A Crossroads for Canadian Charities

As demand for services rises, so does debate on regulations and ethics

Canada’s non-profit world is debating how best to govern and police itself to meet the challenges of the next century.

In meetings across the country, Canadians are offering their opinions on questions ranging from what constitutes ethical fund-raising practice to which organizations should be granted charitable status — and by whom.

Many non-profit leaders hope that by taking steps to regulate themselves they can prevent the kinds of major scandals that have rocked charities in the United States in the past decade — and fend off any calls for greater government regulation of non-profit activities.

The wide-ranging debate comes as Canada’s 75,000 charities are scrambling to survive and prosper amid increasing demands for their services — whether in the arts, education, health, or social services — from a society that has grown increasingly culturally diverse.

Many groups are chafing under what they consider to be an outmoded regulatory system that some charity leaders say is ill-equipped to deal with the country’s expansion of voluntary activities.

Numerous people in and out of the charity world fear that some organizations will be tempted to cut ethical corners as growing competition makes them more aggressive in seeking private donations.

Charities in Canada get about 60 per cent of their funds from the government, but a 25-per-cent cut in federal aid to Canadian charities from 1992 to 1996 has prompted lots of organizations to try to reduce their heavy reliance on government money by diversifying their base of support. In doing so, many groups are trying to take advantage of an increased interest in giving that has been stirred by more-generous tax breaks offered in the past several years to Canadians who support charities — including a credit that can be worth up to half the value of their gift.

“All of that means that there is much more scrutiny on the voluntary sector now” by government officials and the press, says Patrick Johnston, president of the Canadian Centre for Philanthropy, which studies and promotes the country’s non-profit organizations.

Such attention is bound to generate proposals to regulate non-profit activities more closely. So far only one province — Alberta — regulates charity fund raising, but non-profit leaders fear that others may follow.

“If the sector itself does not demonstrate any initiative to monitor itself, we are almost inviting outside regulation,” Mr. Johnston says.

Government regulation can be arbitrary and heavy-handed and is no guarantee against abusive practices, Mr. Johnston says. “Even though the States seems to have more regulation than we do in Canada, it also seems to have more scams and scandals” involving charities, he points out.

Adds Gordon Floyd, the center’s director of public affairs: “We’ve seen what has happened in the United States with a proliferation of legislation at the state level, and want to avoid that here in Canada. Things happen here three or four years later, so we get a chance to learn from American mistakes.”

While many charity leaders welcome the push for self-regulation, others fear that it is diverting attention from the serious problems many groups have in meeting escalating demands for their services, and that it will only add to their burdens.

“There’s a high level of frustration from the field,” notes Paddy Bowen, executive director of Volunteer Canada, which coordinates the activities of some 200 volunteer centers across the country. “People are saying, ‘We’re very interested in being more accountable, but we need help. How can we be asked to be accountable when our resources have been slashed to pieces?’ ”

Spurring much of the discussion about Canada’s non-profit world is a 63-page report drafted by a committee of prominent Canadians at the behest of the Voluntary Sector Roundtable, a coalition of major national non-profit organizations. The committee, which has been soliciting responses to its report since releasing it in May, will continue to accept comments through October, and it expects to produce a final version by the end of the year.

“There are skeptical questions being raised about all institutions involving power and money,” says Edward Broadbent, who chairs the six-member Panel on Accountability and Governance in the Voluntary Sector. “I for one welcome that,” says Mr. Broadbent, a former leader of the New Democratic Party who spent 21 years as a member of Canada’s House of Commons. “The more democracy we have, the more accountability we have, the better.”

The committee’s work has won widespread praise for focusing attention on some fundamental issues: the role and responsibilities of charity boards, the necessity for making information public — and even the definition of charitable activity.

In addition to the Broadbent committee’s report, this year alone has seen the publication of several new sets of standards designed to increase charity accountability and to retain public trust:

* The Canadian Centre for Philanthropy has approved a code of ethical fund raising and financial accountability that sets forth a voluntary accreditation process. Accredited charities commit to have their fund raisers disclose any possible conflicts of interest, for example, and to respect donors’ rights to privacy. Groups also agree not to sell their lists of donors or to pay their fund raisers according to how much money they bring in. The center hopes accreditation will make it easier for charities to win support from the public.

* United Way of Canada/Centraide Canada has adopted principles of donors’ rights and guidelines for calculating and reporting the cost of fund raising. The latter document seeks to minimize the reporting of misleading campaign results, for example, by recommending that each annual fund-raising statement report on the results of a single campaign, so that revenue from one year’s campaign is not counted against costs of the next year’s drive.

* Community Foundations of Canada has set forth nine principles that it expects each of its 81 member funds to embrace. They include understanding the impact of social change on their communities, evaluating their own performance, and being open and accessible to grant seekers, donors, volunteers, and others.

Unlike in the United States, where calls for reform often have come on the heels of scandals involving prominent national charities like United Way of America or the National Association for the Advancement of Colored People, Canada’s non-profit world has largely been spared such crises. And public confidence in voluntary groups remains high.

The growth of Canada’s charity sector has placed additional burdens on regulators, however. Registered charities have increased from about 58,000 in 1987 to some 75,000 today, with total revenue of more than $90-billion.

Revenue Canada, the federal agency that registers charities and monitors their compliance with tax laws, has been hard-pressed to keep pace with the expansion.

Charities must file annual — and public — reports with the agency that give details about their structure, programs, and finances. Revenue Canada, the Canadian equivalent of the Internal Revenue Service, monitors those filings and can revoke the charity status of any organization found to have engaged in fraud or other illegal practices. Two years ago, the agency got extra money in its budget to improve its oversight capacity by upgrading its computer system and hiring more auditors.

