Articles & Cases

Is Kevin Donovan, Toronto Star reporter, a hero or villain?

November 29, 2007

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WARNING: The opinions expressed in this article are the personal views of Mark Blumberg. Anyone who has an idealized view of the charity sector may wish to stop reading this article as it could cause blurriness of that view. Also, if you are looking for Santa and/or a defence of all Canadian fundraising practices you are not going to find him or it in this article.


Is Kevin Donovan, Toronto Star reporter, a hero or villain?


November 28, 2007


Kevin Donovan is a reporter for the Toronto Star. Over the last year he has written a number of stories about the charitable sector for the Toronto Star. The stories have titles such as:

Charity scams bust public trust: Toothless watchdog lets rogue agencies prey on donors and threaten a sector that raises billions of dollars a year (June 2, 2007)

Charities admit fundraising mess: Sick Kids, World Vision both vow to stop commission-based canvassing via third party (July 15, 2007)

Charity's ploy 'horrifying': Organ Donation's pitch is emotional but only 10% goes to transplant research (August 4, 2007)

$1.4B tax scams nail donors: Taxman going after 106,000 who submitted inflated charity claims (September 29, 2007)

Some have criticized Mr. Donovan as being sensationalist. Others have expressed the concern that his reporting on the charitable sector will undermine the public’s trust in charities and consequently affect their ability to fundraise. With reduced funding the argument goes that charities will not be able to deliver on programs. Many fundraisers I have spoken to cringe at even the thought of the Toronto Star articles. I am sure that there are many fundraisers who are praying that Mr. Donovan is provided with extra vacation time to take off the next few weeks.

Others see Kevin Donovan as a single person crusade to clean up the charitable area which has ostensibly too many scams, too many charities that provide no public benefit and too much personal benefit to some greedy individuals.

Is Mr. Donovan undermining the credibility of the charitable sector or are some charities’ conduct undermining the sector?

The Holiday Season

This is an important issue to discuss especially as December is traditionally an important month for donations and revenue for charities. In fact, many charities will receive the lion’s share of their annual revenue during this period and many donors will give a large part of their annual giving in December. Will donors donate to the first charity that knocks on their door? Or will donors be more strategic and actually prioritize what they want to accomplish and, perhaps most importantly, think about whether the organization they are donating to will actually use their money effectively. It is easy to avoid the small number of abusive tax schemes. What is far more difficult for a donor is the decision of which of the other 82,000 charities are worthy.

Strategic Philanthropy

I try to select charities based on my perception of the importance of the work they are doing and their effectiveness in dealing with the issues. In reality I often give for all the wrong reasons – like if someone asks me to give to a charity that he or she cares about but which is not in the top 100 charities I would want to support.

At this time of giving I hope that Canadians would sit down for five minutes and pick one or two priority areas as the focus of their philanthropy before the rush of appeal letters and ringing doorbells. Within these priority areas one should then consider supporting one or two charities that are doing good work.

By the way, there is no substitute for being involved in a charity to get the goods on the charity’s work. I wish that a quick read of a charity’s financial statements or its T3010 annual return or a calculation of its disbursement quota would tell one about the real administration and fundraising costs and the real effectiveness and importance of a charity’s work. But if you don’t have time to volunteer then do some due diligence – read the charity’s annual report, review its website, review its T3010, or call the charity if you have any concerns.

Expect that if you want the organization to be accountable, transparent, and effective that it will probably have administration and fundraising costs in the range of 15-25%, or perhaps even more. Rather donate larger amounts to fewer charities as the cost of processing donations can eat up a large part of a small donation.

There are many difficult issues in fundraising and the charity sector such as the amount spent by charities on administration and fundraising, diversification of funding, effectiveness of programs, importance of area and amount of funding, and legitimate ways for charities to reduce costs, which I will deal with in a subsequent article.

I am glad that there are reporters who care enough about the sector to write about it. For its size I think the sector gets very little coverage. Every multi-million dollar gift to a hospital or university is covered - but there is very little review or scrutiny of the sector. The Globe and Mail each week provides a short profile of a major donor and the charity that received the donation as well as discusses the donor’s motivation in making the donation. I enjoy reading these short articles. After all, it is interesting to learn about some of these major donors and to hope that others will emulate their philanthropic motivations.

