The Charity Commission of England and Wales is under fire over the last few months. Those who are interested in charity regulation should be paying attention. The Charity Commission is a beacon for charity regulators and those that want charities to operate at high standards.
The Charity Commission has published guidance that although based on English law provides a lot of very useful frameworks and advice to charities around the world. Its reports show how operating charities are in a few instances failing in their responsibilities.
A few years back the Conservative government butchered the Charity Commission’s budget - they cut it by over 30%. In fact with inflation it appears that the Charity Commission budget is about 40% lower today that a few years ago. Most of the criticisms of the Charity Commission center around the Cup Trust scandal which we have covered on this blog. Cup Trust was an awful scheme which involved £176 million of payments with almost nothing being spent on charitable activities. Thankfully it appears that the Gift Aid claims were not even paid by the government. That being said Cup Trust is a relatively small scheme in the large international context. Take for example Canada. Over the last 9 years approximately $6 billion in receipts were issued by abusive charity gifting tax schemes. About 50 charities were involved. The real cost of these Canadian schemes is probably about $2-3 billion dollars and it has caused significant damage to the reputation of the Canadian charity sector.
In Canada we have the Charities Directorate of the Canada Revenue Agency as the de facto regulator of charities. This is not that different than US with the IRS leading the way. In the UK there have been calls by a few to abolish the Charity Commission and replace it with oversight by Her Majesty’s Revenue and Customs (HMRC).
Unfortunately, it does not matter what system you have there will be a small number of people who will try to abuse the system. This happens in Canada and the US even though tax regulators are the main regulators.
One of the fiercest critics of the Charity Commission has been Margaret Hodge who is the chair of the Public Accounts Committee which is the UK Parliamentary committee which looks at government spending. I would be pleased to invite Mrs. Hodge to Canada so that she can see how amateurish and small scale those in the UK are who abuse charities.
Margaret, I would suggest that you spend a few days in Canada - a couple of days meeting with the Charities Directorate in Ottawa who can explain the ins and outs of how a few hundreds people in Canada are causing such damage to the sector. Then I would suggest that you come to Toronto. We have a shoe museum and a new aquarium, not to mention a dreadful ice hockey team. I will explain to you how having a tax regulator is not a panacea and creates its own problems such a focus on privacy and secrecy as required under our Income Tax Act. I will demonstrate how Canadian and other charities make use of the really great Charity Commission guidance and resources on their website. I can introduce you to some lawyers who are involved or who defend our Canadian abusive charity tax schemes. They will explain how a Canadian charity that issues official donation receipts for $168 million and only spends $2000 on charitable activities is a ‘legitimate’ charity. Then finally you should visit Niagara Falls. It is quite beautiful. I think that such a trip would be a good use of your time and would provide you with some additional perspective.
It sounds to me that far from eviscerating the Charity Commission it would be a good idea to give the Charity Commission more power and restore its budget to at least the levels from a few years back. Also be realistic - no agency or police force can prevent an unscrupulous trustee from trying to take advantage of a charity. One just does not want it to be too easy.
Anyway, Margaret please contact me at your convenience. And if coming to Canada in winter seems daunting I would be pleased to visit you. If you have space for those in the Commonwealth interested in testifying before your committee I would be happy to present on the limitations of different models of regulation.
Here are some recent links on this topic:
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.