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Feeling Generous? An Apologia for Donor Accountability

Ultimately, Canadians really haven't been giving much thought to the importance of charity transparency. There is a commonly-held belief that all Canadian charities are poor and desperately need money. In fact, some of them are surprising wealthy.

January 12, 2010. A cataclysmic 7.0 magnitude earthquake, Haiti's worst quake in two centuries, hit south of Port-au-Prince. As news reports flooded the media and the extent of the devastation became clearer, the world watched in horror. Billions of dollars were pledged in the first days alone, and relief workers from around the globe began pouring into Haiti.

Quickly, the major not-for-profits and charities had accumulated more money than they could spend. The UN, however, who had already lost many workers in the quake, found itself struggling to coordinate efforts of thousands of NGOs. Disputes over land ownership and an almost non-existent support from a deeply corrupted government further hampered recovery processes.

Chaos ensued, and although many charities, not-for-profits and NGOs did an excellent job, studies showed that often times the living situation in camps had worsened with time. More shockingly, most of the hundreds of millions of dollars spent on Haiti in the first months following the quake were spent outside of the country.

As a result, many major international charities and not-for-profits faced harsh criticism in regards to their spending. Too much time and money was spent on bureaucracy and overhead costs (including six to seven figure salaries for executives). Large sums of money allotted to long-term multi-year projects sat in foreign banks accounts all while thousands of Haitians were still urgently waiting for basic amenities.

Many independent studies have supported these claims. One telling study conducted by Dr. Mark Schuller from York College (CUNY) in over 100 camps across Haiti found that seven months after the quake, only 40% of all internally displaced people had access to running water, having to use rain water instead, and 30% did not have access to toilets of any kind. When they did have toilets, it was often at a ratio of 300 people/toilet. Less than 10% of people were living under real tents.

These tents were made of tarpaulin (oil-based plastic that traps heat); not very practical in one of the hottest climate in the world. Security -- including theft, gender-based violence and forced evictions from private landowners -- remained an urgent issue. A deadly and widespread outbreak of cholera further complicated the situation. Ironically, inadequate sanitation at a UN peacekeeping base introduced and spread the disease through the country's waterways.

The list of failures is extensive; these are not isolated incidents. Most international not-for-profits and charities have been repeatedly criticized for failing to respect international aid standards throughout the years. These occurrences are often symptoms of larger structural problems within the UN, and require immediate and sustained action.

Closer to home, however, Canadian donors and their government are failing to hold not-for-profits and charities accountable. Canada has over 87,000 registered charities and over 140,000 not-for-profit organizations who receive funds from generous private donations and tax-payer money. Yet, very few people understand that legal, tax-related, and regulatory differences exist between charities and not-for-profit organisations.

Neither charities or non-for-profits are legally obligated to publicly release their financial information. This allows for some less transparent organisations to get away with shady business while continuing to receive steady funding from clueless donors. Fortunately, however, charities are subject to high standard of accountability, transparency and regulatory oversight from the government; improvements in charity legislation over the years have greatly contributed to this.

On the other hand, Canada has failed to truly design effective accountability mechanisms for not-for-profits. Because not-for-profits cannot issue receipts for donations (as charities do) there is less incentive for the Canadian government to regulate them in detail. And while recent conservative initiatives have somewhat strengthened not-for-profit regulatory laws, these must go beyond mere financial statements. In the end, although financial reporting is key, a more narrative reporting must be demanded of not-for-profits, and include non-financial measures of an organization performance, such as volunteer contributions and community impact.

It is important to remember, however, that international not-for-profits and charities are almost always faced with complex geopolitical forces that render their operations extremely difficult. In the case of Haiti, many organisations were accused of "taking over the country," but it is also true that local government officials did not always have the population's best interest in mind.

Often times aid organisations are suspicious of repressive local government, because of vested interests to push their own political objectives. Actively engaging with local democratic structures and empowering civil structures is the best way to go, but under a hostile political climate, it is easier said than done. This can sometimes explain the large overhead costs incurred by charities and not-for-profits. But it does not excuse lack of responsiveness to basic emergency needs.

Ultimately, Canadians really haven't been giving much thought to the importance of charity transparency. There is a commonly-held belief that all Canadian charities are poor and desperately need money. In fact, some of them are surprising wealthy. The Canadian charity landscape has greatly evolved over the years; Canadians, however, seem unaware of these changes. Here are a few examples:

  • The sheer number of charities -- there were 72,000 registered charities in 2006. Today there are over 87,000.
  • The amount of money going to charities -- philanthropy is going through a second Golden Phase (the first Golden Age referred to the early 1900's with Carnegie, Ford, Rockefeller). Today Charity Intelligence estimates Canadians give 15 billion annually (donations and non-tax receipted support). In 1997 Canadians donated 4.273 billion (Statistics Canada).
  • Anecdotally, the number of asks we get as donors - from colleagues at work, from kids at school, through direct mail, telemarketing, charity events, fundraising dinners, etc.
  • Also by impression, the sector has professionalized -- 30 years ago, weren't most charities largely volunteer organizations? Today 2 million people work in the charitable sector.

With this in mind, it is clear that many Canadians are tricked into thinking that all charities are already transparent. And although more and more charities are disclosing audited financial statements, donors still need to be better informed and give intelligently. Indeed, it is imperative that we all start viewing donor dollars, tax benefits, and government grants as public funds and be given the tools to assess if our favorite charity is utilizing our dollars to the fullest.

Questions must be asked about executive compensation, administrative costs and fundraising expenses. Unfortunately, very few independent third parties exist to turn to for advice, but Charity Intelligence is a good place to start. Even though they only focus on Canadian charities (not-for-profit and NGO accountability is a larger, ill-defined and even more complex issue), they're independent, objective and have research reports on more than 500 charities available online. Another great source is MoneySense's annual rating of Canadian charities.

At the end of the day, it is important to remember that the vast majority of charities in Canada are small organizations. Obligating smaller organisations to release financial information might become a burden and ultimately counter-productive. However, for Canada's largest charities, being transparent and providing full financial disclosure reflects best practices, helps foster public trust and builds community support. Charities provide financial information to their regulators; shouldn't this information also be publicly posted and readily available to their donors? How much does it cost to post a PDF online? The media also has a share of responsibility; as a social educator, it must come forward to help inform Canadians on these issues. But in the end, Canadians themselves must start taking a greater interest in their giving. This means focusing on charity performance, and giving with an expectation for results, looking at donations as a social investment rather than a way of relieving guilt. It might also mean some Canadians will need to demand heightened accountability or stop supporting their favorite charities altogether.

While most charities are actually doing a great job at being transparent, many aren't. Here's a list of Canada's major charities that do not publicly post audited financial statements:

  • VGH & UBC Hospital Foundation, Vancouver
  • Crossroads Christian Communications, Burlington
  • Watch Tower Bible and Tract Society of Canada, Georgetown, Ont.
  • Aga Khan Foundation Canada, Ottawa
  • War Amps of Canada, Ottawa
  • The Royal Ontario Museum Foundation, Toronto
  • United Israel Appeal of Canada, Toronto
  • United Jewish Appeal of Greater Toronto
  • United Jewish Welfare Fund of Toronto
  • York University Foundation
  • Canadian Cancer Society Quebec Division, Montreal
  • Montreal General Hospital Foundation
  • Vaad Mishmeres Mitzvos Committee to Observe the Torah Laws, Montreal

Source: Charity Intelligence Canada

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