Now more than ever, your dollar needs to go further. I am saddened when I hear about how donations are taking advantage of their donors' charitable investments.

• The Canada Revenue Agency revokes the charitable status of Universal Aide Society

I can't stress enough how important it is for donors to ask organizations where their money is going and how it is being used to further the mission/mandate of the organization. In this case, according to CRA, the Universal Aid Society was using donated dollars for personal expenses. Copies of the Donor Bill of Rights and other resources for making informed decisions can be found here. I encourage you to ask the organizations that you are involved with if they have adopted this code and how they do their fundraising.

On October 26th, 2008 the Malawi Project praised the work of the Universal Aide Society. There are always two sides to every story, and it is unfortunate that the ripple effect of the actions of the management of this society will be felt by organizations that are on the front-lines.

In related news:

• The Canada Revenue Agency revokes the charitable status of The Children's Emergency Foundation

 

There have been several blog posts on this site as well as others about tax shelters and charities. As donors, it is up to you and your advisors to do your due diligence around how and where you charitable investments are going.

 

Dexterity Consulting recently hosted a last minute "coffee-clatch" with Adam Aptowitzer, Drache LLP, on issues concerning charity law. What came out of that discussion was an obvious need of both donors and charities to get some more clarification around the complexities of the law and charities. As a result there will be a series of posts from Adam on this blog on a variety of topics. I encourage your feedback and suggestions for other topics.

The CRA Charities Directorate newsletter was just released.  They have made a New Year's Resolution to "...decrease the [charity application] inventory on hand."  Here is an excerpt from the article.  Attached is a PDF of the entire newsletter.

Based on the first six months of this fiscal year, the CRA will recieve 4500 applications for new charitable status.  That is one application every two hours, 24 hours a day, 365 days a year.

On the other hand...

2200 charities will lose their charitable status this year for a variety of reasons from ceasing to operate to misfiling.  This represents one charity losing its status every four hours, 24 hours a day, 365 days a year.

Something that I have blogged about in the past is the need for:

a) so many charities

b) lack of regulation of duplication of services

The CRA has informed us that they will put materials on their site to help people make better decisions on whether they should be setting up a charity to begin with. 

I do not think that is enough. 

The CRA has the ability to highlight to applicants when their charity is going to be duplicating services already provided.  I feel that by leaving it in the hands of individuals whose passions are wrapped up in the decision making as whether or not they should become a charity leaves for too much room to make emotionally driven decisions.

In the meantime, the CRA has hired more staff and streamlined some of the processes to address the backlog of applications.  This however, does not address the root of the problem - too many charities, doing too many of the same things and not speaking/learning from each other.

The CRA has revoked the charitable status of the Pinnacle Foundation.  The foundation is built on revenue generated from the owning, purchasing, selling and donating of property.  While there is not a statement on the Pinnacle Foundation's website about the revokation of their charitable status they do state the following under the FAQ section.

How do I know whether Canada Customs and Revenue Agency will allow a credit for my donation receipt?
Material tax issues with respect to the acquisition and disposal of the Property as well as a beneficiary's claim for a tax credit on the donation of Property to Pinnacle are summarized in the legal opinion of Fraser Milner Casgrain LLP. A copy of the legal opinion is available for review upon request. In the event that CCRA proposes to reassess your claim in the future, a fund has been established by the Settlor of the Regattas Trust to pay legal costs associated with appealing any proposed reassessment of your claim.

For more information about this ruling please visit the CRA website.

The CRA has removed the charitable tax status of the Choson Kallah Fund of Toronto.  According to an article posted on Yahoo News,

"The agency says the group's original charitable aim of helping poor families became secondary to offering a tax shelter. It says the group issued $177 million in tax receipts.

 

The agency says the charity lent its name to a program which abused the charitable donation sections of the Income Tax Act.

 

After expenses, the fund collected only 0.05 per cent of the value of the receipts issued."

 

Just to inform you that International Charity Association Network has lost their charitable status.  To read the review please click here.

One of the justifications for revoking the charitable status is, "The Minister alleges that is almost five times the total charitable donation receipts issued by United Way of Greater Toronto in the same year, although ICAN had only 16 employees in Ontario, compared to 165 full-time and 43 part-time employees of United Way of Greater Toronto. The Minister also alleges that ICAN failed to provide the auditor with evidence that it has carried on its charitable activities on the scale on which claims to operate."  The problem I have with comparing one charity to the United Way is that it puts the United Way as the benchmark for efficency and effective operations.  I don't believe this is always the case, nor that this one organization should be the standard by which charities measure themselves.  

A fair comparison for this organization would be to other organizations that are distributing surplus inventories to the poor like food banks.  This is not to say that I don't disagree with the CRA ruling.  I don't know the in's and out's of the case.  The one red flag that got me was when clicking on the programs section all that came up was the promotion of a dental and health insurance program.

According to their website they have helped over 100,000 people each year through the distribution of food and educational services.  If they auditor can't prove this, I am not sure how ICAN makes the claim.  Is it up to the auditor to prove that they have provided supports for 100,000 end users, or simply supports for the members who service those end users?

Oh - a bit of irony: One of their member partners is the Province of Ontario Correctional Institute... a provincial government body has been sourcing educational materials from an organization that has been under investigation by the CRA. 

What I would like to know is if they have been the source for food items and other things for a large segment of Ontario's poor how is this revocation going to impact the breakfast and snack programs that are supported by this organization in the various community agencies across Canada?

Donor advisement - if you are considering making a donation to this organization, please be advised that they no-longer have charitable status.

The CRA released the minutes from the most recent Charitable Sector Stakeholder Forum Meeting.  This is a meeting that brings together individuals representing different areas of the charitable sector to discuss key issues ranging from audit and compliance to rural development.  For a copy of the minutes click here.

