The federal government has consistently failed to protect the public from fraudulent and misleading charities, a Star investigation shows.
Bogus charities that prey on donors' heartstrings are frequently licensed and allowed to carry on fundraising for many years before they are shut down, if they are shut down at all.
They organize campaigns that promise they are raising money for such causes as missing, dying and abused children; local poverty; conquering AIDS in Africa; medical conditions such as Parkinson's Disease and asthma; helping the lives of animals; or saving human souls.
Instead, the owners line their pockets with charitable dollars, pay high costs to fundraisers or simply waste the funds.
For example, the Wish Kids Foundation said it was giving dying children their final wish, but its operators were really just trying to buy themselves an airplane. Canadians Against Child Abuse said it was trying to stop abuse, but its executive director was paying for his house, entertainment and vacations.
Who loses in this scenario? Generous donors and representatives of legitimate charities. Both, in interviews, say they want the government to do something concrete after more than a decade of task forces that looked into regulating the country's 82, 000 charities, a number that has grown by 4, 000 in the last five years.
"How can a donor know who is good and who is bad?" said Frances Lankin, president of United Way of Greater Toronto. "I really believe we need an independent watchdog or much more power for the federal charities directorate." Good charities have an interest in this, Lankin said, because bad charities decrease the trust donors have in the charitable sector. Donors in Canada directly give about $40 billion a year to charities, a combination of tax receipted donations, and payments through lotteries, membership dues and other sources.
One of the challenges in regulating charities is that they fall between federal and provincial law.
The federal government operates the Charities Directorate, part of the Canada Revenue Agency. Charities are tax exempt and can issue federal tax receipts to donors. Provincial authorities, usually through the Public Guardian's office, also have the power to step in and take a charity to court if it is doing something wrong. The guardians across Canada rarely take action.
The Star found the primary regulator, the federal Charities Directorate, is virtually powerless to deal with problem charities. To begin, tax law forbids it from warning the public about bogus or wayward charities. The directorate, which is part of the Canada Revenue Agency, treats charities the same way the taxman treats personal taxpayers. So, even when auditors have found a charity is doing little or no good work at all they cannot tell the public. Each year about 800 to 1, 000 charities are audited and half are told they have done something wrong, but the public can't find out, even if it would be of major importance.
"It's a public trust, being a charity, " said Neil Hetherington, executive director of Habitat for Humanity Toronto. "If a charity has been told it is doing something wrong, donors should be able to find that out."
The Star found the directorate also lacks the resources to police the growing number of charities in Canada.
"We don't have an army of auditors to sit on top of 82, 000 charities, " said Elizabeth Tromp, director general of the Canada Revenue Agency's charity directorate. Tromp, who took over the directorate three years ago, has done more than her predecessors to improve regulation. The number of agencies audited each year has doubled, for example. There are 40 auditors looking at the charities.
"The vast majority of charities are doing good works, " Tromp said. But a comprehensive probe by the Star of charity financial data and government audits shows that, while the federal Charities Directorate routinely makes this claim, it really has no idea how many charities are good and how many are bad.
The Star obtained about 40 audits where charities were shut down by the directorate over the last several years. The directorate released the audits (which are typically not made public) because the charity lost its licence.
In many cases, the charity had been allowed to operate for five years or more, its bold claims of putting the majority of its money to "good works" unchallenged by the regulator. But when complaints, and often investigations by this newspaper, prompted an audit, the auditor looked at the books and delivered roundhouse blow after roundhouse blow.
Auditors in the Wish Kids case found the charity did not provide "assistance to any sick child or their family."
As to the directorate having a handle on the 82, 000 charities, the Star's extensive probe of five years of financial data show the self-reported information is so riddled with inaccuracies as to be absolutely useless to a donor.