Giving Compass' Take:

• Donor-advised funds offer huge advantages to wealthy funders with little transparency or accountability.

• What needs to change in order to create trust in this donation structure? How can the philanthropic sector as a whole improve transparency?

• Not everyone believes that donor-advised funds are a bad idea. Learn why some consider them to be a surprising success.

Rules, they say, are made to be broken. This is not necessary when it comes to the rules designed to promote transparency in foundations. They’re so ineffectual that there’s no need to break them. Billions of dollars of philanthropic dark money are flowing into so-called donor-advised funds, the black boxes of philanthropy. Private foundations and charities, meantime, have devised their own ways to avoid public scrutiny.

This is a problem for a couple of reasons. First, the money flowing into foundations and nonprofits is tax-subsidized. Donations are tax deductible, as are most earnings from investments. In order to judge whether the tax subsidies are beneficial, people and their elected representatives should know where the money comes from, how it’s managed and where it goes.

Second, big-time philanthropy is an exercise of power. The charter school movement, environmental activism, Washington think tanks of every stripe–these are all fueled by charitable dollars. By deploying dark money, the wealthy escape accountability.

Donor-advised funds, or DAFs, are the fastest growing sector of philanthropy, largely because of the tax benefits and anonymity they offer. Tech-industry titans, in particular, favor DAFs.

Unlike private foundations or most public charities, DAFs have found a way to avoid disclosing information about their own operations–and, importantly, how much they generate in fees for the asset management companies that birthed them.

Read the full article on donor-advised funds and dark money by Marc Gunther at Nonprofit Chronicles.