This article was developed from a submission to the Federal/Provincial Territorial Task Force on Gaming and Charitable Solicitation.
Over the past decade we have experienced a number of attempts to regulate fund raising to protect charities and donors from abuse by unethical and dishonest fund raisers and their companies.
In spite of well-intentioned efforts by provincial and municipal authorities, police forces and many others, these abuses continue. Indeed, they may be said to have grown in frequency and magnitude.
Inexorably, we must draw the conclusion that the remedies already in place fail to address the root of most fund-raising problems.
Problem Catalysts
Charitable and nonprofit community sexvice organizations in Canada are currently faced with a number of challenging developments which exacerbate the situation:
a) Increased demand right across Canada for both existing and expanded social and community services related to unemployment, child and spouse abuse, medical and research needs, and other such issues;
b) Inability of governments to meet all, or most, of the financial needs of groups offering such sexvices;
c) Significant shifts in corporate attitudes which dictate that major public visibility and credibility be generated for the donor company through its charitable activities. (“Cause-related marketing” results in a disproportionate distribution of corporate philanthropic financial and human resources to large, well-known charities at the expense of smaller but equally worthy groups);
d) Difficulty in recruiting and retaining trained, competent staff due to inability to pay competitive salaries and assure any degree of job stability;
l ) Increased need to appeal to the general public for funds required to offer necessary existing and expanded community services;
f) Widespread lack of experience, expertise and in-house resources to undertake major fund-raising initiatives;
g) Inadequate or nonexistent financial resources to underwrite fund-raising campaigns without placing program funds in jeopardy; h) Demonstrated lack of judgment and/or experience in selecting reliable, proficient, and ethical fund-raising consultants and fund raisers; i) Unrealistic and inflexible municipal requirements in some jurisdictions dictating the minimum net proceeds charitable fundraising campaigns must generate; j) Inconsistent application of existing regulations and legislation resulting in local fund-raising campaigns being required to adhere to more stringent criteria than campaigns conducted locally but originating outside the area; k) Existence of dishonest people who, in spite of existing regulation/legislation, take advantage of charities needing to raise funds.
Problem Areas
In our estimation there arc four distinct problem categories: a) Legitimate, well-managed organizations facing budgetary deficits; b) Legitimate organizations who, through lack of management expertise, are facing deficits; c) Legitimate organizations willing to benefit, directly or indirectly, from questionable fund-raising methods; d) Businesses which exist solely for profit and which generate their earnings through appeals to the public to “support” legitimate-sounding causes which are not, in fact, charitable and which actually generate no proceeds for any charity.
The first two categories would benefit most from opportunities for education in management and raising of funds. Some have the resources and foresight to seck out this assistance, others need help to understand their needs and opportunities.
The third category, charities who take the attitude that the end justifies the means, needs to be addressed through a combination of education about the availability of a broad selection of legitimate fund-raising options and through legislation calculated to discourage abuses of charitable status.
The last category constitutes the greatest problem and will, we arc convinced, only be successfully addressed by preventive legislation. That is, regulatory requirements which must be met before anyone can initiate any charitable or nonprofit fund-raising campaign. The beneficial effects of such legislation would be enhanced through active sharing of information about unscrupulous operators among jurisdictions.
It has proved virtually impossible to catch fraudulent operators conducting “charity” sales campaigns. The fact is, they can set up, operate and disappear with significant profits, all within four to six weeks. They then resurface in another town with the same campaign in a matter of weeks. At any given time there arc probably 50 to 75 such campaigns in progress across Canada. Such operators steal many millions of dollars annually from Canadians and from legitimate charities. This is, without question, the most serious area of abuse.
A provincial and national network which would share information among regulators and enforcement agencies about bogus campaigns would materially assist in reducing their frequency. As professional fund raisers and fund-raising consultants, my firm is in an excellent position to sec many of these fraudulent schemes in action. We direct all of our branch managers across Canada to report any questionable campaigns they encounter immediately to Better Business Bureaus, police forces and consumer affairs officers.
Proposed Remedies
Solutions to these problems lie in two distinct areas: organized education and effective regulation. To accomplish this, new initiatives must be undertaken to educate charities about the complex field of fund raising and existing regulatory regimes must be overhauled to prevent, wherever possible, the most common forms of abuse. Regulatory agencies must actively share information.
Education
Effective fund-raising education must be made continuously available to senior staff and board members of Canadian charities and nonprofits.
a) Education Source – Twice a year provincial/territorial departments of consumer affairs and of social services should present seminars on fund raising in major centres. Board members and senior staff of community groups funded by the province would be invited, or even obliged, to attend. Unfunded agencies should be invited to participate as well.
b) Seminar Content – This educational program would cover key aspects of fund raising, both self-directed and third-party directed. The intent would be to provide charities with the tools they need to make intelligent, informed decisions about fund raising, including how to select a reputable, dependable fund raiser, whether to accomplish fund raising in-house or on contract, and how to retain control of the process.
c) The Result – Community service groups would then be far better equipped to provide for their own financial futures through increasingly productive fund-raising initiatives. A potential spinoff is a corresponding reduction in demands upon the government purse.
