CBA Charity Law Symposium – May 29, 2015
Cathy Hawara, Director General
I want to thank the CBA for welcoming me again this year to its Charity Law Symposium – it is the highlight of the year, in terms of my speaking engagements, and I appreciate the opportunity to address this group of legal professionals, who work so closely with Canada’s registered charities.
As in the past, the organizers have given me carte blanche in terms of what I might speak to you about. This past year has been an extremely busy one for the Charities Directorate, so there are a lot of updates to provide. While some of our work has attracted a lot of attention this year, a number of the initiatives we are currently pursuing have had little visibility so far. I thought I would use this forum to profile some of those initiatives.
Political activities update
But first, let me quickly update you on the work we have been doing in relation to political activities. As most of you are aware, our increased educational and compliance activities related to the rules governing political activities by charities have attracted much attention in the media this year. We are continuing our effort to share as much information as we can to help improve the understanding of what we are doing, and why. You will find the most recent update in our 2015 Charities Program Update, available on the Charities and giving website.
It is widely recognized that charities make a valuable contribution to the development of public policy. As such, they are allowed to devote a limited amount of their resources to non-partisan political activities that advance their charitable purposes. The fact that charities are allowed to undertake political activities, within these parameters, is not well understood. Our activities have been focused in part on creating new educational products and tools to help charities better understand and apply these longstanding rules. We have created a new section on our Charities and giving website called “Resources about political activities” where all of our new products can be found. I recommend these resources to you and your clients.
The activities that have garnered the most attention have been our increased compliance activities – when most people hear the word “compliance,” they really hear “audit.” But there is more to compliance than just audits. Our compliance activities have included sending reminder letters, as well as contacting charities where we have found what we believe to be reporting errors in their T3010.
With respect to audits, we will conduct 60 audits over a four year period – during that same period, we will audit some 3,600 charities as part of our regular audit program. As of March 31, 2015, 21 of 60 planned political activities audits have been completed. The audits completed to date have resulted in six education letters, eight compliance agreements, five notices of intention to revoke, one voluntary revocation, and one annulment. As you can see, we are using all the tools available to us, and taking an education first approach where appropriate.
Many of the audits are ongoing. However, the audits we have completed have revealed common areas of difficulty, in particular with respect to tracking and reporting of resources devoted to political activities, as well as partisan political activities and social media. The Directorate will look at these results more closely to see what more can be done from an educational perspective to further support charities in following the rules.
I think it bears repeating that the selection and conduct of these audits has been handled by the Charities Directorate alone. Selection was based first and foremost on our identification of possible non-compliance. When selecting the final 60 audits, we also aimed to include charities from all four heads of charity and from all regions of the country.
We have taken note of the questions our work has raised in relation to the audit process for charities – how are charities selected, what does an audit entail, what are the possible outcomes of an audit and what recourse do charities have? Charities should absolutely have answers to those questions and, to supplement the information we have already made available through our website and the Charities Program Update, we are developing new products to explain the audit process in more detail.
It is vitally important that a relationship of trust continues to exist between the charitable sector and the regulator. We will continue to be open and transparent about our work, while respecting the taxpayer confidentiality rules, and we will maintain our education-first approach with charities – generally in the context of our educational and outreach activities, and on an individual basis in the context of our compliance activities. Our ultimate objective is to promote compliance with the requirements of registration and I am confident that all of the initiatives the Directorate is actively pursuing will help us achieve that objective.
So let me turn now to those initiatives and all the other great work that has been happening in the Charities Directorate over the past year.
“Coming together – keeping together – working together”
Henry Ford once said, “Coming together is a beginning...keeping together is progress...working together is success.”
I think this quote aptly reflects the relationship between the Charities Directorate, as regulator, and the charitable sector – both in terms of our past and in terms of my vision for the future.
If we were to imagine the relationship between the Charities Directorate and the sector in this continuum of “coming together – keeping together – working together,” I would suggest that our “coming together” happened in the year 2000 with the launch of the Voluntary Sector Initiative (VSI) and Regulatory Reform.
