Ontario PGT bulletin entitled Charitable Fundraising: Tips for Directors and Trustees.

November 08, 2009 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: News, Canadian Charity Law, Global Giving, Ethics and Canadian Charities, Avoiding 'Charity' Scams

The Ontario Public Guardian and Trustee has produced a charity bulletin entitled Charitable Fundraising: Tips for Directors and Trustees.  In that bulletin they discuss fundraising requirements for charities that operate in Ontario.

Here is the text of the bulletin:

Information from the Public Guardian and Trustee’s Charitable Property Program

Charities Bulletins are intended to provide basic information about charitable matters and are not intended to be a substitute for legal advice. For legal advice, charities should consult their legal advisor.

Charitable Fundraising: Tips for Directors and Trustees

Introduction

A successful fund-raising campaign can make a significant difference to a charity’s future operations and raise its profile in the community. However, when fund raising campaigns are not conducted appropriately they tarnish the reputation of a charity and of the charitable sector as a whole. Poorly managed fundraising campaigns may also have legal consequences for the charity and its directors or trustees.

It is important for charities to understand that raising funds for a charity is not a charitable purpose in and of itself.  The solicitation of funds does not, by itself, promote a public benefit. Fundraising is permissible to enable a charity to carry out its charitable work but cannot become an end in itself. Charities must also remember that distributing information during a fundraising campaign to raise awareness about a particular matter is not enough to make the fundraising campaign itself a charitable activity. Generally speaking, when the purpose of the expenditure is to appeal for funds the expense should not be recorded as a charitable expenditure.

Donors should be communicated with openly and honestly about a charity’s programs and fundraising costs. The charity’s fundraising costs must be reasonable in relation to the amount of funds raised. It is helpful for directors and trustees of charities to ask themselves, “Would members of the public make a donation to the charity if they knew how much of each dollar donated was actually used to carry out the charitable programs?”

Planning a Fundraising Campaign
The key to a successful fundraising campaign is careful planning. Directors and trustees must ensure that all decisions about fundraising are defensible business decisions. They should develop a written fundraising plan to guide their decisions and prepare a budget before launching a fundraising campaign.

Factors to consider before launching a fundraising campaign include:

Purpose: Why is this campaign being launched? Is the charity raising funds for its general operating budget or for a special purpose?  It is important to note that a charity cannot use funds raised for a special project for any other purpose, so careful thought must be given to this.  Fundraising materials should clearly indicate whether funds are being raised for the charity’s general programs or for a special project.
Methods: What types of activities will be held during the campaign period? Will funds be collected by in-house volunteers or by commercial fundraisers? Many fundraising campaigns are staffed and run by volunteers. Different types of fundraising need different skills and have different costs.  It may be beneficial for the charity to appeal to a particular segment of the community. Donors may have a preference for one type of solicitation over another. Fundraising methods not in keeping with the charity’s image or philosophy can damage a charity’s reputation. Directors and trustees should be aware of the special risks associated with fundraising events that require substantial financial commitment. Other fundraising activities, such as lotteries and gaming events, may require special permits or licenses.
Alternatives: Is the campaign really necessary? In some cases, government grants, community foundations and other sources of funding are available.  It may be more efficient to use funding from these sources than to fundraise.  Asking for donations too often may result in donor fatigue.
Duration: How long will the campaign last? Will it be a recurring or a one-time event? The charity can focus its fundraising activities by defining the duration of the campaign.  Setting an end date for fundraising will also allow the charity to limit the amount of time volunteers or paid canvassers can act in the name of the charity.
Support: What is the strength of the charity’s volunteer base and are there ways to enlarge it? What is the capacity to build a donor base? Do the charity’s purposes have wide support among members of the public?  What is the competition like from other charities in the same field?
The Costs of Fundraising
Donors expect most of the money they give to be used for charitable activities even if they recognise that a portion of their gift will be used for fundraising expenses. If charities spend too much on fundraising, public confidence in the charitable sector is diminished and the charity and its board may be exposed to legal consequences.

Charities should monitor and document expenses throughout the campaign. They should regularly review the cost-effectiveness of their fundraising activities and should rethink any fundraising plan if donors are likely to consider the fundraising costs excessive.

The courts have stated that fundraising costs must be reasonable in relation to the amount of funds raised. While the courts have not stated the maximum amount that can be spent on fundraising the Income Tax Act disbursement quota provides, in part, that registered charities use at least 80% of official charitable receipts issued by the charity in the previous year for charitable purposes. This requirement gives some guidance as to what might be considered a reasonable proportion for administrative and fundraising costs. 

