A CBC News investigation learns that charities are spending more and more on fundraising — and that external fundraising is a growing business.

Canadian registered charities paid $762 million to third-party fundraisers between 2004 and 2008, all of it deducted from donations and often dwarfing guidelines set out by the Canada Revenue Agency, a CBC investigation has learned.

In more than 200 cases, charities paid more than half the money they received from donors to external fundraisers, according to documents obtained from the CRA, which regulates Canadian charities.

The CRA recommends that no charity spend more than 35 per cent of revenue on fundraising and can revoke the registered status of any organization whose expenses seem disproportionately high.

Yet the CBC found examples in nearly every province in which local, provincial and national charities for years spent upward of 70 or 80 per cent of their revenues to pay the companies that organized their fundraising drives, including:

• The Alzheimer Society of Saskatchewan, which paid $96,849 for a campaign that raised just $95,812.
• The Children's Leukemia Research Association Canada, which raised $4.2 million over the last four years, but paid $3.2 million of that to its external fundraiser.
• Nova Scotia Crime Stoppers, which raised $2.8 million between 2003 and 2009 — of which $2.2 million, or 79 per cent, went to pay its fundraiser.

The $762 million over five years is a small fraction — less than 10 per cent — of the approximately $8.2 billion donated by Canadians annually, a level that earned them a third-place worldwide ranking for charitable giving by the British-based Charities Aid Foundation.

"When that phone rings, and it's a charity asking for money, we have traditionally just given," said charity analyst Kate Bahen. "You've seen the results of what happens when we just give without asking questions, without getting information."

Dilemma for small charities

Ten years ago, the fundraising sector was worth $800 million, said Bahen, the managing director of Charity Intelligence Canada, an Ontario-based non-profit that analyzes charities.

Kate Bahen, the managing director of Charity Intelligence Canada, says charities without the resources for a large-scale campaign can end up 'forgotten and neglected.' (CBC)

Today, it's a $2.8-billion business and growing, with an average 35 cents of every dollar donated to charity going to pay fundraising costs, she said.

For some Canadian charities, the amount is substantially higher.

There are 85,000 registered charities listed on the CRA's website. Of those, 651 — or less than one per cent — used external fundraisers in 2008. And of those, nearly one-third, or 214, paid more than 50 per cent of what they earned to their fundraisers.

Third-party fundraisers are nothing new; small charities, which might not have the staff or infrastructure to handle fundraising projects, have relied on them for years. They can also be of great help to charities tackling large-scale fundraising campaigns, like capital campaigns for a new hospital wing.

'Once one charity comes out with a big campaign with high costs, every other charity has to replicate that.'—Kate Bahen, managing director of Charity Intelligence Canada

The CBC's research found that for some groups, the potentially high fees of external fundraisers are simply the cost of doing business and worth the money.

Small charities struggling to enter the social consciousness might also see external fundraisers as a necessary burden in what Bahen described as an "arms race."

"Once one charity comes out with a big campaign with high costs, every other charity has to replicate that," Bahen told CBC News. Those that don't keep up "see their donations collapse."

"That's why [there's] the arms race. That's why it escalates. Those without the massive resources for a large campaign, they are forgotten and neglected."

That private fundraisers earned $762 million over five years isn't "particularly shocking" when compared with the billions of dollars that Canadians donate year to year, said Mark Blumberg, a Toronto lawyer who specializes in charities law.

"The large number just reflects that Canadian charities are doing a lot of fundraising," Blumberg told CBC News. "The part that is of concern to me is when, say, a million dollars is paid to a fundraiser, and that fundraiser brings in, say, $1.1 million — so, say, 90 per cent of the funds is actually going to the fundraiser. In that case I'd be very concerned."

CRA guidelines

The Canada Revenue Agency "accepts that registered charities may incur costs in their efforts to raise funds for their charitable work" but insists these costs "be reasonable," according to the agency's website.

Lawyer Mark Blumberg, who specializes in charity law, said he'd be very concerned if a charity was spending 90 per cent of its revenue on an external fundraiser. (CBC News)

It lists three brackets of expenditure-to-revenue ratios to describe its level of concern with charities' activities: under 35 per cent, between 35 and 70 per cent, and more than 70 per cent.

A charity spending 70 per cent or more on fundraising, whether or not those expenses are for an external company, "is not considered to be devoting its resources to charitable activities" and raises red flags, according to the CRA website.

In cases where a high percentage of revenues is being paid to a non-charitable external fundraiser, a charity must be able to show that it has taken adequate measures to control costs, including determining the fair market value of the fundraising services.

Charities can allay CRA scrutiny by proving that the money spent in these cases is an investment that will lower fundraising costs in the future, and by disclosing their costs transparently to potential donors "so that the public … are not misled about the use of their donations, entrance fees or other contributions."

But the CRA and Bahen suggest that Canadians should also be more assertive when considering donating to charity.

"It's our money. It's our choice," Bahen said. "If we can start making informed giving decisions, and not making giving decisions based upon marketing, I think we can change the trend in this sector."

She said donors should feel "absolutely comfortable" asking questions of charities, including:

• What is your CRA charitable registration number?
• Can you send me your audited financial statements?
• How much of my donation will be spent on costs?

"If a charity's not going to be transparent with you on how it's spent money in the past, why would you give it a donation?" she asked.

With files from the CBC's Andrea Lee-Greenberg