CRA in its Guidance on Fundraising sets out a number of best practices that Canadian charities should pay attention to when fundraising.  These include prudent planning processes, appropriate procurement processes, good staffing processes, ongoing management and supervision of fundraising practice, adequate evaluation processes, use made of volunteer time and volunteered services or resources and disclosure of fundraising costs, revenues, and practice (including cause-related or social marketing arrangements). If you follow CRA’s advice on best practices it will reduce the likelihood that your fundraising activities will be non-compliant

Here are some best practices for for fundraising by Canadian charities according to the CRA in its fundraising guidance:

10. Best practices

The following is a list of best practices considered to decrease the risk of unacceptable fundraising.
Note: These are indicators only.  Their applicability and utility will depend on a number of factors, including the size of the particular fundraising event.
a. Prudent planning processes.
b. Appropriate procurement processes.
c. Good staffing processes.
d. Ongoing management and supervision of fundraising practice.
e. Adequate evaluation processes.
f. Use made of volunteer time and volunteered services or resources.
g. Disclosure of fundraising costs, revenues, and practice (including cause-related or social marketing arrangements).

a) Prudent planning processes
A registered charity’s fundraising planning costs should be reasonable and proportionate to the types and scope of activity it intends to carry out. Before undertaking fundraising, the registered charity should:
• familiarize itself with any regulatory obligations for the type(s) of fundraising it is considering; and
• research costs and returns that can be expected based on the types and scope of fundraising being undertaken, and investigate other potential fundraising methods.
Based on this research, the charity should select the best fundraising approach or approaches for its fundraising goals, resources, and the expected ratio of net proceeds.

b) Appropriate procurement processes
A registered charity should undertake a reasonable process, in light of its resources and the size of the contract, to identify and select a supplier to provide the required goods or services at a cost reflecting no more than the fair market value. This may include:
• researching fundraising methods and procurement options that could meet the charity’s needs (see point a), above);
• contacting organizations with a profile similar to the charity’s to determine reasonable and appropriate costs and terms for the type and amount of fundraising to be undertaken;
• soliciting bids from three or more potential suppliers;
• issuing a request for proposal;
• holding a competitive bidding and tendering process;
• carefully reviewing all terms of contracts to ensure they are reasonable;
• including provisions to terminate a contract if the third party acting on behalf of the charity does not act in compliance with the provisions of this guidance; and
• limiting the length of contracts, particularly when signing an initial contract.
Important considerations
• A charity should always ensure any benefit paid to a non-arm’s length party is reasonable consideration for the goods or services provided.
• Services should not be contracted out to non-charitable entities if they could be delivered as effectively and efficiently using the charity’s own resources.
• The amount of fundraising activity undertaken under the contract or by the charity should never constitute a collateral purpose.
• A charity should fully document procurement, negotiation, and approval of contracts.

c) Good staffing processes
Where fundraising activity is carried on as a staff function, the charity should make adequate effort to ensure that compensation paid does not result in employees receiving excessive benefits. The salary and/or benefits for any fundraising position should never exceed the fair market value for the services provided.
Determining fair market value may involve:
• contacting organizations with a profile similar to the charity’s to determine reasonable compensation for the type and amount of fundraising to be undertaken;
• basing the compensation on a salary survey; and
• setting compensation that is appropriate based on the remuneration received by other employees of the charity in light of the respective responsibilities and requirements of the positions.
A charity should establish accountability processes for the supervision and evaluation of in-house fundraising personnel. A charity should avoid performance evaluation based solely or excessively on fundraising performance or results achieved (for example, bonuses or incentives exclusively tied to the number or amount of donations).

d) Ongoing management and supervision of fundraising practice
The charity should take reasonable steps to manage its fundraising on an ongoing basis. For example, the charity should ensure that:
• all conduct meets the charity’s regulatory obligations (regardless of whether the fundraising is conducted by in-house personnel or by an external party);
• it exercises adequate control over the scope of fundraising and the use of fundraising resources; and
• all fundraising practice complies with its policies.
Contracts and job descriptions that include fundraising responsibilities should provide the charity with all the authority necessary to adequately manage and supervise fundraising practices. Whether fundraising is carried out as an employee function or contracted out to third parties, a charity’s fundraising oversight measures should include:
• establishing fundraising policies setting out acceptable and prohibited fundraising practices;
• pre-approving fundraising solicitation scripts or other representations;
• monitoring the receipting process regularly;
• periodically conducting financial analysis of the quantity of resources being devoted to fundraising in comparison with the resources being devoted to other aspects of the charity’s work;
• using internal audits to review expenditures and revenues;
• exercising contractual rights to review or audit the financial and other records of the work done by any third party;
• following up with donors to confirm what representations were made, fulfilment of undertakings (such as donor requests for designation of funds to a specific purpose), and general satisfaction.

