must complete an online due diligence application. The application includes supportive material such as legal documents, financial and budget statements, any governmental certificate or decree recognizing the organization as engaged in charitable intent, founding documents (with dissolution clause), disbursement information, names of senior staff and board members and more.
2. Each document is validated through extensive research and determined to be truthful. Other sources can often corroborate the accuracy of the data submitted.
3. GlobalGiving reviews and analyzes submitted application materials to ensure each organization is performing charitable work in an accountable manner and compliant with anti-terror guidelines and international guidelines for philanthropy. Once an organization is approved for due diligence, then the grant is able to move forward.
All of these efforts are designed to ensure transparency that benefits both the interests of donors and the recipient charities.
Another practice that can be used is the concept of expenditure responsibility. This involves making a grant to a foreign nongovernmental organization (NGO), regardless if they pass the test of being the equivalent of a U.S. public charity. The donation can be made provided that the grantee intends to use the gift to carry out the charitable purpose of the grantmaking organization and the grantmaker follows specific guidelines.
According to CAF America, guidelines for expenditure responsibility at their organization comprise the following steps:
- Conduct a pre-grant inquiry that ensures the intended grantee’s ability to fulfill the charitable purpose of the grant. The grantee is asked to provide documentation similar to what is required during an equivalency determination.
- Execute a written grant agreement that restricts the grantee to using the funds for their specified charitable purpose.
- Require reports from the grantee detailing how and when the funds were used.
- Require the grantee to maintain funds in a separate, dedicated account.
- Report the grant on the grantmaking organization’s tax filing.
Once a pre-grant inquiry and written grant agreement are completed, then the grantee must submit annual reports indicating how they have used the funds and that the funds met the requirements of the written grant agreement.
Weighing the Options
Which route, equivalency determination or expenditure responsibility, is best? Ted Hart, CEO of CAF America says, “Equivalency determination can be a very high standard to meet; a majority of charitable organizations in other countries may not be able to meet those standards. Expenditure responsibility can prove to be an ideal way for an American donor to make a charitable impact overseas even when a charitable organization may not be available.”
For example, an American donor may want to support a vaccination effort in a specific locale in an African nation, but there may be no charity present that could undertake that effort. Through expenditure responsibility, the donor and their charitable dollars could engage in hiring a commercial entity (such as a major employer in the area, such as a mine, commercial grower, etc.) to complete this charitable work. The charitable result of funding the vaccination effort is achieved even though a commercial entity had to be engaged to complete it.
How can a donor start the process of making an overseas donation? “It starts with clear communication to the grants department. At our organization, accurate, specific and complete information on the grant recommendation form is the starting point. We then engage with the donor and update them accordingly if additional vetting is needed of the foreign charity and work with them on what next steps may be required,” states Cheryl Gerbracht, Director of Grants at AEF.
Regardless of the route an American donor chooses, innovative and imaginative ways to give are available. It’s just a matter of focusing on where they want to give and recognizing the variety of steps that may be required to make a positive impact.