Charity scams bust public trust

Another Article in relation to Charity Scamming...

http://www.thestar.com/news/investigations/2007/06/02/charity_scams_bust_public_trust.html


News / Investigations

 

The federal government has consistently failed to protect the public from fraudulent and misleading charities, a Star investigation shows.

 

KEN FAUGHT / TORONTO STAR Order this photo

                  

      

By: Kevin Donovan Staff Reporter, Published on Sat Jun 02 2007

 

The federal government has consistently failed to protect the public from fraudulent and misleading charities, a Star investigation shows.
 

Bogus charities that prey on donors' heartstrings are frequently licensed and allowed to carry on fundraising for many years before they are shut down, if they are shut down at all.
 

They organize campaigns that promise they are raising money for such causes as missing, dying and abused children; local poverty; conquering AIDS in Africa; medical conditions such as Parkinson's Disease and asthma; helping the lives of animals; or saving human souls.
 

Instead, the owners line their pockets with charitable dollars, pay high costs to fundraisers or simply waste the funds.

          

For example, the Wish Kids Foundation said it was giving dying children their final wish, but its operators were really just trying to buy themselves an airplane. Canadians Against Child Abuse said it was trying to stop abuse, but its executive director was paying for his house, entertainment and vacations.

 

Who loses in this scenario? Generous donors and representatives of legitimate charities. Both, in interviews, say they want the government to do something concrete after more than a decade of task forces that looked into regulating the country's 82,000 charities, a number that has grown by 4,000 in the last five years.
 

"How can a donor know who is good and who is bad?" said Frances Lankin, president of United Way of Greater Toronto. "I really believe we need an independent watchdog or much more power for the federal charities directorate." Good charities have an interest in this, Lankin said, because bad charities decrease the trust donors have in the charitable sector. Donors in Canada directly give about $40 billion a year to charities, a combination of tax receipted donations, and payments through lotteries, membership dues and other sources.
 

One of the challenges in regulating charities is that they fall between federal and provincial law.

The federal government operates the Charities Directorate, part of the Canada Revenue Agency. Charities are tax exempt and can issue federal tax receipts to donors. Provincial authorities, usually through the Public Guardian's office, also have the power to step in and take a charity to court if it is doing something wrong. The guardians across Canada rarely take action.
 

The Star found the primary regulator, the federal Charities Directorate, is virtually powerless to deal with problem charities. To begin, tax law forbids it from warning the public about bogus or wayward charities. The directorate, which is part of the Canada Revenue Agency, treats charities the same way the taxman treats personal taxpayers. So, even when auditors have found a charity is doing little or no good work at all they cannot tell the public. Each year about 800 to 1,000 charities are audited and half are told they have done something wrong, but the public can't find out, even if it would be of major importance.
 

"It's a public trust, being a charity," said Neil Hetherington, executive director of Habitat for Humanity Toronto. "If a charity has been told it is doing something wrong, donors should be able to find that out."
 

The Star found the directorate also lacks the resources to police the growing number of charities in Canada.
 

"We don't have an army of auditors to sit on top of 82,000 charities," said Elizabeth Tromp, director general of the Canada Revenue Agency's charity directorate. Tromp, who took over the directorate three years ago, has done more than her predecessors to improve regulation. The number of agencies audited each year has doubled, for example. There are 40 auditors looking at the charities.
 

"The vast majority of charities are doing good works," Tromp said. But a comprehensive probe by the Star of charity financial data and government audits shows that, while the federal Charities Directorate routinely makes this claim, it really has no idea how many charities are good and how many are bad.
 

The Star obtained about 40 audits where charities were shut down by the directorate over the last several years. The directorate released the audits (which are typically not made public) because the charity lost its licence.
 

In many cases, the charity had been allowed to operate for five years or more, its bold claims of putting the majority of its money to "good works" unchallenged by the regulator. But when complaints, and often investigations by this newspaper, prompted an audit, the auditor looked at the books and delivered roundhouse blow after roundhouse blow.
 

Auditors in the Wish Kids case found the charity did not provide "assistance to any sick child or their family."
 

As to the directorate having a handle on the 82,000 charities, the Star's extensive probe of five years of financial data show the self-reported information is so riddled with inaccuracies as to be absolutely useless to a donor.
 

Perhaps the biggest failing the Star found is in the area of "good works." Charities can make wildly differing claims as to what constitutes their good works and the federal government does not verify the claims. For example, charities that take millions of dollars from the public routinely count the act of fundraising as charity, something that is forbidden by the government.
 

Audits show charities often record millions of dollars in fundraising costs as "charity" on the assumption that a paid telemarketer or door knocker is spreading the message of the charity. The directorate's Tromp has said this is wrong, federal auditors state it is wrong, but charities still get away with it.
 

Mothers Against Drunk Driving, which was the subject of recent Star stories, has been told twice in four years to stop this practice, according to confidential documents obtained by the Star. According to a recent statement by the charity's board of directors, they are now planning to stop.
 

The Star also found a growing number of schemes in which a professional fundraising firm has linked with a charity, purportedly to do good works, but really to make a fast buck. In one example, a Toronto based company, the Canadian Organization for International Philanthropy, has recently linked with two charities to raise $40 million in tax-receipted donations. The charities are All Saints Greek Orthodox Church and the Orion Foundation. The former is a local Toronto church and the latter is a charity run by a James Arion, out of his home in Stouffville
 

According to the promotional materials for this scheme – Fight AIDS, Save Taxes! – they plan to send $350 million in antiviral medication to Africa and have already issued $40 million in tax receipts to donors. The Star found that the company is telling donors that they are buying AIDS drug doses at about $12 a dose – when legitimate charities are buying the drugs overseas for 30 to 40 cents a dose. Robert Steen, senior executive with the Canadian Organization for International Philanthropy, said they purchase the drugs from a Costa Rican company, Globe Lending Group. A search by the Star was unable to come up with a head office and the company's mailbox is a Costa Rican company that sets up offshore companies. Steen won't discuss Globe, saying he is not allowed to talk about the people behind it. However, he says he can't explain why they are paying so much for it.
 

"This is new information to us (that they have bought the drugs for 40 times their value). We will look into it," said Steen.
 

Steen and the others behind this scheme have no experience in this sort of work. It's a for-profit exercise disguised as a non-profit charity.In the group's boardroom, they have a photo of Canadian AIDS activist Stephen Lewis, who until recently was the United Nations HIV/AIDS envoy for Africa. Lewis is smiling beside one of the fundraising company's officials. Lewis, it turns out, has nothing to do with the group (they walked up to him at a conference and snapped a photo with him) and the fundraisers have no idea where they got the African pictures in their glossy brochures.
 

While the federal charities directorate states it is trying to crack down on bad charities, they are not using all the tools they have. Almost two years ago, they were given the power to discipline charities through fines and temporary closures.
 

"These sanctions have given us a lot more in our toolkit – suspension, monetary penalties to the charity," said Tromp.
 

But as of today not one disciplinary action has been taken.

Kevin Donovan can be reached at 416-869-4425 or charity@thestar.ca.