e) Adequate evaluation processes
At a minimum, a charity should be assessing its fundraising performance in the context of CRA guidance. In addition, the charity may develop its own criteria or may gauge its achievements against external standards. Registered charities should strive to spend no more on fundraising than is required, and should review cost-effectiveness as well as outcomes in assessing performance.
The effort and cost of the evaluation measures should be proportionate to the risk of unacceptable conduct, given the type and scope of fundraising undertaken by the charity.
A number of organizations provide research and standards on various aspects of fundraising costs—such as salaries, return on investment associated with different types of fundraising, and typical cost ratios. Where a charity uses an external standard as evidence that its fundraising conduct has been reasonable, it should be able to show that applying the criteria is appropriate in its circumstances.
Example
A charity that requires fundraising revenues of less than $1,000,000 to adequately support its programs hires a single fundraiser and pays that fundraiser a salary of $200,000. The charity maintains that the salary is reasonable based on a salary survey of other charities. The survey the charity relies upon is a survey of larger charities with minimum fundraising revenues of $10,000,000. In this circumstance the survey would not be considered an appropriate criterion to establish that the charity’s fundraising conduct has been reasonable.

f) Use made of volunteer time and volunteered services or resources
Contributions of volunteers and voluntary contributions of resources may reduce the costs of fundraising and are not apparent from a financial analysis of the activities. Use of volunteers and voluntary contributions demonstrates a commitment to minimizing the expenditures associated with fundraising activities and may be taken into consideration when assessing a charity’s fundraising activities.
For purposes of this guidance, volunteers are defined as unpaid individuals assisting in campaigns, events, or other fundraising, either by soliciting donations or by directly or indirectly assisting in obtaining donations, but do not include those involved in a fundraising campaign, event, or activity through their own participation or attendance. Individuals who seek contributions from others tied to their participation in, or completion of, a marathon or like event are considered participants, not volunteers. Voluntary contributions of resources are contributions of services or facilities for which issuance of tax receipts is not permitted.

g) Disclosure of fundraising costs, revenues, and practice (including cause-related or social marketing arrangements)
It is good practice for charities to disclose as much as possible about their operations, including the costs they incur to raise funds to support their work.

Required disclosures
All registered charities must complete and submit an annual Form T3010 with certain mandatory information on their fundraising and finances. Failure to file an information return or filing of an incomplete return is a breach of the Income Tax Act. The information filed on the public portion of the return is posted, as submitted, on the CRA Web site.
Depending on their legal structure and the jurisdiction in which they are constituted, some registered charities are subject to additional financial reporting obligations and/or auditing requirements. This financial and audit information may be available to all or some of the charity’s members, one or more regulatory bodies, and the public.
Funding bodies, including governments that provide money and/or resources to registered charities may impose additional reporting obligations. Charities receiving public monies may also be subject to government audits. Again, information prepared as part of these processes may be publicly available.