For those of you not familiar with the VSI, it was a unique undertaking between the Government of Canada and the voluntary sector to enhance their relationship and strengthen the sector's capacity. It led to the creation of a Joint Regulatory Table, a working group convened to study and make recommendations for improving the legislative and regulatory environment in which the voluntary sector operates.
This “coming together” of officials from the sector and from government provided a launching ground for the implementation of sweeping change that:
- strengthened sector accountability and transparency;
- provided charities with a new system of recourse; and
- provided the CRA with a new range of compliance sanctions, where only revocation existed before.
Most importantly, as a colleague from the charitable sector recently said to me, VSI fundamentally changed the relationship between the sector and the regulator.
“Keeping together” meant maintaining the momentum created by the VSI and Regulatory Reform. First came the establishment of the Charities Directorate’s Technical Issues Working Group in 2004, followed by an expansion in the number of consultation processes undertaken by the Directorate.
The Technical Issues Working Group is a regular forum where leading sector professionals meet twice a year with the Charities Directorate to discuss both technical and policy issues affecting the regulation of charities. The CBA is represented at that table, where it has shared its experiences and insights with us – the CBA continues to make an invaluable contribution through this forum.
The Directorate has also actively solicited external input and feedback on various educational and guidance products, through our website as well as through more targeted consultations with stakeholders. It is critical for us to understand how a guidance product might be interpreted and to appreciate the impact it could have on the operations of charities – we look to gain that understanding through these consultations and, in my view, the feedback we have received from organizations like the CBA is what allows us to publish meaningful and helpful guidance and educational products for charities.
We have also sought feedback and input through public opinion research projects, starting with Thinking about Charities in 2005, to help meet the commitment made as part of Regulatory Reform to provide more information for donors. We regularly gather feedback from our website users, and most recently, we surveyed 815 charities and 93 umbrella organizations as part of our review of our outreach strategy – but more on that shortly!
Another example of how the sector and the Charities Directorate have “kept together” was the Charities Partnership and Outreach Program (CPOP). CPOP was a contributions program in place from 2005 to 2012. It provided funding to charities and non-profit organizations to help improve compliance through the delivery of plain language training materials, in-person outreach sessions, and web-based information to charities. The program provided help to thousands of individuals wishing to learn more about their regulatory obligations. It saw the development of tools like Imagine Canada’s Charity Focus and T3010 Quick Prep, as well as the creation of Charity Central’s “Office in a Box” that helped small charities maintain proper books and records. We have integrated many of these resources directly in the relevant pages of our website, so that charities can continue to benefit from them.
Mr. Ford was definitely on to something!
Which brings us, perhaps most importantly, to the last step of his continuum: “working together.” In many ways, the examples I just highlighted – the Technical Issues Working Group, the CPOP projects – these are also examples of us working together. But I believe we can accomplish much more together, to achieve our collective mission – to help charities understand and comply with the regulatory framework, as a way of supporting the sector to achieve its own mission of doing good for people here at home and around the world.
This past year, the Charities Directorate has pursued a number of initiatives, which I believe will position us to place an even greater focus on “working together.”
At this point of our evolution as a regulator, my vision is very much one that focuses first on facilitating voluntary compliance – by providing charities with the information they need in order to meet their obligations and removing barriers that make it difficult for them to comply. I would identify three overarching priorities that are guiding us as we pursue our ultimate objective of ensuring compliance by charities:
- innovation must be the cornerstone of our approaches;
- being an informed regulator will be the key to our success; and
- we must aim for excellence in the client services we provide.
As part of my update on what has been happening in the Charities Directorate, I would like to share with you how we are advancing each of these priorities – to make the vision a reality.
The Public Service as a whole is actively pursuing an innovation agenda as part of Blueprint 2020 – our vision of what Canada’s Public Service should look like in the years ahead. The Charities Directorate is no different – in fact, we are hoping to be at the forefront within the CRA, by adopting new approaches and testing new ideas. More specifically, we have been examining our approaches to compliance and outreach.
