Regulation of Charitable Organizations

The Challenge:

Charitable organizations may escape the same level of scrutiny around how they run their affairs as compared to private business or government. A 2007 study by Dalberg, a consultancy, found the corporate world generally concerned about the less stringent practices commonplace with charities, including a frequent lack of independent directors.

Another more recent survey of the wealthiest 30 per cent of American households by Hope consulting found:
  • Only one-third of those households research a charity prior to making a donation.
  • Of those, 75 per cent less than two hours on that research.
(source: The Economist. November 11, 2010

As well there have been Canadian media reports about high profile cases involving fraudulent charities, including an Ontario woman who was alleged to have faked cancer as means to attracting donations.

Two other reports, one from the Organization for Economic Cooperation and Development (OECD), also suggest shortcomings within the regulation of charities such that fraud, money-laundering and tax evasion may be occuring within some Canadian charities.

What's happening in Canada?

In 2001 the Canadian government reaffirmed its involvement with the voluntary sector, culminating with Voluntary Sector Initiatives. Signed in December 2001, this document sets out the ground rules for the federal government's relationship with charities. On a separate but related track, actual oversight and regulation of the voluntary sector falls under the Canada Revenue Agency, specifically the Charities Directorate.

The Directorate's Mission is " promote compliance with the income tax legislation and regulations relating to charities through education, quality service and responsible enforcement, thereby contributing to the integrity of the charitable sector and the social well-being of Canadians."

Federal Finance Minister Jim Flaherty's recent budget included new measures to regulate charities

In June 2011, the federal budget brought forth added measures to improve accountability and transparency within charities. This includes:
  • Applying many of the current rules for registered charities to Canadian Amateur Athletic Associations.
  • New eligibility requirements for directors or managers of registered charities and amateur athletic associations.
  • New record keeping requirements.
  • New rules around gifts.

In addition to federal regulations, charities must also comply with rules set down by the individual provinces where they are set up.

The Charities Directorate provides information to prospective doners as to how to avoid being the victim of fraud.