Let the donor beware
Many fraudulent charities go unnoticed for years
Dana Lacey, Financial Post September 19, 2009
New Hope Ministries Institute, a Calgary charity, lost its charitable status recently. That means none of the people who donated money will be able to claim it on their taxes. Turns out New Hope was part of an “abusive” tax shelter scheme, which diverted millions of dollars from the charitable sector while issuing receipts worth three times the value of the donations themselves.
In Canada, a charity can’t give out tax receipts unless it’s registered with the Canada Revenue Agency. But with tens of thousands of charities and only 1,000 audits per year, companies like New Hope can operate for years before being stripped of their status. Even without their registration number, most continue to operate.
So far this year, the CRA has revoked the charitable status of 37 organizations for failing to comply with the Income Tax Act. The agency only offers reasons for 18 of them, which include everything from “nonexistent books and records” to illegal tax shelters to spending large chunks of donated cash on fundraising.
They have legit-sounding names like The Children’s Emergency Foundation and Truth Foundation Ministry Inc. Some borrow credibility from established charities, like the Wish Kids Foundation, which lost its status in 2005. Wish Kids allegedly claimed donated money would go to granting sick kids their dying wish, much like the Children’s Wish Foundation of Canada. Allegedly, not a penny of the $900,000 donated to Wish Kids went to a child in need.
So, what’s a donor to do?
The first and most obvious way to make sure you are donating to a legitimate charity is to do your homework. The more you donate, the more you should research to ensure your money is being used as advertised. When fundraisers come knocking, ask for the charity’s registration number (which should also appear on any tax receipts they issue).
Charities Directorate, the federal charities regulator, offers a searchable database of all Canadian charities. Each listing provides a yearly financial overview, including balance sheets and details on employee compensation, real estate, etc. The truly savvy donor can go through these listings and look for any red flags, such as a high percentage of donor dollars going toward fundraising.
Cathy Barr, vice-president of operations for Imagine Canada, a registered charity that represents the philanthropic sector, warns that many people have unrealistic expectations when it comes to the cost of running a charity. “You hear people say, ‘I want 100% of the money to go to the cause.’ If that’s the case, give it to the guy on the street. You don’t know what he’ll do with it, but it will have gone 100% to someone who needs it. But if you want infrastructure, decision making — who is going to get what — then there’s going to be some cost to that.”
You can’t easily compare one balance sheet to another, she says.
While large charities with wide-reaching and common issues, like heart disease or cancer, attract a strongly dedicated volunteer force, it’s not feasible for most charities to run that way.
The ultimate catch? There is no guarantee that the information provided is accurate until an audit by the CRA, which could take years (although it’s a pretty safe assumption that any charity offering receipts for more than the value of your donation is not legitimate).
The good news is the CRA appears to be stepping up to the challenge: Nearly 40% of revoked charities in the 16-year-old database were revealed in the last two years.