Duty to Account
Directors and trustees of charities are responsible as fiduciaries to the public for all donated funds. This includes all of the funds collected by commercial fundraisers. A charity should keep detailed records and ensure it receives a full and complete accounting from any commercial fundraisers it uses.  Charities that raise funds outside of Ontario must keep a separate accounting of all of the donations and expenses for each campaign in each province.


The Public Guardian and Trustee can require a charity to account for donations and related expenses of a fundraising campaign and can require information about fundraising appeals. If the Public Guardian and Trustee has serious concerns about fundraising expenses the charity may be asked to pass its accounts before the court. Directors and trustees can be personally liable for fundraising costs that are found to be unreasonable.

Use of Commercial Fundraisers
Commercial fundraisers may have expertise that some charities do not have in-house, but there are a number of things a charity should think about before hiring a fundraiser.  Directors and trustees should make sure that any fundraising arrangement is consistent with the fundraising plan before signing a contract. They should consider the impact of the campaign on the reputation of the charity and the charitable sector as a whole. The costs of the commercial fundraiser together with the charity’s own administrative costs must be reasonable.

If the charity hires a commercial fundraiser, it should disclose that canvassers are paid and answer questions about their fees. 

Consideration should be given to ensuring that donor lists derived from fundraising campaigns remain the property of the charity.

To avoid a real or perceived conflict of interest, a charity should not retain a commercial fundraiser in which one of the charity’s directors or trustees has an interest. 

The courts can set aside fundraising contracts that are too expensive. The courts can also order the directors or the fundraisers to repay the fees in question. All agreements with commercial fundraisers should be in writing. Before signing a fundraising contract, directors and trustees are encouraged to review the checklist included at Appendix “A”. 

To avoid the risks and negative publicity from excessive fundraising costs, directors and trustees should consider asking fundraisers to comply with a code of ethics. The Canadian Association of Gift Planners and the Association of Fundraising Professionals have developed codes of ethics that may be useful examples. Charities may also consider acting in accordance with the Ethical Fundraising and Financial Accountability Code prepared by Imagine Canada (contact information is found at the end of the Bulletin).

Commercial fundraisers are agents of the charity and the charity and its directors or trustees are responsible for anything the fundraisers say to the public. This is another reason to choose commercial fundraisers carefully and to monitor the fundraising campaign at all times.

Above all else, the charity’s directors or trustees are responsible for ensuring that fundraising costs are reasonable and that statements made to members of the public are true and accurate. 

Special Purpose Fundraising
Charities sometimes raise funds for a particular purpose or project and sometimes donors give money to charity for a special purpose. Donations received for a specific purpose or project and donor directed funds must be used only for the stated purpose and must be kept separate from the charity’s operating funds.

If a charity is fundraising for a specific purpose it is a good idea to provide an alternative purpose for which funds can be used.  That way, if the original purpose cannot be carried out or if there are surplus funds, the money can be used for an alternate project.

The alternative purpose should be communicated to potential donors when funds are solicited. If fundraising materials do not indicate an alternate use for special purpose funds, the charity will have to apply to the court to use the funds for a similar purpose or may be required to return unused funds to identifiable donors. Clear communication with donors during the fundraising campaign about all contingencies will help avoid problems. 


Charities conducting special purpose campaigns should retain the records concerning the fundraising campaign and in particular the information about what the public was told about how the money would be spent. Copies of fundraising brochures should be kept. The Public Guardian and Trustee may inquire into whether funds raised for a special purpose are being used for the purposes for which they were collected. Keeping good records helps to ensure that misunderstandings can be resolved quickly.

Registered Status Under the Income Tax Act
Solicitations for charitable fundraising should always disclose whether the charitable organization is registered as a charity under the Income Tax Act and whether donors will receive an official receipt for income tax purposes.  Non-registered organizations should not mislead donors by saying their corporate number is evidence of charitable registration under the Income Tax Act or by telling them an “official receipt” will be provided. 


The charity may decide not to issue charitable donation receipts for donations below a set amount. If a charity sets a minimum amount for receipts it should clearly inform donors of that amount on all fundraising materials.