I have heard a number of speakers criticize Kevin Donovan for his articles. Before charities circle the wagons - just remember to ask yourself who will be in the circle and whether you are comfortable with those people there.

The Canada Revenue Agency (the “CRA”) has done a wonderful job of revoking the registration of charities that are tardy in filing their T3010 annual return. They are also are very good at cracking down on charities that do not have all 15 mandatory items on their tax receipts. It appears that, as a result of insufficient resources and legislative hurdles that bind the CRA’s hands, it has a tough time cracking down on the really bad guys, let alone pulling the plug on charities that are completely ineffective and inefficient.

Charities need to push government to enforce the existing rules and to tighten rules relating to clear cut scams. When one scam out of a small church in Toronto can result in approximately 273 million dollars in receipts being issued, then one starts to realize that there is a problem. Just to give some perspective, 273 million dollars is about as much money as was raised by World Vision. It is more than 4 times what SickKids raises. However, I don't think the charitable sector has realized that this is the tip of the iceberg.

I am not sure why some of the reputable charities seem to feel the need to defend the "sector". I have always maintained that, with 82,000 charities in existence and the bar to register new ones being pretty technical but low, not all charities are deserving of support. Many charities’ main activity seems to be filing the T3010 every year - because many have either no income or almost none and they are not conducting any activities. There are also a small number of charities that are pure scams and they are doing a lot of damage to the sector with the help of some accountants, lawyers and financial planners.

There are many more that offer little or no real public benefit. Whether this results from very high administration and fundraising costs or because their activities are ineffectual or misguided depends on the charity.

Unfortunately the disbursement quota system set out in the Income Tax Act (Canada) is quite flawed and probably unnecessarily complicated. But I think the biggest problem is that the disbursement quota does not give you any idea of how efficient a charity is in using its funds. It does not curb fundraising that costs 60-80 cents on the dollar. It also gives you no idea as to how effective the funds are that are ostensibly spent on programs.

One big whole in the disbursement quota system is that many organizations receive a large amount of funds from government or corporations and these are not receipted. When a charity talks of only spending 18% on fundraising and administration, it sounds good. But is the charity referring to 18% of the funds donated or 18% of the revenue of the charity including the government funds? If it is the latter, and lets assume that multiyear and multimillion dollar government funding does not take 18% for fundraising and administration then you get the picture - the funds donated by individuals for which a receipt is given are probably costing the charity 50 cents on the dollar to raise and the government is subsidizing this whole exercise by another 46 cents. Not a very efficient proposition.

One thing that I have noticed is that charities generally are not that concerned about a CRA audit. They are more concerned about getting a call that starts with "Hi, this is Kevin Donovan from the Toronto Star". After all, the chance of an audit is less than 1% in any year. If Kevin Donovan is calling and asking questions he may be asking about an issue that you may not want splashed on the front page of the Toronto Star.

Recently I have noticed an upsurge in the number of charities requesting informal legal audits in which certain issues are proactively reviewed. In the past this was driven by a concern that the charity operate according to the rules. Now I think that many charities that are reviewing these matters are more concerned with media coverage and preventing donor concerns.

I think that Mr. Donovan raises some very interesting points in his articles that the responsible part of the sector should think about. There are, however, many other deep and difficult issues that the sector needs to contemplate and I hope that Mr. Donovan will consider broaching these more difficult issues in the future. As I have never met Kevin Donovan, or spoken to him, I don't know whether he is a friend or foe of the sector. Perhaps he is just a canary in a coal mine.


Mark Blumberg is a lawyer at Blumberg Segal LLP in Toronto, Ontario. He can be contacted at mark@blumbergs.ca or at 416-361-1982 x. 237. To find out more about legal services that Blumbergs provides to Canadian charities and non-profits please visit the Blumbergs’ Non-Profit and Charities page at www.blumbergs.ca/non_profit.php
or www.globalphilanthropy.ca