Charities and Good Governance

Recently the Toronto Star posted an article entitled, “Audit of Charities Encounters Resistance.” The opening line read as follows: “Nineteen of Canada’s 100 largest charities do not release their full audited financial statements to the public and refused to provide them to an independent agency that evaluates charities.” The article listed a number of well known charities, here are but a few:

War Amps of Canada

Children’s Wish Foundation

Canadian Cancer Society

The Royal Ontario Museum

While it is commonly known that Canadian charities are not legally bound to disclose their audited financial statements, the question remains: Do they have an ethical or moral obligation to do so? The answer is yes.

Many assume that because an organization is not for profit in nature it will have in place organizational strategies that are ethically guided and based on the principles of good governance. Having said this, perhaps it’s time to remind Canadian charities of a fundamental principle of good governance: there must be a high degree of accountability and transparency in their operations and finances. To be accountable, charities must especially be willing to provide information of different types to their various stakeholders. This includes their mission, their front-line activities, and their sources and uses of donated funds.

Most charities can only succeed in achieving their mission by receiving financial donations from the public. In order to continue to do so, they must maintain a high level of public trust. How do these organizations expect to instil trust by society when they outright refuse to publish their financials? It only makes sense that charitable donors have the right to know how their money is being spent. They need to know what portion of a charity’s income actually reaches the end cause as opposed to being absorbed by management salaries, marketing activities and “reserves”. By failing to make public their financial information, charitable organizations are clearly undermining some of the most basic principles of good governance. In fact, when you think about it, charities are really owned by society. And so, society – the public – should therefore have access to the charity’s financial accounts.

Why some charitable organizations refuse to disclose their financial statements is a loaded question. Accordingly, we need to be careful not to jump the gun and simply assume that when this happens, such organizations are engaged in devilish and unethical practices. Perhaps their boards have simply not yet considered the benefits and obligation in doing so. For the most part, Canadians continue to trust their charitable organizations. However, over the course of the next few years, Canadians must continue to push for greater financial transparency. Wise charitable organizations, in turn, will not view this as a necessary evil but rather as an opportunity to reassure donors and reinforce the very high level of trust that society places in them.

 

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