When Charities Cheat

A case in point

Today, the Toronto Star published a story on the misrepresentation of fundraising costs by Breast Cancer Canada. They simplified the story for the public. They left out details fund-development professionals can guess.  The story suggests the charity had “two sets of books”.  It’s more likely, given the rest of the report, that they made a mistake or have been less than honest in filling out the T3010  Charitable Information Return.  All charities must file this report within 6 mos of their FYE (Fiscal Year End).  This document is very similar to a corporate tax or personal tax return. External or internal accountants can complete this form for charities. Sometimes the organization’s Auditor completes the return following the Audit. Breast Cancer Canada reportedly lied about whether they employed a third-party fundraiser.  This question can be confusing to some organizations.

I’ve struggled with this question also

I remember arguing with an Auditor who completed  the T3010 on behalf of an organization I worked with (as Development and Financial Manager.)  He didn’t check the box, even though the organization employed a corporate fundraiser on a $40 K a year contract.  He argued that the organization employed several contract workers that we didn’t think of as “external.” He also  worried about inflating our fundraising costs. This could jeopardize our charitable license. We were in no danger of exceeding the level where that was a valid concern. The honest answer was “yes” we did employ a 3rd party fundraiser.  We employed contract workers employed on shortterm project grants or as workshop leaders. These workers were integral to our  charitable mission. The fundraiser, by contrast, operated an external business, billed in the name of the business, gave reports on her own corporate stationary and was not even in the country for several months each year. 

Taking time to review your Charitable Information Return

I felt the Auditor raised a valid point.  We looked at the CRA definitions of a 3rd party fundraiser and answered honestly.  Yes.  If we hadn’t carefully reviewed the T3010, just rubber-stamping the Auditor’s work, we would have submitted an arguably fraudulent return.  The courts will decide if a similar innocent mistake caused this reported situation.

Overt Fraud

I have seen cases that were more clearly deliberate fraudI’ve seen cases of more deliberate fraud. Large, lucrative fundraising galas recorded all their costs as program costs. I’ve seen cases of more deliberate fraud. Large, lucrative fundraising galas recorded all their costs as program costs.  It is necessary for us to ask “where are the costs that offset this special event revenue”?Another aspect of this fraud: organizations use grant money to fund fundraising costs, which is an ineligible expense under most programs

The reporting highlights a key point: little verification exists to ensure T3010s published online accurately reflect how charities spend money. That is likely true of individuals and corporations too.