One of the topics of interest to me is the compliance and auditing issues.  I received a phone call the other day from a gentleman asking about a tax shelter he had heard about.  My flat answer was, that if there is any type of "kick back," whether it is cash or a larger tax reciept than the amount donated, then the donor should be wary.  CRA not only audits the charities for false receipting, but the audit the donors as well for those false receipts.

Here is an excerpt from the minutes of that meeting as it pertains to this topic:

... The top five issues found during an audit are:

1) Incomplete, inaccurate or false donation receipts;

2) incomplete or inaccurate information on the T3010;

3) insufficient or non-existent books and records;

4) gifting to non-qualified donees; and

5) lack of control and direction over foreign activities.

In 2007–2008, the Charities Directorate focused its audit and compliance resources on two major issues: tax shelters and fraudulent donation receipts. The CRA is taking a three-pronged approach to combating these issues:

1. Subjecting registered charities participating in abusive or fraudulent schemes to revocation and/or monetary penalties;
2. Reassessing donors participating in these schemes to disallow or reduce the amount of donation claimed; and
3. Exploring the application of penalties against persons promoting such arrangements.

As I have stated before, it is really up to the donor to do his/her due dilligence when it comes to charitable investing.  If you think the benefit from your gift is too good, it probably is.  The best and easiest way to avoid any audit pitfall - ask questions in advance.

My father always said, "You never get something for nothing."  That motto holds true for philanthropic investments.  In the news the past couple of days there has been discussion around the ethics of the Banyan Tree Foundation.  At the time of this posting there were no notices on their website indicating the charges laid against them and their donors.  There was a series of correspondence between the Foundation and the Canada Revenue Agency on the topic of donation filing.  Click here to view the correspondance.

It is up to you, the donor to do your due diligence when it comes to making donations.  Questions should immediately arise when you make a donation for $1,000 and you get a tax receipt for more than that.  CRA is pretty clear on what constitutes a charitable donation and it is not on the accrued amount over time (i.e. principal plus interest earned until donation was disbursed).

Another thing that I find especially unnerving is the fact the BDO Dunwoody LLP were the auditors for 2004, 2005 and 2006.  The cover letter of all three audited statements reads, "We conducted our audit in accordance with Canadian generally accepted auditing standards.  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  In our opinion, these financial statements present fairly, in all material respects..."

If the auditors were doing their job they should have found some discrepancies between what was being receipted, what was being donated to the Foundation and how much was going out of the Foundation to charitable organizations.  The other item that caught my eye was in the 2004 audited statements there were some fundraising fees that went to corporations which are, "...under the common control of the directors of the Banyan Tree Foundation."  The way I am reading this is that board members are getting financial kick-backs for donations brought into the foundation.  Besides that not being ethical, professional fundraisers (of which I was one for 15 years) would not accept compensation that was directly tied to the amount of donations brought into the Foundation.

So what are some questions to ask.  As I have said in previous blogs a donor should ask the following:

1. Are you a member of the Association of Fundraising Professionals (AFP)?

2. Do you hold by the code of Ethical Fundraising either through AFP or Imagine Canada?

3. Go to the CRA charities section and see if the organization has ever been flagged.

4. How are you going to spend my money?

Your receipt should NEVER be more than what you have given.  

I hope that this negative experience will not preclude you from making your donation to any of the thousands of reputable organizations.  Just ask questions.  If you would like some more guidance on how and what to ask, please drop me a line.  I look forward to hearing from you.

For a list of links please visit the Links section of this website. 

So you've identified your values, you'ver picked how you will give and you've set your philanthropic goals.  The goals that articulate the kind of social impact you want to make.  How will you find the charities that best fit your values and goals?

First, decide if your community investment goals are locally, nationally or internationally based.  Depending on how you decide to disburse your funds will also play into the type and geographic location of the recipient organizations.  Make sure you have checked with your tax accountant and lawyer about any financial and legal implications your decision will have.

For charities that are Canadian based it is easier to make sure your philanthropic investment will be used appropriately.  Canada Revenue Agency recently released its policy guidelines on fundraising for charitable organizations.  This document defines what "charitable objectives" are and how organizations can spend your philanthropic investment.  A copy of this policy can be found under Materials in the Resources section of this website.

Second, ask questions!

Some basic questions you will want to ask a charity before investing are:

1. Has the agency adopted the Code of Ethical Fundraising (see Resources on this site for a copy) developed by Imagine Canada?
2. Can the agency provide you with two years audited financial statements?  You want two years (preferably three) because you need to compare growth in both revenue and expenses.
3. Who is on the Board of Directors?  What are their terms?  Does the Executive Director have a vote? Are any of the Board Members financially compensated?
4. Where does the core funding come from?  How long is that funding in place?
5. Does the agency have a strategic plan?  How often is it reviewed?  How are is the organization measuring itself against the plan?
6. What percentage of the operating budget goes to the highest paid salary?  How many paid staff are there?
7. How much does it cost to raise a dollar?  You might want to take the following measurements into consideration: 40% of Executive Director's salary, 100% of Fund Development staff salary, 50% of marketing/communications budget and 5-7% of general overhead expenses (rent, phone, etc.).  Under the Donor Bill of Rights written by the Association of Fundraising Professionals, as a philanthropic investor you have the right to know this information.  A copy of the Donor Bill of Rights can be found in the Resources section of this website.
8. Finally, and probably the question you are most interested in knowing the answer to, how will this agency invest your money?  How many people will be helped, animals saved, programs delivered, etc.

If you need more clarification - ASK.  For the most part, charities want to be accountable to their donors.  If you are not satisfied with the answers do not make that charitable investment.