Carole Chouinard Canada Revenue Agency s Fundraising Guidance
Outline of Presentation History of Guidance Overview of Guidance Challenges for Charitable Sector Concerns Raised by Guidance 2
HISTORY OF GUIDANCE Draft released on March 31, 2008. Followed by public consultation process. Current version (Guidance CPS-028) released on June 11, 2009. Guidance supplemented by further document: Additional Information on Guidance CPS-028. Guidance issued in response to public demand for greater accountability concerning fundraising and charities request for clarification of fundraising expense allocation. Legislative basis for CRA regulation of fundraising activities not clear. From regulatory perspective, tracking fundraising expenses will become focus for CRA and charities. 3
OVERVIEW OF THE GUIDANCE Provides guidance in four major areas: - distinction between fundraising and other activities. - allocation of expenditures for reporting purposes. - assessment of fundraising activities and expenditures for regulation purposes. - non-acceptable fundraising activities. Applies to charitable organizations and charitable foundations. Applies to all funds raised, even where no receipts issued. 4
Distinction Between Fundraising and Other Activities Fundraising includes: - solicitation for cash or in-kind donations. - putting on fundraising events. - distributing information through the media. - sales of goods or services. - prospect research. - planning for future solicitations. 5
Application of Expenditures for Reporting Purposes Fundraising not considered to be a charitable activity. Fundraising costs cannot be reported as charitable expenditures. Charities must report as fundraising expenditures: - all costs related to solicitation activities. - all costs related to planning and preparation of activities for future solicitations. - all costs related to the marketing and sale of goods or services. Charities need not report as fundraising expenditures costs of activities that would have been undertaken without the solicitation. Activities undertaken without solicitation where Test A or Test B is met. 6
Application of Expenditures for Reporting Purposes (cont d) Test A referred to as the Substantially All Test. Test A met where 90% or more of the activities have objective other than fundraising. Where Test A met, all costs considered to be for purpose other than fundraising. Test B referred to as the Four Part Test. Test B met where the answer to all of following questions is NO: - was the main objective of the activity fundraising? - did the activity include ongoing or repeated requests, emotive requests, gift incentives, donor premiums, or other fundraising merchandise? - was the audience for the activity selected because of their ability to give? - was commission-based remuneration, or compensation derived from the number or amount of donations, used? 7
Application of Expenditures for Reporting Purposes (cont d) Where Test B is met, a portion of the costs for the activity may be allocated as non-fundraising expenditures. Exception: costs considered to be attributable to charitable activity where fundraising activity appended to activities primarily directed at achieving a charitable purpose. 8
Assessing Fundraising Activities and Expenditures for Regulation Purposes CRA will consider four types of factors to assist with assessment: - fundraising ratios - basic considerations - best practices indicators - areas of concern indicators Fundraising ratios are ratios of fundraising costs to fundraising revenue calculated on annual basis. Fundraising rations place a charity in one of three categories: - under 35%: acceptable - 35% and above: questionable - above 70%: unacceptable 9
Assessing Fundraising Activities and Expenditures for Regulation Purposes (cont d) CRA will consider certain basic factors in assessing fundraising activities: - size of the charity - causes with limited appeal - donor acquisition and planned giving campaigns Indicators that decrease risk that CRA will find unacceptable fundraising: - with respect to third party fundraisers: soliciting bids from 3 or more fundraisers or issuing RFP s. - with respect to fundraising staff: setting appropriate compensation and avoiding performance evaluation based only on performance or results. - with respect to the board of directors: establishing and implementing a fundraising policy and regularly assessing organization s compliance with the Guidance. - with respect to volunteers and donated services: making use of volunteer time and donated services to reduce fundraising costs. 10
Assessing Fundraising Activities and Expenditures for Regulation Purposes (cont d) Indicators that increase risk that CRA will find unacceptable fundraising: - fundraising contracts without proof of FMV. - fundraising initiatives or arrangements that are not welldocumented. - fundraising merchandise purchases not at arm s length, not at FMV. - activities where most of the revenue goes to non-charitable parties. - commission-based fundraiser remuneration. - misrepresentation about fundraising or financial performance. 11
Non-Acceptable Fundraising Activities Conduct that is illegal or contrary to public policy. Conduct that is a main, or independent purpose of the charity. Conduct that results in more than an incidental benefit to individuals or corporations. Conduct that is deceptive. 12
Disclosure of Fundraising Costs CRA expects charities to provide public disclosure of all fundraising costs and revenues. Information must be accessible to the public and accurate. Charities must also disclose: - whether fundraisers are receiving commissions or other payments based on the number or amount of donations. - general terms of fundraising contracts. - how fundraising employees are assessed and compensated. - costs and revenues for specific types of fundraising or campaigns, after completion. 13
CHALLENGES FOR CHARITABLE SECTOR Practical application of Guidance will be a challenge. Relationship between disbursement quota and Guidance not clear. Level and frequency of disclosure of fundraising costs is onerous. Potential adverse impact of higher fundraising ratios due to application of Guidance. 14
CONCERNS RAISED BY GUIDANCE CRA failure to recognize fundraising challenges of certain charities. Guidance used by auditors as a regulatory tool. Inconsistency in application of Guidance. Indirect attempt to regulate fundraising industry. Potential adverse impact of disclosure. Application of Guidance to public and parallel foundations. Application of Guidance to long-term fundraising activities. 15
Thank You Carole Chouinard Tel: (613) 786-8668 Email: carole.chouinard@gowlings.com montréal ottawa toronto hamilton waterloo region calgary vancouver moscow london