I’m the sole fundraiser in a mid-sized organization. I’ve read the CRA Fundraising Guidance, their supporting document, Mark Blumberg’s materials, and attended the AFP webinar with Terry Carter and I’m still confused…can you help?

First and foremost, you are doing the right thing by delving into this topic, reading all that’s available and being proactive with your charity! The best way I can help (in 1,500 words or less) is to compel your ED/CEO and board to read these documents carefully so you are not “flying solo.” The CRA’s Fundraising Guidance needs to be the dog-eared, bestseller that everyone is talking about…because in order to fundraise effectively, the leadership team must make some informed decisions.

Rather than hotlink these key documents, I’ve asked CharityVillage to keep the two CRA URLs visible in case you are printing this article for your board members to read. Knowing the exact address is the easiest way to find both on their website.

The CRA released reference number CPS-028: Fundraising by Registered Charities (the Guidance) http://www.cra-arc.gc.ca/tx/chrts/plcy/cps/cps-028-eng.html on June 11, 2009. This document and the accompanying Additional information on Guidance CPS-028, Fundraising by Registered Charities http://www.cra-arc.gc.ca/tx/chrts/plcy/cps/cps-028-ddn-eng.html#d1 go hand in hand and need to be compulsory reading for charitable leaders. The printed forms of both are more cumbersome, but it’s thought-provoking reading where you may benefit from having a highlighter in hand!

I agree the Guidance is somewhat confusing, and perhaps even a little intimidating, given it’s a directive from the Canada Revenue Agency. However, rest assured, their motivation for updating this fundraising policy (because this isn’t the first incarnation) is to ensure our charitable sector remains ethical, transparent, and accountable to the public (and media scrutiny). Being a “registered” charity is a privilege, and it is CRA’s responsibility to oversee we don’t take that status for granted.

That said, and considering the Guidance has been improved significantly through community engagement, it still poses challenges. If you represent a registered charity in Canada that does any fundraising, your charity needs to respond to this policy in order to comply.

I often hear fundraisers complain about a lack of engagement by their board…well, here’s your entrée! These documents require the board of director’s attention, discussion, understanding and direction to guide paid and unpaid fundraisers’ decision-making about chosen methods.

By law, registered charities are required to have exclusively charitable purposes and fundraising is not charitable in-and-of-itself. The Guidance states, “While recognizing the necessity of fundraising, CRA expects charities to be transparent and to not devote excessive amounts of time and/or resources to fundraising as opposed to fulfilling their charitable purposes.”

CRA’s definition of fundraising

The Guidance defines fundraising as “any activity that:

  • Includes a solicitation of support for cash or in-kind (solicitations of support include sales of goods or services to raise funds);
  • Is part of the research and planning for future solicitations of support; or
  • Is related to a solicitation of support (efforts to raise the profile of a charity, donor stewardship, donor recognition, etc.)

 

Fundraising includes activities carried out by the registered charity, or someone acting on its behalf.”

You need to read the Guidance and Additional Information, which provides excellent explanations and examples, to really understand the depth of the CRA’s definitions. But generally speaking, “solicitation of support” goes beyond asking directly for a donation and includes: donor recognition and stewardship, the sale of goods and services, and membership programs.

“In circumstances where a receipt is issued for any part of a transaction, the activity is deemed to be a solicitation of support and therefore the costs associated with the entire activity must automatically be allocated to fundraising expenditures.”

What fundraising is not according to CRA

 

Prohibited fundraising conduct within the Guidance

I’ve quoted the Guidance directly and this is a good example of why the accompanying document is vital in explaining each point further. “Certain types of prohibited conduct related to fundraising may result in the revocation of a registered charity’s status, imposition of compliance measures, or denial of charitable registration. This would include fundraising conduct that:

  • Is illegal or contrary to public policy;
  • Is a main or independent purpose of the charity;
  • Results in more than an incidental or proportionate private benefit to individuals or corporations; or
  • Is misleading or deceptive.”