As I said earlier, compliance does not only mean audits. There is more to compliance than just audits. Audits are important and will always have a place in our compliance tool kit, but they should not be the only tool we rely on to help charities understand and follow the rules. The Charities Directorate can’t audit every charity, every year – so we must use other ways of reaching out to ensure compliance.
One way is the reminder letter – you will have heard about this letter if you read our latest Charities Program Update. We decided some time ago that we needed to be able to rely on a tool other than an audit when information about a charity’s compliance comes to our attention and reminding the charity about the rules is called for. As its name suggests, the reminder letter is meant to be just that – a reminder of the rules, an outline of the observations we have made about the charity’s compliance, and our suggestions as to how the charity can ensure it follows the rules. While I can appreciate that it may never be a pleasant experience to receive a letter from the CRA, I do believe that if the charity understands the intention behind the letter – that is, to educate about the rules – it can be seen as a helpful communication from the Charities Directorate.
The reminder letter is a step in the right direction, and I want to see the Directorate use these kinds of letters more often. But I am also keenly aware of its limitations – like the audit, it is a communication which benefits only one charity: the charity that receives the letter. With the ultimate goal being to facilitate voluntary compliance by all charities, what we need is a different approach, one where the Charities Directorate reaches out to large segments of the sector about our compliance priorities, with our best advice.
The Directorate welcomed a new Director of Compliance, Rob Delaney, in December 2014 – he has since fully immersed himself in the Charities program. One of our collective priorities this year will be to review the current compliance program with the goal of identifying new techniques to facilitate voluntary compliance in the charitable sector. I am excited by the potential of this review for our administration of the regulatory framework.
I wanted to update you more specifically on one of the initiatives we pursued this year. We decided to tackle one of our longstanding compliance problems through a new mechanism. We launched an Innovation Lab in the Charities Directorate, gathering key employees from across the Directorate, to examine the issue of late filing of the annual information return. Late filing is a serious problem, which was highlighted in the 2010 report by the Auditor General on the Charities program. One in five registered charities do not file their annual T3010 information return on time and hundreds are revoked each year after an exhaustive effort on the part of the Charities Directorate to encourage them to file – including notices sent by mail, email reminders and phone calls. Ultimately, some 10% of incoming applications for registration are received from charities that have been revoked for failing to file their return. All of these activities are resource intensive for the Directorate – and are diverting scarce resources from areas of greater benefit to the sector as a whole. A late-filed return also hinders the public’s access to information. While we have made progress in the last few years, we want to continue improving filing compliance.
The lab began by considering the wealth of data available on the issue of late filing. Here are some of the highlights:
approximately 20% of charities file late on an annual basis;
the majority of late filers file within 30 days of the deadline;
the majority were “repeat offenders,” filing late two consecutive years; and
data shows that the majority of late-filing organizations are charities that have no or few paid staff; revenues under $100,000 and expenditures under $100,000.
The innovation lab also examined the Directorate’s own practices and messaging with respect to filing compliance. In the end, the innovation lab asked an insightful question: whether we had inadvertently created a culture of “filing before a charity is revoked,” rather than a culture of “filing on time.”
The lab proposed a series of recommendations for consideration by the Directorate. Some of the recommendations propose the use of behavioural economics (or nudging) to encourage charities to file on time. The use of nudging to promote tax compliance has become more prominent over the last decade. Nudging uses messaging that incorporates social norms, morals and financial cost messaging to encourage people to change their behaviour, such as by paying their taxes on time, or in our case, filing the return on time!
The keys to using concepts of behavioural economics effectively are experimentation and understanding underlying motivations. Our next steps will involve experimenting with different mechanisms to encourage charities to file on time and determining how our current interventions can be more effective, particularly in light of what we have learned about charities who file late.
So that was my update on what’s been happening from a compliance perspective – we have also been very active with respect to our outreach programs.
