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Navigating the muddy waters of donating to charities

Gail McCullough runs a tight ship. As the executive director and only full-time employee of East York Learning Experience, a charity that delivers adult literacy services, she also runs a lean one: in 2014, they operated on a budget of just $140,445. But delivering community-based programming on a shoestring budget isn’t necessarily what makes them salient. Instead, it’s the fact that they make no attempt to hide their financial details.

“It’s always been the philosophy of the organization…that if people are contributing money to keep this program running, we need to really be accountable to them and really think about every penny we spend,” says McCullough.

It may sound rudimentary in a post-Snowden and Wikileaks era, but financial transparency of Canadian charities is surprisingly lacking. And studies suggest that this is becoming increasingly important: one from the Bank of Montreal shows that charitable giving is up for the third consecutive year in a row, with the dollar amount of donations also increasing. Another from Imagine Canada shows that 65 per cent of respondents think too much of their donations go to administration and overhead.

As we approach the ultimate days of the giving season, what’s a donor to do to ensure their dollars are making a difference, instead of sitting in an offshore account?

“Financial statements should be the cornerstone of trust that charities are trying to build up with donors,” says Greg Thomson, director of research at Charity Intelligence Canada. CIC ranks charities on their financial transparency and social impact, based on how easily a donor could find this information on their website.

“If any donor cares to look for them, how can they have any trust in the organization if they don’t have an audited financial statement?” asks Thomson.

And it seems that donors are getting more curious about where their dollars are going.

“When the ALS ice bucket challenge happened, we had over 7,000 people come to our site over the course of 10 days to look at ALS Canada,” Thomson says, highlighting the level of scrutiny that charities should now expect. But increased public pressure doesn’t seem to have forced their hands quite yet: he says 46 per cent of the 86,000 charities in Canada are not putting their finances online.

Some unexpected organization receive a perfect four-star rating from CIC, like East York Learning Experience, but some well-known charities raise concerns. Ronald McDonald House Toronto, for instance, received only two stars. While they’ve made their financial statements available, they have one noticeable red flag: looking at their 2013 financial reporting shows they had 7.4 times the amount of their overall program costs sitting in reserves, totaling $15.3 million dollars in donations that wasn’t being spent.

For Kate Bahen, managing director CIC, this could be problematic.

“[Ronald McDonald House] is popular, it’s helping sick kids– that just goes to the heartstrings,” she says. “But some charities fundraise because they can, not because they actually have a need for money.”

However, a snapshot view of an organization doesn’t necessarily reveal its complex inner workings. Mary Proulx of Ronald McDonald House Toronto says there’s a perfectly good reason why their reserve funds are so high: they keep money in the bank to pay for any unforeseen repairs their houses may require, something any homeowner could appreciate. A portion of that reserve money also represents a one-time round of capital fundraising to build family rooms at local hospitals, an initiative they plan on implementing in the next year.

So just because a charity is flagged as having suspicious activities doesn’t mean there’s a nefarious leader at the helm or they’re not worthy of your contributions.

Thomson says that if a charity is not scoring well, it could simply be because they’re more focused on delivering their services than uploading budgets.

Surprisingly, one charity received a less-than-perfect rating: CIC itself is ranked as a three-star charity.  

“I like being three-star,” says Bahen. “I don’t think it looks good if you make yourself a four-star,” she says, acknowledging that a perfect score would raise eyebrows about how fair their evaluating practices really are.

Thomson adds to this, admitting their reporting “is not what it could be” and highlighting that fact that full and complete transparency is a tall order.

For McCullough, she welcomes the additional work she has to do to be in CIC’s good books. She recognizes that donors are getting smarter and won’t cough up their cash if a charity seems suspect, so short term work can lead to long term financial returns.

“We would all like to just be doing totally what we’re here to do,” she says. “But…if there’s no money to do those things, you’re closing down.”

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