Most provinces have been content to leave charity regulation to the federal government. The exception has been Alberta, which since last year has required all charitable fund raisers who operate there to comply with 10 professional standards. The rules are based largely on voluntary standards promoted by the National Society of Fund Raising Executives, which has chapters in both the United States and Canada.

Fund raisers, for example, must disclose all conflicts of interest, must discourage the payment of “finders’ fees” to third parties who match a donor with a recipient organization, must not disclose confidential information to unauthorized persons, and must insure — insofar as possible — that all gifts are used in accordance with the donor’s intent.

“This is a huge step forward,” says E. H. Guy Mallabone, director of development at the University of Alberta, who served on a panel advising the government on the matter. “We’re trying to strengthen public trust in philanthropy, and Alberta’s is the first government in North America to enact standards and practices.”

But some non-profit leaders hope that Alberta’s example does not spread beyond its borders.

“The whole business of putting so-called professional standards of practice into legislation is unique in Canada, and to my mind is highly questionable,” says Mr. Floyd of the Canadian Centre for Philanthropy. Several of the standards require compliance by a governing board and are outside a fund raiser’s control, he says. “Our belief is that effective self-regulation is preferable to government regulation,” he adds.

What’s more, legislation alone is of little use without the resources needed to enforce it, says the center’s Mr. Johnston, who notes that Alberta’s regulatory staff is stretched thin. “It may actually do more harm than good,” he says, “if it leaves people with the impression that there’s an element of oversight that doesn’t really exist.”

The tension between government regulation and self-regulation has produced widespread debate. The Broadbent committee, for its part, is also considering what is the most appropriate body to make sure charities are abiding by the law and are treated equitably. It recommends that a new organization be created to register all non-profit organizations and to collect and distribute information about their programs, financial management, and fund-raising practices.

The committee proposes that a single agency or organization combine the functions of developing voluntary groups (by helping fledgling organizations get established, for instance), disseminating information about them to the public, and monitoring compliance with applicable laws and standards.

One approach, the panel suggests, might be to create a federal commission, similar to the Char ity Commission of England and Wales, which simultaneously supports charities and watches for abuses. Another option, the report says, is to establish a private organization to take on such responsibilities.

Among other committee recommendations:

* Legislators should determine which types of organizations be granted charity status — and should review the decisions every 10 years. Currently, those determinations are made by Revenue Canada.

* Foundations should consider forming a national association, similar to the Council on Foundations in the United States, to help support philanthropy across the country.

* Board members’ liability should be limited — perhaps capped at some reasonable maximum — so as not to discourage people from joining volunteer boards.

* All voluntary organizations should subscribe to a code of effective governance and stewardship. In addition, they should adopt the code of fund-raising ethics developed by the Canadian Centre for Philanthropy, or an equivalent standard.

The center’s code, which was several years in the making, emphasizes the governing board’s responsibility for overseeing fund raising. Some boards had not seen that as their role, says Mr. Johnston; in some cases, in fact, board members were asking fund raisers to do things they were barred from doing by professional standards to which they had subscribed. For example, board members might have asked fund raisers to divulge privileged information or exploit their relationship with donors in a way that was proscribed by guidelines of the National Society of Fund Raising Executives.

The code calls for accreditation for two-year periods by “an arm’s-length body” that the center would establish. But “we’re struggling with this now,” Mr. Johnston acknowledges, because charities responded much more quickly and positively to the idea of an accreditation system than the center had expected. It is still trying to work out details of the neutral third-party entity that will perform the accreditation.

“We didn’t want the Centre for Philanthropy to become the PhilanthroCops,” he says. “That’s not what our mission is.”

Regardless of how that problem is resolved, all the codes and standards will fail unless non-profit leaders across Canada adopt and follow them. And whether that will happen is an open question to some people.

Self-regulation can be time-consuming and expensive, observes Al Hatton, executive director of the Coalition of National Voluntary Organisations. “How can we bring to bear among the charity leadership that these are things they should spend their time and energy on, given all their other challenges for survival?” he asks.

What’s more, what charities say and what they do are often different. A recent study by the Canadian Centre for Philanthropy found that 86 per cent of charities saw a need for formal ethical standards for fund raising, but only 41 per cent of them had such standards.

And some people say the current regulatory system has been effective at minimizing charity abuses and does not require tinkering. “Why all this stuff on accountability when we don’t have any real problems in the sector?” queries one fund raiser who requested anonymity.

But many non-profit leaders disagree.

“The Voluntary Sector Roundtable was of the view that these issues of accountability are under active discussion in the public and private sectors and that it was far better to be seen to be addressing these issues rather than wait until specific cases emerged,” says Susan Carter, associate director of the Canadian Council on Social Development, a social-policy research organization. “A large number of people are saying, ‘We finally got this stuff on the table. Let’s take a deep breath and get at these really big issues.’ ”

Tackling those issues, the Broadbent committee believes, will enable Canada’s voluntary organizations to better monitor their own practices and, thereby, to strengthen the public confidence that charities require in order to flourish. By adopting its proposals, Mr. Broadbent says, the country can make non-profit abuses more difficult. “The more openness there is, the less likely it is that you’re going to have bad practices,” he says. “We’re trying to use the principles of a free society to minimize the possibility for wrongdoing.”

But all human creations are subject to human frailties, he observes philosophically. “You’re not going to create any institution that’s totally corruption-proof.”