The charitable sector is worth $300 billion a year, but CRA audits have quadrupled since 2010

“If you audit 1 in 400 charities a year… that’s going to leave out a lot of charities that are doing really bad things and the CRA isn’t auditing them”

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OTTAWA – Canada Revenue Agency charity audits have quadrupled over the past decade, with just over 200 in 2019, leaving experts concerned that fraud and funds poorly managed go undetected.

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According to data obtained by charity tax expert Mark Blumberg of the CRA, the tax agency carried out just under 800 charity audits per year on average between 2010 and 2015.

But that number began to drop significantly from 2015, reaching just 208 audits completed in 2019-20 – the last full fiscal year before the COVID-19 pandemic.

The drop coincides with both the year the Trudeau Liberals were first elected to government, as well as the launch of CRA’s new “charity education program.” The agency says the program aims to help selected charities avoid “common mistakes” with respect to their financial and reporting obligations.

But in 2019-2020, the number of interventions carried out via the education program had increased even less than the drop in audits carried out since 2015.

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All the experts consulted by the National Post agree that the vast majority of charities in Canada act honestly and correctly. But it is the small minority of those who abuse their charitable status – which notably allows them to issue tax receipts in exchange for donations – who worry.

According to Blumberg, it was already disappointing that the CRA completed barely 800 audits a decade ago, and it’s even more concerning that it is completing a quarter now.

“With 86,000 registered charities, that means they audited less than 1% of charities each year (until 2015). In other words, if you were randomly assigned to a charity and you are a teenager, chances are you will die of old age before the CRA checks the charity. It’s pretty bad,” Blumberg noted.

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Only a fraction of annual audits cause an organization to lose its charitable status. Since 1992, only 524 organizations have lost their status following an audit, according to a CRA database.

Reasons that can cause an organization to lose status include using money to fund illegal or ineligible causes or services, or not meeting minimum charitable spending thresholds.

In October, Logic reported that seven percent of Canadian charities failed to meet this latest requirement in 2019, meaning hundreds of millions of dollars in donations went unreturned.

“If you audit 1 in 400 charities a year, whatever system you’ve developed to do your risk-based audits, it’s going to leave out a lot of charities that are doing very bad things and l ARC does not audit them,” Blumberg said.

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This is going to leave out a lot of charities that are doing really bad things and the CRA is not auditing them

Kate Bahen, head of independent nonprofit watchdog Charity Intelligence, agreed, adding that Canadians should be concerned about the CRA’s lack of oversight of the nonprofit and charitable sector.

She says the ability to issue tax receipts for donations is a “privilege” and that there needs to be a major overhaul of the oversight of charities in Canada.

“Is there anything worse than for Canadians to think there is surveillance, to trust surveillance, when surveillance is sorely lacking?” Bahen asked during an interview.

“It’s as if there was a lifeguard on duty — but the lifeguard can’t swim? It is certainly better to tell Canadians that you are on your own than to give the false impression of “surveillance”.

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The lack of oversight of Canada’s charitable sector has even caught the attention of the Financial Action Task Force (FATF), a global money laundering and terrorist financing watchdog.

In an October 2021 report , the FATF lowered the country’s monitoring score from “compliant” with international standards to “partially compliant”, not least because Canada appears to pay little attention to the prevention of terrorist financing within charities operating locally.

“Existing (non-profit) outreach activities seem to focus on charities with an international connection, based on risk, but there does not appear to be outreach that addresses (terrorist financing) risks and vulnerabilities ) in the national context,” the report warns.

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The head office of the Canada Revenue Agency in Ottawa.
The head office of the Canada Revenue Agency in Ottawa. Photo by Chris Roussakis/QMI Agency

The ARC’s work overseeing the charitable sector was recently exposed during the 2020 WE Charity scandal, with many pundits calling for the agency to delve into the ‘opaque’ and ‘unusual’ organizational and financial structure of the charity. Toronto-based organization. The CRA has so far declined to say whether it has opened an audit on the WE organization.

In a statement, the CRA said it uses a “risk-based” approach to deciding when to audit a charity, and is increasingly focusing on “non-charity-related interventions”. ‘audit’ (like the Charity Education Program) to promote ‘voluntary compliance’ with tax laws.

“While this approach results in fewer formal audits, balancing our compliance program in this way allows us to proactively promote compliance by contacting and assisting a growing number of registered charities to voluntarily comply with their obligations,” said ARC spokesman Christopher Doody. by email.

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“It also allows us to focus our audit efforts on the charities that potentially engage in the most abusive behavior, where corrective action is more likely to be needed to protect the assets and charitable beneficiaries benefiting from a tax assistance.

Blumberg agrees with the CRA’s risk-based approach to auditing and its desire to focus audit resources on the highest-risk cases.

But he thinks the sharp decline in cases closed each year means that many wrongdoings go unnoticed anyway.

“Some may think that reducing audits is esoteric and unimportant. Keep in mind that the charitable sector generates over $300 billion in revenue per year. Approximately $20 billion in official donation receipts are issued by registered charities. Registered charities pay no tax on the $300 billion in revenue or on the appreciation of their $500 billion in assets,” Blumberg said.

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