Recent Scandals in the Sector Point to a Need for Greater Transparency

By Mark Blumberg

Unfortunately, we have less transparency today in the non-profit and charity sector than we had 15 years ago. Both the Conservative and Liberal Federal governments have whittled away at transparency in the non-profit and charity sector.

Here is the Blumbergs’ Pre-Budget Submission for the 2023 Canadian Federal Budget. For those who have not been following our law firm’s submissions over the last 10 years, they have focused on transparency and accountability in the non-profit and charity sector.

Unfortunately, many have not learned an important lesson from the multitude of scandals in the non-profit and charity sector: that those who abuse the system are adept at taking advantage of weaknesses in the rules and their enforcement, as well as of blind spots in transparency. If you are a normal person, you probably don’t pay much attention to non-profit and charity regulations, to what exactly is or isn’t available publicly, or to when and how information will become publicly available.

I promise you that there are some people who are well aware of our system and how to game it. As we have noted elsewhere, even if CRA, which regulates registered charities, finds out that a charity is abusing the system, it typically takes 10-15 years for the public to know about it. Think of all the money donated over that 10 to 15-year period to the organization that would almost certainly not have been donated if the public knew. Think of all the government agencies, who typically have very little skill and training in due diligence on grantees, and how much funding was provided to that organization that perhaps would not have been provided. Think of the poor governance that is allowed to continue.

There was much discussion of these issues in the past when ORNGE, the Ontario air ambulance service, was being covered, when McGill University Health Center’s (MUHC) construction was done by SNC-Lavalin, when child abuse scandals were hitting various institutions, or when WE Charity and its relationship with the Federal government and lobbying was discussed in 2020/2021. It is being discussed again now with the coverage of Hockey Canada.

These are only a few of many scandals — far too many to mention, and while a small number get lots of media attention, many don’t get any. We often realize far too late that even if an organization says that they are a ‘model of transparency’, they may only be providing very selective and curated information that does not answer many basic questions that one should have about a non-profit or charity.

Sometimes groups doing problematic things are not required, legally speaking, to provide certain information, but often these groups also do not provide information that is legally required. I sometimes even point out the legal problems on my blog, but often those groups don’t care enough to even fix those problems; perhaps it is because they don’t read my blog, or perhaps they know there will probably be no consequences.

Interest in transparency ebbs and flows. If we only knew how much lack of transparency costs our country, we would be more interested.

It is painful to watch what is going on with Hockey Canada. When will we learn that greater transparency requires little work but makes it much more likely that organizations will act appropriately and funds/resources of organizations will be used appropriately? This should not be a “partisan political” issue. There are very few heroes when it comes to this file. If MPs think that they will be heroes by asking tough questions of Hockey Canada — no. They would be heroes if years ago they insisted that non-profits and charities provide more information to the public so that these issues either would have come to light earlier or perhaps never happened in the first place. Are people just working out in 2022 that there is a cultural problem with hockey in Canada? I hope that you know there is a problem with guns in the US! Are you aware that there are some morale issues in the Russian army?!

There are over 200,000 non-profits in Canada, and no amount of parliamentary committees can cover even 1/10 of a percent of those groups. In addition, while MPs have lots of skills, I am not sure most are adept at understanding non-profit and charity governance, due diligence on non-profits, etc. There might be a few MPs with some basic knowledge, but you get my point that this type of committee investigation should be a last resort.

I assume that hockey and other sports and charities, etc. will be around for a while — it is best if we strengthen the accountability and transparency that is in place to help us, our children and our grandchildren.

The CRA and the media have very limited resources to monitor the non-profit and charity sector. Often the best chance of oversight is from people who are near or adjacent to an organization. If these people can see information on an organization, (such as financial statements, budgets, etc) they are likely to ask questions or blow the whistle if they see something egregious.

With almost 200,000 non-profits in Canada, regulators and the media will only take a cursory look at groups. In many cases even board members are not aware of important issues that are dealt with by the ED/CEO or an executive committee. So yes —better transparency will also help some boards to have a better idea of what is happening in their own organizations.

In our summary in the submission, we note:

We are concerned that there are not adequate measures in place to ensure the efficient use of charitable assets, prevent the misappropriation of charitable assets and prevent non-profits and charities from engaging in egregious conduct. We will provide two recommendations to improve the productivity and competitiveness of the non-profit and charitable sector through greater transparency and other recommendations.

Here are our recommendations (which we discuss in greater detail in the submission):

Primary Recommendations

• Recommendation 1: That the Federal government amend Section 241 of the Income Tax Act in order to allow the CRA to disclose serious non-compliance with legal requirements by a registered charity, Registered Canadian Amateur Athletic Associations or certain other qualified donees.
• Recommendation 2: That the Federal government amend Section 241 of the Income Tax Act in order to allow the CRA to disclose to the public information contained on the T1044 Non-Profit Organization (NPO) Information Return.

Secondary Recommendations

• Recommendation 3: That the Federal government further increase the disbursement quota payout from the slight increase of 5 percent beginning in 2023 to a higher number such as 10 percent to deal with the $130 billion of accumulations held by private and public foundations.
• Recommendation 4: That the Federal government ensure that each donor advised fund is required to disburse a certain percentage per year per fund.
• Recommendation 5: That the Federal government and specifically the Charities Directorate of CRA roll out additional educational programs to assist Canadian charities and non-profits understand their compliance obligations.
• Recommendation 6: That the Federal government reinstate the Charities Partnership Outreach Program, or create a similar program, which provides funds to Canadian charities to fund educational initiatives within the sector to increase compliance.
• Recommendation 7: That the Federal government require charities to demonstrate annually in their reporting that they actually have a “public benefit”, rather than this being assumed.
• Recommendation 8: That the Federal government consider a system where the ability to issue tax receipts is not based on being a “registered charity” but rather a narrower category of deductible gift recipients as is currently in Australia.
• Recommendation 9: That the Federal government establish a unit within the RCMP, or other police force, tasked with the responsibility of reviewing complicated abusive charity schemes that provide inappropriate official donation receipts or inappropriate private benefits.
• Recommendation 10: That the Federal government providing funding to CRA to improve the transparency of the T3010 Registered Charity Information Return.

Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario. He can be contacted at mark@blumbergs.ca or at 416-361-1982. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits as well as foreign charities please visit www.CanadianCharityLaw.ca, www.SmartGiving.ca,or www.CharityData.ca. This article is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting a legal professional.