We recently launched a review of our charities outreach program. As you will know, the Directorate’s outreach for charities was initially very focused on in-person awareness sessions offered across the country. We later introduced webinars and webcasts as an additional channel for reaching charities. The time had come for us to take a step back and examine these programs – were they meeting the needs and interests of registered charities and could we improve the effectiveness and efficiency of our outreach activities? Part of our review included surveys of charities and umbrella organizations, which I referred to earlier. The surveys confirmed that almost three quarters of charities use the internet to search for information about their compliance obligations – and for a high percentage of them, the CRA website is their main source of information. We also found that 25% of the charities we surveyed belonged to an umbrella organization, the vast majority of which also provide information and training to their members. The findings of this research are helping the Directorate’s new outreach strategy, which will focus on three priorities:
improving the Charities and giving website and our online products;
exploring ways to expand our use of social media and other electronic communications;
working with partners in the sector, including academics, professional associations and umbrella organizations, to increase the reach of our message and help foster education.
In the upcoming months, the website will offer an enhanced webinar and video format that provides users with more engaging learning opportunities. New technology has been acquired to deliver these in-house to allow us to provide ‘live’ sessions. Our new webinar format was successfully focus tested last July. It will provide clients with a live or recorded overview of a topic in about 20 minutes – supported with mini presentations (videos) on popular sub-topics or questions. It will allow clients to have access to on-line video anywhere, anytime, and will also allow them to select the topic that is most relevant to them and to move through the materials at their own pace.
We have traditionally relied on our Charities and giving website as the main tool for communicating important messages to charities. Indeed, those webpages received more than 2.3 million visits last year and the content consistently receives high marks for value and understandability. It is the main source of information for charities and donors. But how effective has our communication through this channel been? Have we managed to reach charities? Social media has proven to be a valuable and inexpensive tool in communicating information to citizens, businesses, and other stakeholders. A 2012 study by Stephen Thomas of the top 1,000 Canadian charities found that 54% use one form of social media or another, and as many as 45% use Twitter. We are currently exploring ways to expand our social media channels and electronic communications to keep our clients better informed.
We also want to create more helpful interactive tools. For example, we are developing two new self-assessment tools to help potential applicants make an informed decision about applying for charitable registration and submit complete and accurate applications. These new tools will be prominently featured as part of the application process once developed.
This discussion brings us back to “working together” – in my view, outreach and education holds tremendous potential for greater collaboration between the regulator and its partners, including professional associations like the CBA. We would like to engage in a discussion about how we can leverage existing networks to increase the reach of our messages and tools to charities. We also believe it would be beneficial for the sector to engage in more formal training, so our outreach team will also be exploring ways to help raise awareness about the educational activities provided by organizations that support the sector such as umbrella groups and professional associations.
Being an informed regulator is a key to success.
As the regulator, we cannot regulate in a vacuum – we must understand what is happening on the ground in the charitable sector, identify trends and ensure our administration of the regulatory framework keeps pace. Ongoing engagement with the sector continues to be key, as does understanding the results of our own programs and activities. We have made significant strides in the past year where business intelligence is concerned, and I want to update you on that particular initiative as well.
Enhanced business intelligence
The Directorate has long recognized the value of business intelligence as a means of informing our operations and priorities. We also acknowledged that this was not something we would be able to do off the corner of our desks, and so we decided to invest in and build that capacity. Our initial focus was on external business intelligence – new case law, academic research, new or proposed legislation, here and abroad, to name a few. But we always knew that the most valuable business intelligence was going to be the intelligence gathered from our own operations – what are we learning from our compliance activities, what inquiries are we receiving through our client service team, what kinds of applications for registration are we receiving and how are these changing over time? The regulator must have answers to those questions (and many more) in order to inform its priorities and work plans, including from a web and outreach perspective, as well as from a policy and guidance perspective.