 

Allocation of fundraising expenditures

This topic is really at the heart of the issue. The CRA wants to ensure charities are tracking fundraising costs to avoid wasting hard-earned revenue on ineffective methods. Having said that, costs will vary according to the age or maturity of an organization and its fundraising program, its reputation in the community, whether its mission has broad or narrow appeal, and what type of fundraising it’s conducting.

For instance, the Salvation Army or United Way will have more cost-effective fundraising even if it’s recruiting new donors (acquisition is the most expensive strategy, which is why we want to ensure their renewal). In contrast, a modern dance company will need to invest more in donor acquisition because of its limited audience and the fact that it still competes for the same donations as its more popular counterparts.

The Guidance introduces two tests for identifying potential fundraising costs:

(A) Substantially All Test (http://www.cra-arc.gc.ca/tx/chrts/plcy/cps/cps-028-ddn-eng.html#d10) says that 90% or more of the activity would have been undertaken without solicitation of support, advancing an objective other than fundraising.

(B) Four Part Test (http://www.cra-arc.gc.ca/tx/chrts/plcy/cps/cps-028-ddn-eng.html#d11a) states that if the Substantially All Test was not met, a charity can show the activity would have been undertaken without the solicitation of support if it can answer NO to all four of the following questions:

  • Was the main objective of the activity fundraising?
  • Did the activity include ongoing or repeat requests, emotive requests, gift incentives, donor premiums, or other fundraising merchandise?
  • Was the audience for the activity selected because of their ability to give?
  • Was commission-based remuneration derived from the number or amount of donations?

 

Having worked in this field for the last 20+ years, primarily with under-resourced, small organizations, I understand tracking the necessary information will be an added challenge. In contrast, more sophisticated fundraising departments will have to track each of their methods separately because some low cost techniques will offset the more expensive approaches, and the overall ratio of fundraising revenues to costs will be one of the factors CRA uses to determine whether there is cause for concern.

Evaluation of fundraising activities

This is where the rubber hits the road! Quoting CRA, “Fundraising ratios alone are not determinative in assessing whether a charity’s fundraising complies with the requirements of the guidelines in this Guidance. However, these ratio ranges give charities a way to generally gauge their performance and understand the circumstances where the CRA is likely to raise questions or concerns.”

Ratio of costs to revenue over fiscal period
CRA Approach
Under 35% Unlikely to generate questions or concerns.
35% and above The CRA will examine the average ratio over recent years to determine if there is a trend of high fundraising costs. The higher the ratio, the more likely it is that there will be concerns and a need for a more detailed assessment of expenditures.
Above 70% This level will raise concerns with the CRA. The charity must be able to provide an explanation and rationale for this level of expenditure to show that it is in compliance; otherwise, it will not be acceptable.

Recommended tactics

  • Dive into the deep end! Ensure your CEO/ED and board are provided copies of the Guidance and Additional Information and advised to read it for further discussion, by a specific date.
  • Your CEO/ED invites your charity’s leaders to submit their questions and/or concerns in writing, one week prior to a scheduled dialogue.
  • Prepare answers to questions for presentation to the charity’s leaders.
  • Contact CRA – 1-800-267-2384 – to clarify any unanswered questions.
  • Present responses to leaders.
  • Draw their attention to outstanding concerns they may have overlooked and solicit their recommendations.
  • Summarize strategies the board has identified to address all concerns raised.
  • Document the information for a report back to the board.
  • The CEO/ED can assist the board in developing and passing any necessary fundraising policies that arise as a result of this Guidance.

 

Keep learning! Register for a December 16, 2009 webinar with Mark Blumberg and me at www.capacitybuilders.ca/clip and Google “CRA Fundraising Guidance” for more great resources.

Cynthia Armour is a freelance specialist in fundraising and governance. A Certified FundRaising Executive (CFRE) since 1995, she volunteers as a subject matter expert with CFRE International. She works with boards and senior staff to ensure that strong leadership will enhance organizational capacity to govern and fundraise effectively. Contact Cynthia directly at 705-799-0636, e-mail answers@elderstone.ca, or visit www.elderstone.ca for more information about her services.

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