We recently had Gary Huenemoeder of the Charities Directorate presenting at our Blumbergs’ Charity Law Institute and providing an update on charity audits.  According to CRA, in 2015/2016 there were 726 audits completed.   The results are broken down here:

Audits completed – 726

Results:
•Clean audits – 40
•Education letters issued – 444
•Compliance Agreements – 111
•Voluntary Revocation – 22
•Annulments – 59
•Notice of Intent to Revoke – 21
•Penalties and Sanctions – 4
•Other – 25

What does this all mean?

The number of “Clean audits” at 40 is low.  This just shows that it is very difficult to run an actual operating charity and not even make some minor compliance mistakes.

The most common outcome is an education letter and 444 of them were issued. (According to CRA “Education letters: When the non-compliance is minor, the CRA will send an education letter. The letter will identify where the charity has not followed the law and will offer guidance to the charity so that it can make the required changes. An education letter does not adversely affect the charity’s registration, and the charity does not have to reply to the letter.”)

The CRA is also using quite a few compliance agreements.  Although it sounds rather benign if a charity enters into a compliance agreement there will be little sympathy from CRA if the compliance agreement is not rigorously followed and it is discovered upon follow-up audit.  (According to CRA “Compliance agreements: In cases of moderate non-compliance, the Charities Directorate may suggest entering into a compliance agreement with the charity. A compliance agreement outlines the non-compliance issues and the remedial actions that the charity has agreed to take, sets out the timelines for the necessary changes, and outlines the consequences if the charity does not follow the agreement. The CRA will follow up to make sure the charity is acting according to the agreement.”)

In some cases, CRA will allow a voluntary Revocation even if there are issues in the audit and there were 22 of them.

The number of annulments are high.   Typically ònly a few per year, but last year it was 59.  It was a Conservative government so this must be largely environmental groups I guess!  And yes you might think if you believed some of the ridiculous rhetoric you hear.   I actually looked at all the letters and in almost all cases they were military charities.  I always knew Harper did not like the military!  (According to CRA “Annulment of registration: In rare cases, an audit may find that a charity was not established and operated for exclusively charitable purposes when it was registered, or a change of law has caused it to no longer qualify as a charity. Although the CRA is obligated to remove the charity’s registration because it should never have been registered, it may be unfair to penalize it by applying the revocation tax to any assets it has accumulated. In such cases, the Act allows the CRA to propose to annul the charity’s registration. A charity whose registration is annulled can no longer issue tax receipts, but it can keep its assets.)  These military groups were wrongly categorized and therefore removed.

There were 21 Notices of Intent to Revoke issued – that does not mean that the 21 charities lost their status but just that CRA is proposing that.  That is down significantly from previous years.  I don`t know this for sure but I am going to guess that the Charities Directorate distraction with the political activities audit diverted resources from going after the main targets of CRA scrutiny – namely abusive receipting schemes, false receipting, undue private benefits and the like.

There were 4 penalties and sanctions.  I understand that CRA will be using more penalties and sanctions as time goes on.

There were 25 other results.  This could include organizations that were corporately dissolved and therefore did not exist.  CRA takes the position that if you don’t exist you cannot be a registered charity.  Also in some cases CRA does an audit of an organization that is applying for registered charity but is not a registered charity.  They call these pre-registration audits.