Tips for Managing Fundraising Risks
Directors and trustees who wish to avoid complaints about a charity’s fundraising practices and the use of charitable property should follow the guidelines set out below:

Know the governing documents. These are the documents that set up the charity, such as its letters patent, trust deed or constitution.  The documents will describe the objectives or purposes the charity was set up to fulfil and will set out the powers of the charity as well as any limitations on these powers.  Directors and trustees should always ensure that fundraising campaigns will further the charitable purposes of the organization.
Know your duties, responsibilities and powers as a director or trustee (see Duties, Responsibilities and Powers of Directors and Trustees of Charities).
Document all deliberations, actions and decisions regarding fundraising campaigns.
Become familiar with fundraising best practices and decide which practices are applicable to your organization.
Be open and transparent. Share information with members and donors so they understand your decisions. Encourage members and donors to share any concerns they may have and address those concerns promptly.
Be knowledgeable about all aspects of the fundraising campaign. Consider the costs and risks of different fundraising strategies. Make sure that there are no misrepresentations being made and that the costs of the campaign are reasonable.
Know if the charity has any restricted or special purpose funds.  Find out what the restrictions are and make sure detailed records are kept.
Keep full and complete financial records and ensure special or restricted purpose funds are deposited and accounted for separately.
When soliciting special purpose funds provide an alternate purpose in the event the original purpose should fail.
Ensure that special purpose funds that are not needed immediately are invested in compliance with the Trustee Act and the Regulations under the Charities Accounting Act (see Investments By Directors and Trustees of Charities).
Contact Information
Ministry of the Attorney General
Office of the Public Guardian and Trustee
Charitable Property Program
(416) 326-1963 or toll-free 1-800-366-0335
http://www.attorneygeneral.jus.gov.on.ca/english/family/pgt
Investigates complaints about charities and protects the public’s interest in how charities raise and use their money.


Charities Directorate
Canada Revenue Agency
1-800-267-2384
http://www.cra-arc.gc.ca/chrts-gvng/chrts/menu-eng.html
Registers charities and monitors compliance with the Income Tax Act. Only charities that are registered with the Charities Directorate are eligible to issue charitable donation tax receipts.


Association of Fundraising Professionals
(613) 236-0658
http://www.afpnet.org/about_afp
Maintains a Code of Ethical Principles and Standards of Professional Practice for fundraisers.
Canadian Association of Gift Planners
(613) 232-7991 or toll-free 1-888-430-9494
http://www.cagp-acpdp.org/en/default.aspx
Maintains a Code of Ethics for gift planners that is overseen by an Ombudsman.


Imagine Canada
(416) 597-2293 or toll-free 1-800-263-1178
http://www.imaginecanada.ca
Maintains an Ethical Fundraising and Financial Accountability Code for charities.


Alcohol and Gaming Commission of Ontario
(416) 326-8700 or toll-free 1-800-522-2876
http://www.agco.on.ca/en/h.home.html
Regulates the conduct charitable gaming events and lotteries.
Appendix A: Factors to Consider Before Signing a Fundraising Contract
Has the fundraiser provided references from other charities for which similar campaigns have been conducted?  Were those charities satisfied with the results that were achieved?
Are the fees and charges reasonable?  If potential donors were aware of the fees and charges associated with a donation, would they still make the donation?
Does the fundraiser subscribe to a code of ethics?
Are the terms of the contract clear and well understood?
Are acceptable fundraising methods specified in the contract? Are the fundraising methods consistent with the written fundraising plan?
Will the fundraising campaign generate sufficient revenue to allow the charity to engage in activities related to its charitable purpose?
Are canvassers required to provide accurate information to potential donors about the proportion of the donation that will be used for charitable purposes?
Are canvassers required to identify themselves as commercial fundraisers? Are they prohibited from representing themselves as employees or volunteers of the charity?
Will fundraisers provide donors with receipts? Is the fundraiser required to keep receipt books secure and safe? If the charity is not registered under the Income Tax Act, will canvassers make this fact clear to donors?
Will the donor list remain the exclusive property of the charity?
Will the donation bank account remain under the sole control of the charity?
How will fees and charges be calculated? If there is a disagreement, how will it be resolved?
Will the fundraiser provide a full accounting for expenses and funds received? Will the fundraiser provide periodic accountings to enable the charity to monitor the performance of the campaign? Will receipts and vouchers be provided to document all disbursements?
When does the contract terminate? Are there any penalties for terminating the contract early if the charity is not satisfied with the services that are provided?

For the original bulletin visit: http://www.attorneygeneral.jus.gov.on.ca/english/family/pgt/charbullet/bulletin-8.asp


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Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario.  To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit http://www.canadiancharitylaw.ca or http://www.globalphilanthropy.ca  Mark can be contacted at or at 416-361-1982.

This article is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting a legal professional.

Do you require legal advice with respect to Canadian or Ontario non-profits or charities?

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Charity Lawyer Mark Blumberg

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.

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