Why Canadian donors have low levels of trust for Canadian international development charities?

December 04, 2007 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: Canadian Charities Operating Abroad, Foreign Charities Operating in Canada

An Ipsos Reid poll suggests that Canadian donors have low levels of trust of “international development” charities.  This article will attempt to explain why and suggest how to increase levels of trust.

In September 2006 Ipsos Reid and The Muttart Foundation published polling data in a report entitled “Talking About Charities 2006: Tracking Canadian’s Opinions About Charities and The Issues Affecting Them”.  They interviewed 3,864 Canadians over a two month period and the report covered many aspects of the charitable sector in Canada, only one of which I will touch upon today – the lack of trust of the Canadian public in charities that undertake international development efforts.

The full report is located at the Muttart WebsiteOn page 7 of the Report it notes:

“Of the ten types of charities asked about in the study, Canadians are most likely to trust hospitals a lot or some (89%), followed by charities that focus on children/children’s activities (85%), health prevention/health research (84%), education (77%), social services (74%), protection of the environment (73%), protection of animals (73%), churches (67%), the arts (61%) and international development (57%).”

Of the ten types of charities in Canada, hospitals are trusted most and international development charities are trusted the least.  There is a huge gulf between the most and least trusted.  International development charities need to tread carefully.  As the world is getting smaller and donors and the media are concerned about international problems support for international development efforts by charities have increased.  There is a danger that this support could plateau or precipitously decline.

One could criticize the findings and argue that the rigid classification into categories namely hospital, children’s charities or international development is flawed.  In reality although 1% of organizations may be set up primarily for international development, probably closer to 15% of charities including hospitals, children’s charities, health prevention/health research and educational institutions and others are involved with international projects, many of which directly or indirectly involve development.  However, I think that there will never be a perfect way of classifying charities and the issues raised cannot so easily be refuted. One can argue that the average Canadian knows little about the world we live in – after all most Canadians do not have passports and many will never visit developing countries, except in the context of an all-inclusive beach resort. 

However, although many Canadians may not have visited countries that are in the most need, or may not consider themselves experts in international development, they still seem to care about global issues and donate large amounts of money to support these causes.  As long as charities need the donor’s funds, the international development charities in particular must be concerned with the public perceptions and take any widely expressed concerns seriously.

Why is there so little trust of international development organizations? 

Here are a few ideas that may explain the lack of trust:

1) Bias
Many Canadians see local needs and believe in the maxim “charity begins at home”.  Any attempt to deal with foreign activities before dealing with local needs may be viewed with suspicion and consequently a lower degree of trust.

2) Involvement of charities with money laundering, fraud, and terrorism.
Although very few charities have been implicated in money laundering, fraud or terrorism there has been a great deal of media coverage of these issues.  There is legitimate confusion in the public’s mind as to why a “social service” organization,  which is a branch of another organization that carries out terrorist operations, could have charitable status in Canada.  This is an example of how a few problematic charities can create a problem for the rest of charities and the importance of the Canada Revenue Agency and the Canadian government effectively policing the charitable sector. 

3) Lack of control over funds and reporting
The Canada Revenue Agency requires that charities have control over funds sent abroad and obtain reporting on the Canadian projects.  For a full discussion you can see my article on Canadian Charities Operating Outside Canada. There have been a number of cases in the last few years of charities that operate abroad having their charitable status revoked. Some of those charities have argued against some or all controls on their activities by the CRA.  Some Canadian citizens have supported these charities. However, I would think that for many donors who are not intimately aware of the activities of the organizations they would probably have suspicions that if CRA is revoking their registration that something is horribly wrong with that charity and that there are probably other charities and CRA just has not found them yet.  As I have argued elsewhere Canadian charities that operate abroad should be seeking higher standards of accountability and not seeking to exempt themselves from control and reporting requirements. 

4) Visibility of Effects if the money is being spent properly.
It is more difficult to see the effect of spending money on a project 10,000 kilometers away and knowing that the funds are being properly spent compared to a donor passing a new gleaming hospital wing in their local community every day.