Additional disclosures
When assessing fundraising conduct, the CRA does examine what information is publicly disclosed by a registered charity or information that is otherwise publicly available. The CRA expects charities to provide complete disclosure of all fundraising costs and revenues so that members of the public—and, more specifically, donors or prospective donors—are not deceived or misled about the amount of resources from fundraising that is ultimately available to a registered charity for its programs, services, or gifts to qualified donees.
The amount and type of the disclosure necessary to protect the public from being deceived or misled varies from charity to charity. It depends on a number of factors, including how and from whom the charity solicits contributions. For instance, the disclosure needed to address the risk posed by a charity soliciting contributions from the public is generally greater than for a charity only seeking donations from its membership. Similarly, the higher the costs for a fundraising activity, the more there is a need for disclosure in order to ensure that donors are not inadvertently mislead. The CRA looks for an amount of disclosure that is appropriate in light of the fundraising being undertaken.
The following specific measures are indicators of a charity’s commitment to disclosure:
• the extent of public disclosure of fundraising costs and revenues in financial information released by the charity, including but not limited to its annual Form T3010;
• adoption of policies requiring appropriate disclosures to donors and prospective donors to reduce the risk of inadvertently misleading them;
• training staff or volunteers making solicitations on appropriate and inappropriate fundraising representations;
• pre-approving scripts and other solicitation materials to be used by staff, volunteers, or third parties in making representations on its behalf;
• including provisions in contracts with third parties specifying that misrepresentations must not be made when acting on behalf of the charity; and
• use of independent auditors and/or externally established standards to promote full, accurate, and consistent disclosure of financial performance.

To be meaningful, disclosure must be accessible and accurate.

Accessible
Generally, information must be made available to, at a minimum, donors and prospective donors to be considered accessible. Disclosure to prospective donors usually means disclosure to the public, unless the charity’s fundraising efforts are limited to a clearly and narrowly defined group.
The methods chosen and how the charity uses them are taken into account in assessing the extent of the charity’s commitment to transparency about its fundraising and finances.
In most cases, distributing information on a Web site is the most cost-effective way for a charity to provide information to a wide audience. Other common distribution methods used by charities include annual reports, mailings, print and broadcast media, events, and through contacts made during solicitations.
Where information is presented in a way that makes it obscure or difficult to find, or when requirements for obtaining it are not reasonable, it is not considered accessible.
Disclosure should include all relevant information. Material should never be withheld to prejudice or preclude conclusions being drawn from the disclosure. For instance, reporting net fundraising revenues without reporting on fundraising expenditures is not considered making information fully accessible.

Accurate
It may not always be possible for charities to disclose precise and full information on their fundraising during the course of a campaign, event, or activity because, among other considerations, cost to revenue ratios will vary over time. Registered charities should always disclose the best information available at the time the information is disseminated, and should strive to share updated information as soon as possible. If further information is pending, it is good practice to indicate that the information being disclosed is not final.

Disclosure content
In addition to the information available on its Form T3010, a charity may consider disclosing information before, during and after a fundraising initiative.
Before or during a campaign, a charity might disclose:
• the estimated fundraising costs and revenues included in its annual budget;
• any revision of budgeted fundraising costs and revenues based on actual performance;
• whether the fundraising is being done by volunteers, employees, or third-party fundraisers;
• whether the fundraiser or the fundraising company is receiving commissions on donations or other payments based on the number or amount of donations;
• the general terms and conditions of any fundraising contract entered into, including the method by which compensation is calculated (and/or actual amount of compensation), anticipated costs and revenues provided for in the agreement, and any requirement in the agreement for the charity to bear expenditures incurred during the fundraising; and
• if the fundraising is being done internally, how performance of fundraisers is assessed and how they are compensated.
After completion of a fundraising campaign or when financial information for a fiscal period is released, the charity might disclose:
• the costs and revenues for specific types of fundraising or campaigns within a fiscal period;
• whether any costs for the fundraising are being allocated to expenditure categories on the Form T3010 other than fundraising expenditures;
• whether any costs are being underwritten, and accounted for, through an entity other than the registered charity; and
• the breakdown of consolidated fundraising costs and revenues included in financial statements.

Cause-related marketing disclosures
Cause-related ventures are not subject to this guidance provided that more than 90% of the costs of the initiative are borne by a non-charitable partner and all costs and revenues of the charity are adequately disclosed.
In calculating the contribution of the charity to such an arrangement, the CRA takes the position that use of the charity’s intellectual property does not need to be included if the charity or the partner discloses to the public the terms of the arrangement, including:
Before or during the initiative:
• any requirement for costs to be paid by the charity; and
• the terms for the payment of any revenues to the charity;
During or after the initiative:
• the amount of any costs paid by the charity; and
• the amount of any revenues received by the charity, provided either as a total amount or as an amount or percentage from the sale of a good or service. “

 

To review the CRA Fundraising Guidance see “How do I find the CRA Guidance on Fundraising for Canadian charities?”