INDEPTH: DISASTER IN ASIA
How charities spend
CBC News Online | January 6, 2005
Canadians have donated tens of millions of dollars in aid for the tsunami-hit regions as the governments of more than 30 countries have pledged hundreds of millions, but that does not necessarily mean the dollars will be directed toward that cause.
"Only about half of what is pledged by rich countries ever ends up reaching the poorest people affected by these disasters," Max Lawson of the charity Oxfam told CBC Radio. Lawson said when hurricane Mitch ravaged Central America in 1998, only a third of the money promised got to the people of Nicaragua and Honduras.
In another example, a total of $32 million was pledged after the earthquake in Bam, Iran, killed up to 40,000 people, but only $17 million has actually been paid.
Susan Johnson, director of operations for the International Red Cross, says most of the aid money never leaves the country where it was raised.
"Over the years, a number of countries have made very strong pledges internationally, and then used a lot of the resources in their own country to send technical assistance or large contracts to domestic companies."
Jan Egeland, the United Nations emergency relief co-ordinator, vowed on Jan. 6, 2005, to have a full accounting of funds promised after the Dec. 26 tsunami. Egeland says the UN has learned from the past and has become more effective at getting the promised funds.
The issue of accountability in the charitable sector is also a growing concern in Canada. Thousands of charities have gone unchecked in their fundraising efforts and their use of revenues.
Following the money trail in Canada
Canadians give about $5 billion a year to charities in the form of personal and corporate donations, with the average household giving $1,700 annually. With 80,000 charities registered with the Canadian Revenue Agency (CRA), it's a daunting task to uncover what happens to those donations.
What your money can buy:
$20 can buy a family of four dishes, pots, clothing and a 5 kg bag of rice providing ½ a cup of rice a day for each family member for a week.
$45 can buy a water filtration system for a family of four and enough clean water for one year.
$100 buys five families blankets, cooking utensils, clothing and soap. It would also provide a ½ cup of rice per day for each person for a week.
Check the financial statements of the major aid organizations and you'll discover the majority of funds donated go towards projects. For instance, according to the 2003/2004 annual reports of some of the country's top charities:
- Oxfam Canada spends 83 per cent of its revenues on regular programs, and 90 per cent in the case of special emergency relief funding.
- The Canadian Red Cross allocates almost 90 per cent of revenues towards services.
- In Care Canada's case, it's 95 per cent.
- For Doctors Without Borders, it's about 75 per cent.
- For Canadian Food for the Hungry International, it's 97 per cent.
The revenue agency has a Charities Directorate website where anyone can key in the name of an organization and have access to its financial returns. What donors may not realize is that the revenue agency is not a regulator, for now.
Any organization can apply for tax-exempt status and it takes one month to be registered. The CRA has about three dozen examiners to pore over the 5,000 applications it gets a year, with about 1,000 being approved annually. New charities are given 18 months to provide a financial report and it could take up to a year after that before the organization is audited. That means it can collect money during that time without accounting for where it goes. In fact, some 2,000 charities a year fail to meet the basic requirement for filing annual returns.
A Toronto Star investigation in November 2002 discovered one in six registered charities in Canada or about 12,000 spend more on fundraising and administrative expenses than they do on providing charitable services. The Star reported the Canadian Association of the Blind took in $1.5 million and spent only $11,000 on charitable works. It took three years before the organization lost its charity registration and was shut down. Non-profit experts say a well-run charity should be spending at least 60 per cent of its money on services, not administration.
The revenue agency has only 15 auditors to keep track of 80,000 aid groups and does an average of 450 audits a year. It's up to the individual to decide whether a charity is worth giving to.
New rules for charities mean more monitoring
To address the problem, the federal government introduced new tax legislation for charities in December 2004.
"It's the most substantive reform of charities in decades," Peter Broder, director of regulatory affairs at the Canadian Centre of Philanthropy, told CBC News Online. The centre is a non-profit organization that encourages charitable giving. "Prior to this, the revenue agency's only reaction to [bad charities] was to de-register them. Now, there are sanctions and a compliance and appeals process."
Broder says increasing transparency could mean more money for the charity sector.
"People are motivated to give by an affinity to a cause, and having greater accountability will increase that affinity."
The proposed bill is based on recommendations by the Joint Regulatory Table, a group of government officials and charity leaders who examined the issue for two years and tabled a report with recommendations in May 2003. The federal government is allocating $12 million to improve regulation of charities. The proposed legislation includes new rules such as:
- A series of penalties for charities that fail to file their financial returns, from a $500 first-time penalty, to temporary suspension of their ability to provide tax receipts, and then partial loss of tax-exempt status.
- Increasing interaction with charities so they understand their legal obligations.
- Providing additional information about charity policies on the CRA's website.
- Revoking a charity's status for breaches of the Income Tax Act.
- Revoking charitable status immediately for organizations that provide misleading information.
- Using the revenue agency's website to identify charities in danger of losing their charitable status or that have had their status revoked. Information relating to the grounds for sanction or de-registration will also be posted.
- Money collected from taxes and penalties will be redistributed to legitimate charities.
- Better auditing methods, such as increasing staff, to detect aid groups that break the rules.
It could take up to a year or more for the new legislation to be approved.
Canadian Revenue Agency: charities directorate
Proposed Legislation on Charities: Bill C-33 (Part 3)