5) Fundraising tactics
Charities in general have problems with fundraising.  The public does not like to be manipulated or pressured.  Charities operating abroad have to deal with this issue and the widely held perception that international disasters are used as a means of fundraising with the charity consciously knowing that some of the funds being raised will probably be used for projects and expenses unrelated to the particular disaster at hand.  Most international development organizations are very careful about fundraising, but some are not.  The Canadian Council for International Co-operation (CCIC), an umbrella organization representing some Canadian charities in the area of international development, has an interesting section on ethics at their website including a Code of Ethics, certification program, a review committee and even games on the subject.  It is well worth reviewing. The CICC Code of Ethics   has a whole section on appropriate communication and fundraising.  Section 3.5.1 of the CCIC Code of Ethics states:  “Fundraising solicitations shall be truthful, shall accurately describe the Organization’s identity, purpose, programs and need, shall only make claims which the Organization can fulfill, and shall avoid using high-pressure tactics in soliciting donations. There shall be no misleading information (including material omissions or exaggerations of fact), no use of misleading photographs, nor any other communication that would tend to create a false impression or misunderstanding. Information in the Organization’s appeals should give accurate balance to the actual programs for which the funds solicited will be used.” 

6) Disbursement Quota and Percentage of Administrative and Fundraising Expenses
One can see from the Muttart Report that many Canadians feel that all funds raised by charities should go directly to programming and that none of their donations should be used for administration or fundraising.  This is clearly unrealistic.  There have been some egregious examples of charities spending almost nothing on charitable work and almost all the funds being spent on administrative and fundraising expenses. In many cases the CRA has responded by revoking their charitable status.  Recently the Toronto Star wrote some interesting articles on Mothers Against Drunk Driving and their fundraising expenses. However, I have not seen any indication that international charities are any worse or better in this area than other charities.

7) Tax Shelter Schemes
Every November or December new last minute schemes pop such as ‘gifting trust arrangements’ or leveraged cash donations or buy-low, donate-high arrangements. Every year CRA warns taxpayers to avoid these arrangements. They are usually supported by financial planners who wave lengthy opinion letters written by some of Canada’s largest and most “respected” law firms.  Some of these arrangements involve international activities such as ostensibly donating pharmaceuticals to developing countries.  It is always interesting to see how some very intelligent and knowledgeable tax lawyers are reluctant to say that a particular complicated scheme in which a ‘donor’ obtains a far greater tax benefit than the funds put down is a sham and illegal. Instead, they talk about “reputational risks” to charities involved with such “shelters”.  These schemes undercut the credibility of charities that are involved with them and also professional advisors, such as lawyers, accountants, investment advisors, who either directly or indirectly support or promote them.

8) Poor Governance
Many Canadian charities that operate abroad believe passionately in their mission.  In some cases they care about their country of origin and improving the conditions of people in those countries.  However, they are not always transparent and sometimes do not operate according to best practices in terms of corporate governance.  This may be the result of ignorance on the part of organizations who are largely or solely run by volunteers.  In other cases there may be ambivalence to transparency and good governance.  In some cases these charities make poor decisions that could have been averted if their board of directors was more accountable, there were real elections within the organization, conflicts of interest were avoided and other legal requirements and best practices followed.

It is interesting that respondents to the poll were asked if there was a body that oversaw charities and only 31% thought there was.  Perhaps the Federal and provincial governments, especially the federal Canada Revenue Agency, needs to do a better job of informing the public of their monitoring activities and that it is not the Wild West when it comes to Canadian charities operating abroad.

The bottom-line from my perspective is that if the public does not trust a charity they will not give it money.  If part of the charitable sector has less trust than another part, then the less trusted part will have greater difficulty in convincing people and organizations to donate. Charities operating abroad can make a superb case for the tremendous effect of $1 of donations in some developing country compared to the effect of a similar $1 in Canada.  In some cases that $ will go 30-40 times further in the foreign country than in Canada. However, this plea will be ineffective if the public does not trust the charity.  As well if charities that operate in the area of international development have less trust from the public it could also undercut Canadian public support for greater foreign aid and international development funds.  Many of the larger Canadian international development charities obtain most of their funding from CIDA.

It is in the interest of all registered Canadian charities working abroad to raise the level of trust for those charities.  It is interesting that recently the Canada Revenue Agency sent out an e-mail on its Charities Partnership and Outreach Program.  The CRA was interested in promoting awareness and capacity in the charitable sector in two areas: one of the areas was “Fundraising, receipting, and maintaining books and records in compliance with a charity’s obligations under the Income Tax Act”.  This has applicability to all charities.  The second was “Conducting foreign activities in compliance with a charity’s obligations under the Income Tax Act”.  Clearly, it is not only the public that is concerned with Canadian charities’ foreign operations.

Canadians are perhaps following Ronald Reagan’s dictum “Trust, but verify”.  It is not good enough for Canadian charities to say that their operations are cost-effective and donors and taxpayers are getting good value.  There needs to be proper documentation and agreements, proper government filings, proper audits, proper paper trail, proper record keeping, and easily accessible information to donors and other stakeholders. Without this high level of operation and communications Canadians will not be able to verify the work of international development charities and consequently those charities will not maintain the Canadian public’s trust.

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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