This year, we implemented a new process for gathering, analysing and sharing internal business intelligence across the Directorate, combined with our analysis of T3010 data. This work revealed a number of subject-matter areas where further guidance and educational products are needed, which will in turn inform our upcoming work plans. Some of the subject-matter areas include receipting, particularly with respect to the nature and valuation of gifts in kind, financial reporting and a range of issues related to activities outside Canada. Through this work, we have also identified ways in which our systems can be improved to refine the data we are gathering, and we will be making further improvements.
We have seen first-hand the value of this exercise, which we will conduct annually. And this is not information and data that we should keep to ourselves – going forward, we will include an update on business intelligence in our annual Charities Program Update. We will share the highlights of what we have learned from our program activities and foreshadow the Directorate’s upcoming priority areas of work.
And there are interesting opportunities in this field as well for “working together.” Engagement with the sector and those who work with the sector will continue to be critical. And we are fostering new partnerships, in particular with the academic community through our T3010 user group. We are interested in learning more about their use of T3010 data, and in working together to tackle the data quality issues we know exist. This work can also inform our newest project, our IT modernization project, which I will happily update you on next.
Client service excellence
This past year, strengthening our client service function has been one of the Charities Directorate’s key priorities. You may not have seen the results yet, but we have begun to lay the groundwork. I want to update you on two particular initiatives: our review of the Client Services Section and the IT modernization project (affectionately known as CHAMP).
The 2014 Budget provided funding to the CRA to modernize its information technology (IT) systems with a view to introducing new electronic service options. The project is now well underway and will help to reduce the administrative burden on registered charities.
The project will include a redesign of the application form and information return and allow them to be electronically submitted with any supporting documents. But first, we will have to redesign and build the database which will house and display T3010 data.
I am very pleased to announce that the redesigned application and e-apply functionality will be launched in November 2017. The redesigned return and e-file option is scheduled for implementation in November 2018. More information about the project will be released as it becomes available and there will be opportunities for the sector to provide input.
Our objective, as we implement this project, will be to encourage the use of our new electronic channels as much as possible. We believe the charitable sector is ready for this shift – indeed, currently more than two thirds of all charities prepare their annual return using some electronic format (vendor software or the fillable form available on our website). Only a third of charities use the return we send them through the mail at the end of their fiscal year. As well, as part of our recent public opinion research, 80% of charities surveyed indicated they would file their return electronically if such a service was available to them. We will work to ensure that the services we develop are user-friendly, and we will implement an early communication plan to start preparing charities for the launch of these new electronic services. Working closely with our partners, like the CBA, to help charities transition to our new services, will be key to our success.
Client service review
I want to assure you that our investment in online options does not signal our intent to reduce our level of service in other areas. One of our strengths over the years has been the quality of our telephone and written inquiry services. This team is the face of the Directorate and charities need to be able to rely on high quality services – this is critical to the Directorate’s overall approach which is focused on facilitating voluntary compliance.
In 2014, we undertook a review of the organizational structure and processes within the Directorate’s Client Service Section with the goal of strengthening and enhancing the delivery of client services. Our review has resulted in the creation of two client service teams where previously there was only one. Within one of the newly created teams is a group dedicated solely to training employees and the creation of new work tools for use by agents when responding to written and telephone enquiries. Further strengthening the technical capacity of our client service teams will be a key priority over the next year.
Existing processes have also been streamlined to realize greater efficiencies when treating incoming enquiries. And we have increased collaboration with other Divisions to improve the overall client experience within the Directorate. While it is still early days, we are very pleased with the results of the reorganization so far.
As you can see, it has been a busy time in the Charities Directorate – we have certainly not stood still. Our evolution as a modern regulator continues, and I believe we are on the right track – we are focused on innovation, using business intelligence to drive our programs and evolving our service delivery model. I suspect there will be a lot to report on at next year’s Symposium – if I have the privilege of being invited again!
I want to thank the CBA again for inviting me to speak today and allowing me the opportunity to update you on the great work that is currently underway in the Charities Directorate.
I hope you all enjoy the remainder of the Symposium!
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