Topics: What's New from the Charities Directorate of CRA, Canadian Charity Law, Receipting by Canadian Registered Charities, CharityData.ca, Transparency
Global News journalist Stewart Bell recently wrote an article "Government revokes charity status of Canadian Jewish group that supported ‘foreign armed forces’". The articles discusses the recent revocation of the Canadian registered charity Beth Oloth Charitable Organization. You can see detailed information on Beth Oloth at www.CharityData.ca. It is quite clear from this Charitydata webpage that this organization went from having very little revenue to spending in the last few years over $200 million and apparently spending over 193m outside of Canada.
Some red flags in the T3010 filings include:
I would have significant questions for any large foreign activity charity that is not spending at least 5-10% on admin. Foreign charitable activities are typically more complicated than comparable local charitable activities. This very small operation with very limited admin costs did not stop it from receipting and receiving from foundations almost $200 million.
Here are the redacted CRA letters relating to the revocation. Although it is over 90 pages long it is definitely worthwhile to read the CRA comments and the letters from the representative of the charity. None of these allegations have yet been tested in court and it will be interesting to see if this case ends up in the Federal Court of Appeal.
Here are some comments on the letters:
1) Not impressed with the amount of redacting done by CRA. Not clear that it is all necessary.
2) CRA appropriately published the revocation letter shortly after sending the notification of intent to revoke because of the large amounts of money involved. Typically when CRA revokes for cause they wait for the internal CRA appeal to take place (often delaying matters between 1-2 years).
3) CRA audited the group in 2016 and realized there were significant problems. Why they waited till 2019 to revoke is a question some people might ask.
4) In 2014, the charity had 2,274 "agents" implementing its activities. That is an astronomically large number to be supervised by such a small organization in terms of people.
5) "On November 21, 2016, we received a fax from a newly retained legal representative of the Organization with an attached Business Consent form and a request that we call to discuss our proposed meeting. We discussed our preference with the legal representative to have access to the books and records of the Organization at its place of operation, and to meet with the directors of the Organization and any other parties who wished to participate. The legal representative requested that all further communication be in the form of letters and advised that the legal firm would now be the sole point of contact for the audit. The legal representative also confirmed that our scheduled meeting with the directors of the Organization would not take place and that the Organization would be willing to mail its additional books and records to us for review." I cannot imagine a bigger red flag than a major organization not prepared to have their staff or board meet with CRA.
6) The CRA alleges and the charity acknowledges that some of the operations were outside their legal objects. If those activities were charitable then this would be a very minor point but CRA alleges that some were not charitable.
7) The main reason expressed in the letters for CRA's revocation is that there is not sufficient direction and control of the activities and that the charity is "established to gift funds to non-qualified donees".
8) There are allegations that some of the funds were used to support the Israeli armed forces. "Further, while increasing the effectiveness and efficiency of Canada's armed forces is charitable, supporting the armed forces of another country is not. It is our position that many of the Organization's purported activities described in section 2 b) - non-charitable activities below, are to further the purpose of increasing the efficiency and effectiveness of the Israeli armed forces, which is not a recognized charitable purpose in Canada." As well there was concern about spending funds beyond the green line. Both the IDF and green line issues are minor compared to the lack of direction and control.
9) CRA not only complained that the standard agency agreement was very short (1 page) but also that the charity was not implementing the provisions of the agency agreement. "Provision 1 of the agreement requires a detailed listing of activities. The Organization failed to provide a clear, complete, and detailed description of the activities to be carried out by the agent. There were limited descriptions as to the location of the proposed activities, but no timeframes, or deadlines for completion of activities. Absent specification of the precise role the Organization will assume in the conduct of an activity, it cannot be concluded that the activity will be carried out in a manner that maintains ongoing direction and control. A general description allows for the Organization to simply act as a conduit, channelling monies to fund projects being conducted by others; " Also "Provision 3 requires funds of the Organization be segregated from any other funds that the agent receives. Absent financial reports from the agents, we were unable to verify if this requirement was met." So not only are the agreements inadequate but the activities are not even carried out according to the agreements. CRA also notes "The agency agreements we reviewed are inadequate to establish that any activities that purport to be those of the Organization are effectively authorized, controlled and monitored by the Organization".
10) There is a reference to "It is our understanding that Israeli law does not permit foreign ownership of capital property." Not sure who made that comment but it is not accurate. Many Canadian charities and Canadian individuals own property in Israel.
11) The books and records of the charity were either woefully inadequate or what was provided to CRA was very limited. A charity must have "adequate" books and records.
12) Very large grants were being made (eg. 1.5m) to foreign entities and there is no record of the board approving them or their being any agreement in place on them.
13) Although they had 3 board members, one apparently was not active during the three years under audit. That is not ideal from a governance point of view.
14) CRA notes "Given the volume of projects, it is difficult to accept that any real supervision could be exercised on a regular and on-going basis by the Organization through these positions, even should their involvement extend to the substantive charitable activities. Absent supporting documentation, it is not clear that the Organization maintains communication with any of its agents beyond the initial application process and subsequent disbursement of funds. It appears that once the Organization approves an application, its involvement in, and authority over, the actual conduct of any substantive activity is limited to providing the funds to the agent".
15) The CRA was also concerned that some "donations" were not "donations" - for example a cheque says "for the tuition of ...." and the name that is redacted is a child of the donor.
16) CRA was also concerned with information on the internet and statements like ""To receive a tax-deductible receipt for your check ... In Canada payable to: Beth Oloth and mail to XXXX, Please note "XXXX Adoption Fund on memo line". CRA notes "We conducted internet searches and identified 21 organizations who advise their Canadian donors to direct their donations to the Organization".
17) CRA had a number of concerns with the receipts issued by the charity.
18) CRA was concerned about the charity's T3010 filings and notes "It is the responsibility of a charity to ensure that the information provided in its Form T3010, schedules and statements, is factual and complete in every respect. A charity is not meeting its requirements to file an information return in prescribed form if it fails to exercise due care with respect to ensuring the accuracy thereof. The Federal Court of Appeal has confirmed that major inaccuracies in a completed Form T3010 are a sufficient basis for revocation."
In terms of the GlobalNews article I think it brought to the public's attention this type of problematic charitable activities which is good. The GlobalNews article focussed on the sizzle too much - Israeli military and over the Green Line, when the main issue was more mundane - lack of direction and control and lack of appropriate books and records. This charity was essentially a conduit funnelling funds from Canadian foundations and donors to non-qualified donees. If more information comes to light we will blog further about it.
Here are some other documents obtained from CRA:
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.