On October 26, 2010, the Auditor General of Canada released its Fall Report to the House of Commons. The Report included a review of the performance of the Charities Directorate. Although the Report noted some areas in which the Directorate could improve, on the whole the Auditor General gave a positive review of the Directorate’s performance. The following summarizes some of the highlights from the Report.
The Report commented generally that the Directorate’s process for registering charities is thorough, and that the controls in place are adequate to monitor and manage the process for approving an organization’s application for charitable registration. The Report noted that the registration process is important as it may be the most in-depth involvement the Directorate has with a charity during the charity’s life cycle.
The Report did note that the Directorate had not historically met its service targets for the processing of registration applications. The Directorate had set a goal of responding to 80% of simple applications within 2 months, and 80% of regular applications within 6 months. In the 2007-08 year, the Directorate responded to 42% of simple applications within 2 months, and 53% of regular applications within 6 months. In the 2008-09 year, these figures were 58% and 22% respectively. The Report commented that CRA had taken steps to address these service issues and that its performance had improved in 2009-2010.
Annual information returns
More than 33,000 charities did not file their annual information returns on time in 2008. The Directorate sends out automatic reminder letters to late-filing charities and de-registers such charities after 10 months of non-filing. The Report noted that most charities did file their returns after being reminded. However, between 2007-2009, approximatey 3,000 charities had their registrations revoked for failure to file. The Report recommended that the Directorate review its current processes for dealing with annual information returns and consider whether steps could be taken to meet its objective of increasing compliance and receiving returns on time.
The Report noted that the Directorate conducts risk-based and random audits to verify compliance, and that it has a range of tools available for cases of non-compliance. These include education letters, negotiated compliance agreements, intermediate sanctions and revocation. The Report commented, however, that the Directorate lacks sufficient internal guidance for the application of intermediate sanctions, and that it continues to rely on education letters, compliance agreements and revocations. It noted that the Directorate is in the process of developing internal guidance for the application of intermediate sanctions, which is currently expected to be available by March 2011.
The Report commented that the Directorate’s communication to charities and donors is good, with information accessible through several channels (including the Directorate’s website, telephone hotline, webcasts, and outreach programs). The Directorate’s website can be used to check whether a charity is currently registered, suspended from issuing tax receipts, or has had its charitable status revoked. The Report also noted that the Directorate has processes to ensure that the information on its website is accurate as well as feedback mechanisms to verify that users’ needs are being met.
The Report noted the Directorate’s concern with some tax shelter gifting arrangements and its warnings to donors about the risks involved with participation. As of December 31 2009, a total of 172,300 tax shelters were active. One of the stated purposes of the audit of the Directorate was to review the CRA’s efforts at increasing compliance with respect to tax shelters. The Report noted that CRA had audited many of the active tax shelters by March 2009 and had reassessed the amount of charitable donations claimed by over 69,000 participants who had invested in these arrangements.
Disposition of property
The Reported commented that the Directorate had only an informal process for monitoring whether a charity has made appropriate disposition of its assets during the wind-up process and following revocation. The report recommended that a formal monitoring process be developed.
Overall, the Report gave a positive review of the Directorate’s performance. Where it noted areas of possible improvement, its recommendations were generally that the Directorate give consideration to how its processes could be better designed and administered so as to further the Directorate’s goal of increasing compliance with the Income Tax Act.
The Report is valuable not only for its evaluation of the Directorate’s performance, but also as an overview of the operations of the Directorate, its mandate and priorities, and the issues that it faces. The Report is available at the following link: http://www.oag bvg.gc.ca/internet/English/parl_oag_201010_07_e_34290.html.