Complaints about unethical fund raising would be reduced to a level of insignificance as a result of charities becoming far more professional in their fund-raising activities.
Regulation
At present, local approving authorities arc simply not equipped to handle the volume, diversity and complexity of campaigns in their jurisdictions. This complexity has prevented such approvals boards from effectively, consistently and fairly exercising their mandates, yet the volume, diversity and complexity of campaigns continues to increase.
a) Of Charities -We propose that all charities and nonprofits who wish to undertake fund-raising campaigns of any sort be required to register annually with the provincial or territorial departments of consumer affairs. They would be required to provide a summary of their fund-raising plans and goals for the coming year and financial statements for their previous fiscal year.
The department would have the right to inspect all financial records and could, in cases of abuse or mismanagement, suspend the privilege of fund raising for a specified penalty period,
Charities would also be obliged by law to hire only licenced fund raisers and fund-raising consultants.
b) Of Professionals – Professional fund-raising firms, marketers and/or promoters wishing to operate in any province or territory would be required to obtain a licence from the department which would have to be renewed annually. Requirements would include a successful credit check and posting of a surety bond of not less than $20,000.
In addition, licensing criteria would require contracts with third party or consulting fund raisers to ensure client control over campaign proceeds, content, duration and methods.
Telemarketers, door-to-door canvassers, show promoters and all other fund raisers or contract fund-raising consultants would be subject to this licensing process.
Fund raisers or consultants acting in contravention of licensing requirements would have their licences suspended or revoked.
c) Minimum Nets – We specifically and very strongly advise against the imposition of set minimum percentages of campaign proceeds which must be netted by a charity-as is currently done by the Calgary approving body. There is ample evidence that applying such fixed-percentage requirements has not worked in the United States and we should not repeat their failed experiments.
This issue is most appropriately left to the boards of individual charities acting in the best interest of their organizations with a full understanding of their needs and constraints as well as fund-raising options and regulatory requirements.
Clearly, most established larger charities possess the in-house resources and volunteers to raise money cost-effectively. Lesser known and smaller groups do not possess the public profile, experience, or volunteer base to compete efficiently with the big names. Yet, under current Calgary requirements for example, this fact is not recognized and many worthy groups are suffering as a result. They arc, in effect, penalized by being required to produce the same campaign efficiencies as larger groups when they manifestly cannot.
What is more, some types of campaigns arc more costly than others. It is far less costly, for example, to simply phone people and ask for donations than it is to stage a major benefit event. Yet, in most cases, no differentiation is made in terms of percentage of gross proceeds which the sponsoring charity must net.
This is analogous to demanding that airlines charge the same amount as bus companies for a ticket from Calgary to Halifax. Each of these faces different realities and costs and each provides a different type of service.
By way of further example, current local interpretation of the Alberta Public Contributions Act, in both Calgary and Edmonton, allows for a campaign using strictly in-house resources to net 42.5 per cent of gross proceeds while a campaign involving a third party must net 50 per cent for the charity.
This is clearly discriminatory, sanctions inefficiency in in-house fund raising, and works to the benefit of larger charities who possess such in-house resources. Should not all charities be able to “play on a level playing field”?
d) Information – Finally, it is absolutely imperative for regulatory and enforcement agencies to share information regionally, provincially and nationally. With centralized licensing and reporting at a provincial and territorial level, such necessary information would be readily available. Further, information about questionable operations could be more readily shared and, when appropriate, warnings issued.
Education of the general public could be greatly improved through media coverage of the “scams” that do come to light. More importantly, through Better Business Bureaus, consumer affairs offices and such, the general public is now being warned of the prudent steps to take in responding to charitable appeals.
Many Canadians arc increasingly reluctant to give at all because of the conflicting signals they receive from media, government, charities, and watch-dog groups. All that has been accomplished so far is that many donors have effectively been scared off.
Clearly, we want donors to give and to give wisely. Equally clearly, it is at the level of the board and senior staff of nonprofits where the most effective and beneficial educating can and must be done. If the charities themselves are equipped, and obliged, to act more astutely, the problems we have cited will be largely solved.
Conclusion
We recognize and understand the dilemma faced by those endeavouring to interpret and apply existing legislation and to implement new regulations for the benefit of the community.
Unfortunately, problem operators have demonstrated that they will not co-operate with any organized regime of self-regulation.
We submit that the measures proposed here represent positive, simplified, cost-effective and eminently workable solutions to the majority of problems affecting charitable fund raising in Canada.
LEN WOLSTENHOLME
Executive Vice-President, GWE Consulting Group Limited, Calgary
