Transparency for all?

• Author: Broder, Peter
• Position: Not-for-Profit Law

Starting this past January, the House of Commons Standing Committee of Finance began a series of hearings on tax incentives for charitable donations. Although mandated specifically to deal with donation incentives, the Committee delved into a number of other concerns with charity operations.

Among the topics that came up for discussion were the political activities of registered charities, the rules around foreign funding, administrative costs, salary disclosure requirements and other obligations with respect to public reporting to promote transparency and accountability. Interestingly, several Committee members made inquiries not just about disclosure of charities' internal spending, but about amounts that groups devoted to services that were contracted out.

One Committee member commented that improper payments could as easily occur through outside contracts as through internal spending. Charities' dealings with third party for-profit entities is an area that hasn't seen much regulatory attention in the past, except in the context of tax credit donation scams.

Whether these questions truly represent a move away from the past focus on the internal workings of charities remains to be seen, but it does point to some areas that are little explored in the frequent calls for charities to be more transparent and accountable.

In this context, some consideration might be given not just to payments made by the charity to third parties, but also to other dealings that might occur between for-profits and charities. In the ubiquitous discussion of the effectiveness and efficiency of charities, these arrangements often distort the reported spending on administrative or fundraising by groups.

Those organizations that benefit from sponsorships or unreceipted in-kind support from for-profit firms are able to understate their spending on administration or fundraising and contribute to unrealistic public expectations around what charities ought reasonably to be spending on these functions. Until the repeal of the disbursement quota tied to receipted revenue, groups that could generate sponsorships, negotiate cause-related marketing agreements or other partnerships with businesses (for example, where a business agrees to underwrite some or all of a charity's administrative costs) enjoyed a huge advantage in their spending discretion.

Removal of the receipted revenue spending aspect of the disbursement quota has not, however, eliminated the practice of some...