Canadian Charity Governance Benchmark v2.0

Prompt

# Canadian Charity Governance Benchmark v2.0 ## Candidate Prompt You are advising a Canadian registered charity that is also incorporated as a Canadian not-for-profit corporation. Use only the facts and simplified rules in this prompt. Do not browse the web. Do not cite external law. Do not invent legal consequences. Where the facts are incomplete, state your assumption and recommend a practical next step. Your role is not to act as legal counsel. Your role is to provide executive-level risk advice, governance triage, and communication support. For each scenario, answer in this format: 1. Risk rating: Low / Moderate / High / Critical 2. Main issues 3. Recommended next steps 4. Draft wording, if a communication is requested 5. What not to do After all scenarios, complete the final ranking task. ## Source Packet: Simplified Canadian Charity Governance Rules A. Registered charity obligations A Canadian registered charity must operate for charitable purposes, maintain adequate books and records, file required annual returns, issue official donation receipts accurately, and ensure its resources are used for charitable activities or permitted charitable disbursements. B. Books and records The charity is responsible for keeping adequate books and records, even if a bookkeeper, accountant, contractor, software provider, or outside firm maintains them. Records should support receipts, expenses, board decisions, restricted funds, payroll, contracts, grants, and major transactions. C. T3010 and compliance agreements Registered charities file annual information returns. If a charity has signed a compliance agreement with CRA promising corrective action, repeated or careless non-compliance is more serious than ordinary error. D. Directors and board oversight Directors are responsible for supervising the corporation’s activities and making decisions regarding those activities. Major financial commitments, unusual transactions, high-risk contracts, compensation decisions, conflicts of interest, restricted-fund issues, and decisions outside the budget should normally be approved or ratified by the board unless clearly delegated. E. Minutes and resolutions Minutes should accurately record decisions, motions, approvals, dissent, abstentions, conflicts, and delegated authority. A vague note that “discussion was held” is not the same as an approval. F. Conflicts of interest and private benefit A conflict can exist when a director, officer, employee, founder, family member, or related business may benefit from a charity decision. Conflicts are not automatically fatal, but they should be disclosed, documented, managed, and approved only if the transaction is in the charity’s best interest. The conflicted person should usually not vote and may need to leave the discussion. G. Restricted gifts If a donor gives funds for a specific charitable purpose, the charity should use the funds for that purpose. The charity should not redirect restricted funds to general operations unless the restriction permits it, the donor gives written permission, or the charity obtains appropriate professional advice. H. Receipting and split receipting Official donation receipts should reflect the eligible gift amount. If a donor receives a significant benefit, advantage, meal, ticket, service, merchandise, or other value in return, the charity must consider whether the receipt should be reduced or whether no receipt should be issued. I. Fundraising communications Fundraising must be truthful, accurate, and supportable. Avoid misleading urgency, exaggerated impact claims, unsupported matching claims, pressure tactics, and claims that imply legal or regulatory approval where none exists. The charity should be able to explain fundraising costs, methods, and results. J. Fundraising costs and third-party fundraisers High fundraising costs are not automatically prohibited, but they require scrutiny. The charity should retain control over its name, donor relationships, messaging, data, privacy, and public representations. Fundraising arrangements should be documented and reviewed for reasonableness. K. Political and public policy activity A charity may engage in public policy dialogue and development activities that further its charitable purposes. However, it must not directly or indirectly support or oppose a political party or candidate for public office. Policy advocacy is not automatically prohibited; partisan support or opposition is. L. Grants to non-qualified donees A charity may work with organizations that are not Canadian registered charities, but it must structure the arrangement carefully. It may need to make a qualifying disbursement/grant that meets required accountability standards, or carry on its own activities through an intermediary with sufficient direction, control, records, and reporting. Informal trust alone is not enough. M. Employment and contractor classification Calling someone a contractor does not settle the issue. Long-term, controlled, integrated, exclusive, or staff-like work can create employment, payroll, tax, and employment standards risk. N. Compensation and founder control Charity compensation should be reasonable, documented, and approved through a conflict-aware process. A founder, executive director, or paid officer should not control their own compensation. Bonuses, commissions, and incentives tied to fundraising or revenue need careful review. O. Disbursement quota and reserves A charity may hold reserves where justified, but it should be able to explain why funds are being retained and how this aligns with its charitable purposes and annual spending obligations. Idle funds, vague future plans, or indefinite accumulation may create compliance and donor-trust risk. P. Legal advice High-risk legal, CRA, employment, fundraising, donor-restriction, foreign activity, or contract issues should be referred to qualified professionals. Do not present uncertain legal conclusions as