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Charities must disclose to donors when they are being paid to solicit funds

|Written By Jennifer Brown

A decision by a Barrie, Ont., Superior Court judge will change the way charities conduct themselves with the public in order to avoid fraud charges, says a Toronto criminal lawyer.

“Justice John McIsaac has expanded/changed the law of fraud by requiring a fundraiser to divulge information which they previously did not have to do,” says Sam Goldstein who represented Adam Gour.

On June 28, Gour was found guilty of defrauding the public in the wake of collecting almost $500,000 on behalf of sick children. He never told the donors that almost all of the cash went to secret commissions, bonuses, and his own bank account. Gour, of North Bay, Ont. will be sentenced Sept. 4.

Goldstein says McIsaac’s ruling means that when you are approached on the street by a fundraiser and asked to donate to a charity, the fundraiser must inform you that they are being compensated.”

According to the Barrie Examiner, in his ruling, McIsaac said it’s a crime for fundraisers to fail to disclose the percentage of commissions they take from donations.

“I am satisfied that this silence or failure to disclose is misleading . . . and amounts to a fraud,” he said.

“The decision required fundraisers to disclose to donors that they are being compensated,” says Goldstein. “He did not say when disclosure is to take place, what constitutes compensation (many charities give free coffee and doughnuts to people who volunteer at telethon weekends) or who is responsible for the disclosure — the charity or the third-party fundraiser?

Goldstein says McIsaac did not acknowledge that charities are already required by law to declare on their CRA Income Tax returns that they are using a third-party fundraiser, and CRA already regulates how much they can spend on these costs before a charity will be specifically audited.

The decision has ramifications for all charities.

“Right now just about every charity in Canada uses the services of third-party marketers and per this decision are committing fraud,” he says. “Just this morning, I received a call from the Toronto Police Services asking if I would donate to an event. The caller did not inform me that he was getting paid. I don’t see the Toronto Police Services being charged with fraud.”

Goldstein says the decision will be appealed.

Gour’s team of fundraisers, who operated under the name of Kare for Kids, or Northern Children’s Foundation, were collecting up to $650 each in cash per weekend, plus hotel and food expenses.

  • Mark Blumberg
    If you are interested in the new recently updated CRA Guidance on Fundraising you can find it at: http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/fndrsng-eng.html

    Also the Ontario Public Guardian and Trustee has a guidance entitled "Charitable Fundraising: Tips for Directors and Trustees":
    http://www.attorneygeneral.jus.gov.on.ca/english/family/pgt/charbullet/bullet8.asp

    I don't agree with Nicholas G.'s comment above relating to commission based fundraising - here is my blog post on that subject and the dangers for a Canadian charity of using commission based fundraising. As noted above by John G. while commission based fundraising may be legal it is prohibited by the AFP fundraising code
    http://www.canadiancharitylaw.ca/index.php/blog/comments/is_fundraising_by_commission_allowed_in_canada_-_part_of_the_great_debate/
  • Lorne S
    Mr. Goldstein suggestion that "just about every charity in Canada uses the services of third-party marketers" appears dubious. According to a 2010 CBC report, there are 85,000 registered charities in Canada of which less than one per cent used external fundraisers in 2008. Appears 'nearly all' should have been 'nearly none'.
  • Nicholas G
    Ethical and legal are two grossly different animals.

    I would be much happier giving to a charity that takes a fixed percentage vs a flat fee. The flat fee can work out to be more than the percentage. At least with the percentage the charities is guaranteed a return. The executive Director that brings in a salary of $80K and only raises $100K is not right.I would much rather pay 35 points.

    I think the confusion is between internal and external professional fundraisers. External fundraisers can raise money much cheaper than internal.

    According to Revenue Canada 10% of all charities claim to use external fundraisers while that number may be much higher due to disclosure. Many charities compensate their volunteers indirectly at thank you meals and through charity appreciation events.

    I think disclosure is the responsibility of the Charity and they do that on their annual returns.
  • John G
    Mr Goldstein greatly overstates the impact of the decision, in my view. It's one thing to be paid a flat fee for raising funds, or to do it as part of one's job, and another to work on commission by which one's earnings depend on the amount raised. The latter violates ethical standards of some fund-raising organizations.

    That said, all of those are a long way from a compensation system that gives almost nothing to charity and almost everything to the fund-raiser. I can readiily understand finding that kind of system fraudulent - it's plain misleading to suggest that the donor is making a serious contribution to the charity when a huge proportion is being diverted - while the systems mentioned in my first paragraph are all perfectly legal.

    Since Justice McIssac was not faced with one of these less offensive schemes, he did not have to make a finding about them.

    It may be that the appeal court will make that even clearer.

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