We also need to talk about charity and non-profit organizations. Conventional wisdom tells us that they are dedicated to the public welfare and many of them are, but that is not always the case. Non-profit organizations get special consideration under tax laws because they are supposed to work for the public welfare rather than for profit, but if the organization does not work for profit the management might.
When a for-profit organization makes a profit it either banks it as a capital reserve or pays it out as a dividend to its shareholders. A non-profit organization is required to spend all its income one way or another but most of them pay their managers, and executive wages and benefits can be very good.
The salaries paid to top executives of Canadian charities are supposed to be public information but former Hamilton-Wentworth MP John Bryden reports that between 20 and 30% of charities -- more than 18,000 organizations -- do not disclose them.[1]
In a two-volume report on the funding of special-interest groups Bryden says Canada has 73,000 registered charities and another 66,000 non-profit organizations with total revenues that Bryden estimated at more than $100 billion a year. He had to estimate the total because financial information on the 66,000 non-profit organizations is "confidential" -- bureaucratese for secret -- but numbers for the 73,000 "charities" were available.[2]
Between them, charities and special interest groups shared a total income of about $86 billion dollars -- about 13% of Canada's total economic activity -- they have about $109 billion in assets and they employ about 1.3 million people or about 12% of Canada's total work force. The numbers are not quite so mind-blowing when you remember that most hospitals and universities are "charities," but they are still pretty big.
We expect to see big numbers in the funding of hospitals and universities but most of the 73,000 registered Canadian charities are neither universities nor hospitals, and some of them are open to serious question. By definition a charity helps people in need but some Canadian charities confine their activities to very specific groups.
Bryden cited the Quimby Foundation of Red Deer, Alberta, established in 1979 to preserve and promote the writings of 19th-century American clockmaker and spiritual leader Phineas P. Quimby. It issued receipts for $69,526 in donations in 1994.[3]
The Osborn Foundation of Canada which gave receipts for donations of $151,667 in 1993, apparently used the money to support a "temple" in Oklahoma. The assets of the temple include some valuable works of art and a 1923 Rolls Royce Silver Ghost automobile.[4]
Some non-profit organizations appear to be outright frauds. Bryden says that in 1990 the Auditor General reported that one Canadian corporation donated $5 million to several foundations whose directors were related to the corporation and that the foundations had immediately loaned the money back, plus interest charges. Because the money was given to registered charities the gifts were deductible for tax purposes, and loans are not taxable.[5]
But at least those foundations had directors. Bryden said that journalists who investigated a charity in Saskatoon contacted three of the people named as directors. Two of them had never heard of the charity and the third had no connection with it.[6]
Some companies make a business of raising funds for charities and non-profit organizations, and they are well paid for it. One survey found that on average fund raisers take 26% of the money they raise, but Bryden notes that more than half of the organizations surveyed did not respond. The survey sent questionnaires to 3,430 charities, and got answers from only 1,516 of them.[7]
By law a public charity is supposed to devote 80% of the money it receives in donations to charitable works but many Canadian charities get most of their money from the government or from business. Because they do not describe these gifts as "donations," there is no control on how they spend them.
Bryden found that in 1994 The Standards Council of Canada received $33,000 in donations, $6 million in funding and $3 million as payment for services. Gross revenues were $8,877,974, management and administration costs were $8,515,864 and the council spent $8,916 on "charitable activities."[8]
That's about 1/10 of 1% of the Council's total income! The council could argue that it was not established to perform "charitable activities," but it is registered as a charity. Even though it makes no pretense to be interested in charity it should have spent at least $26,400 -- 80% of the $33,000 it received as donations -- on charitable works.
Charities represent a significant part of our Gross Domestic Product but, while some of them perform a valuable function, they do not produce wealth. I would not want to live in a country without charity but, at the same time, I would not want to live in a country in which charity is just a tax-free commercial business.
I don't want to rain on anyone's real charity but I think Canadians have a right to assume that when they give money to the poor, some benefit will leak through to the poor. I think we need to demand that all charities publish the salaries of their senior executives and, as percentages of their total income, the cost of fund raising and administration and the amounts they actually use for charitable purposes.
Further, I think we need a full-time "inspector of charities," with as many assistants as he needs, to ensure that organizations that describe themselves as charities really are charities.
Such an inspector would check the books of charities and calculate, (and perhaps publish) the relationship between the money received and money spent on charitable works. An inspector would also speak to people who are named as directors of charities, and make sure that they really are directors.
And finally, in the most critical test, the inspector would speak with the people the charity claims to help. If the charity really is a charity it should welcome an investigation that would confirm its status, but if it is not then it should not enjoy the tax advantages of a charity.
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