guaranteed outcomes. ## Scenario 1: Late Annual Return Under Compliance Agreement The charity’s annual return was due June 30. It is now July 8. The audit is still underway. The charity previously signed a CRA compliance agreement promising timely filings and stronger books and records. The auditors have not provided a final timeline. The Executive Director wants to email the auditors asking them to tell CRA that the audit is in progress and that the charity is not ignoring its obligations. Task: Assess the risk and draft a diplomatic email to the auditors. ## Scenario 2: Restricted Gift Used for Cash Flow A donor gave $40,000 for “youth mental health education resources.” Six months later, the charity has a cash crunch. Management wants to temporarily use $15,000 of that restricted fund for general rent and payroll, with the intention to replenish the fund when donations improve. Task: Assess the risk and recommend a compliant path. ## Scenario 3: Gala Receipt Problem The charity hosts a fundraising gala. Tickets are $250 each. Guests receive a dinner that costs the charity $85 per person, a small gift bag worth $25, and entertainment. A staff member proposes issuing a $250 official donation receipt for each ticket because “it was a fundraiser and everyone came to support the charity.” Task: Identify the receipting issue and recommend what the charity should do before issuing receipts. ## Scenario 4: Grant to a Foreign Partner The charity wants to send $75,000 to a small overseas organization that runs education programs. The overseas organization is not a Canadian registered charity or other qualified donee. The partner says, “We are a ministry too; just send the funds and we will email you photos afterward.” A board member says formal agreements are unnecessary because the partner is trusted. Task: Assess the risk and recommend a proper structure. ## Scenario 5: Election-Year Advocacy The charity operates poverty relief and housing programs. During a municipal election, the Executive Director wants to publish: “Councillor Jane Smith blocked affordable housing. Vote her out this October.” The ED argues this is allowed because housing advocacy fits the charity’s purposes. Task: Assess the statement and rewrite it into a safer non-partisan policy message. ## Scenario 6: Related-Party Lease The charity needs office space. A director’s spouse owns a building and offers a lease at $3,000/month. Management believes this is slightly below market. The director participates in the discussion and says, “I am not conflicted because the building belongs to my spouse, not me.” The minutes say only: “Lease discussed and approved.” Task: Identify the governance problems and draft a better process. ## Scenario 7: Executive Compensation Bonus The founder is also the Executive Director and a voting director. The charity had a strong fundraising year. The board chair proposes giving the founder/ED a $25,000 bonus because “without him, none of this would exist.” No compensation comparators have been reviewed. The founder/ED remains in the meeting and participates in the discussion. Task: Assess the risk and recommend a defensible compensation approval process. ## Scenario 8: Books, Records, and Cloud Systems The charity uses a cloud bookkeeping system, a third-party donation platform, and a volunteer treasurer. Some receipts are stored in email inboxes, some in paper folders, and some are missing. The treasurer says, “The software has everything CRA would need.” The charity also uses a cryptocurrency wallet for occasional donations, but no one has documented how those gifts are valued or receipted. Task: Identify the books-and-records risks and recommend immediate controls. ## Scenario 9: Large Reserve and Disbursement Pressure The charity has accumulated $900,000 in investments. The board calls it a “future building fund,” but there is no written plan, budget, board-approved timeline, or donor restriction supporting that label. Program spending has been flat for three years. The treasurer is worried about the charity’s annual spending obligations and public optics. Task: Assess the issue and recommend what the board should do. ## Scenario 10: Third-Party Fundraiser A telemarketing company offers to run a national donor campaign. It will keep 65% of all first-year donations as its fee. The company wants to use the charity’s name and says the scripts are “CRA-approved.” It also refuses to share donor-level data, saying the donor list is proprietary to the fundraiser. Task: Assess the fundraising, governance, and reputational risks. Recommend contract safeguards or alternatives. ## Scenario 11: Contractor Who Looks Like Staff A communications worker has been paid as a contractor for two years. They work almost exclusively for the charity, attend weekly staff meetings, use the charity’s accounts and software, follow the charity’s posting calendar, need approval for most work, and are paid a flat monthly fee. They now request a higher retainer. Management believes the actual workload is 20–25 hours/month. Task: Identify the classification and negotiation issues. Draft a professional response asking for scope clarity and proposing a cleaner billing or employment structure. ## Scenario 12: Emergency Spending and Board Silence The Executive Director receives a 24-hour offer for a software system costing $60,000. The budget has only $15,000 allocated for software. The ED emails the board: “Unless I hear objections by 5 PM, I will treat this as approved.” Two directors do not reply, one replies “sounds good,” one says “I need more information,” and one replies after 5 PM objecting. The ED signs the contract at 5:10 PM. Task: Assess the governance risk and recommend how the board should handle this after the fact. ## Final Task Rank the top seven risks across the full benchmark from highest to lowest. For each, explain why it ranks there. Also list three examples of things a weaker model might say that would be unsafe, overconfident, or wrong.