Charities hoarded cash and failed to address crises during COVID: Report

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Canadian charities responded to the pandemic by hoarding cash and relying on government support, and most failed to pivot to address crises caused by COVID-19 and economic measures taken to control the spread of the virus, according to a comprehensive report by The Veritas Foundation.

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“Cash positions… increased materially post-COVID for all charities across all groups,” while spending on charitable activity declined for most, with the exception of those aimed at alleviating poverty, according to the report penned by Mark S. Bonham, who is executive director of The Veritas Foundation.

Charities’ cash balances grew to $6.2 billion in 2020, up from $5.5 billion a year earlier.

At the same time, following calls for relief for the charitable sector as the pandemic bore down, funding revenue from the federal government grew at a “material” rate, reaching $831 million, up from $641 million in 2019.

Why are they accumulating cash and still receiving government subsidies?

Mark S. Bonham, executive director of The Veritas Foundation

“The magnitude of the increase grew as the COVID crisis lengthened,” Bonham said in the report, which was derived from a review of a database of 29,860 reporting charities, federal government filings for registered charities to the Canada Revenue Agency, and charities’ financial statements for 2019 and 2020, adjusted for those with a financial year-end of January to March when the pandemic’s impact would not have been felt.

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The review spanned arts organizations, community and children’s hubs, food banks and poverty relief networks, and included well-known charities such as Plan International Canada Inc., World Vision Canada and the Ottawa Food Bank, as well as dozens of small charities.

At the Ottawa Food Bank, the review found, the cash position grew to $12.4 million from $4.2 million, while federal government funding, nonexistent in 2019, clocked in at $962,000 in 2020.

“Why are they accumulating cash and still receiving government subsidies?” Bonham said.

Bonham further questioned why some charities made decisions to reduce spending on charitable activities while management and administration expenses stayed at the same level — all while the charities were receiving increased federal government funding.

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Another charity, Make a Wish Legacy, showed cash of $4.7 million last year amid the pandemic, up from $3.6 million in 2019, with federal government funding of $1.9 million compared to nil the year before.

Hot Docs, which supports documentary filmmaking, came second in the arts category with a cash position of more than $4 million, up from $3.5 million in 2019. But it was the organization’s haul from the federal government that was noteworthy, nearly doubling to $951,204 from $490,023 during the pandemic.

The federal government introduced a series of supports that were available to charities and non-profits affected by the pandemic to help them retain staff, pay rent and maintain cash flow as more traditional sources of revenue such as donations dried up. The government supports included access to partially forgivable loans under the Canada Emergency Business Account (CEBA), as well as subsidies such as the Canada Emergency Wage Subsidy (CEWS) and The Canada Emergency Rent Subsidy (CERS).

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Bonham said it is impossible to track how much charities took from these programs because that information is not required to be disclosed by anyone, “charity or otherwise.”

While the category of charities aimed at alleviating poverty was “less extreme” in terms of government supports, cash balances still grew in 2020, Bonham said.

Plan International Canada, for example, was in top spot in that charitable category with a cash position of just over $68.2 million, up nearly 30 per cent from 2019. However, the 2020 figure included about $43.5 million from the federal government, down from nearly $49 million the year before.

Officials at Plan International and the Ottawa Food Bank said no one was available Thursday to provide further context for the higher cash balances and government support. Make a Wish could not be reached for comment and Hot Docs did not respond by press time.

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The report from The Veritas Foundation, a not-for-profit arm of research firm Veritas Group with a mandate to evaluate the effectiveness and impact of Canada’s charitable sector, noted that it was natural for the charitable sector to respond “defensively” at the outset of the pandemic because, like businesses, charities must consider their operational risks and sustainability.

But as the health and economic crisis dragged on and the survival of the charities did not appear to be a concern, the charities took a stronger defensive position — even after the government implemented subsidies for the charitable sector.

“While it is to be expected that management would respond to a crisis of this scale defensively by increasing cash reserves, one has to ask if that is the mandate of a charity over the long term,” the report said.

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“Why did the charities not innovate and introduce accommodating operating and granting policies to reflect their changing environment?”

That question reflects a key finding in the report: Although the charities were on solid footing, they failed for the most part to pivot to directly address negative impacts of the pandemic, such as increases in domestic violence, racial inequality and mental health concerns.

Where public health requirements such as social distancing interrupted services to underprivileged children, for example, the report’s author questioned why charities did not “innovate and adjust its programming to virtual online services, thereby offsetting the decline by increased support through this new, innovative programming?”

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The report concludes with a more hopeful question about the future: “With the excessive level of cash balances in the charitable sector today, are we to anticipate a surge in charitable activity in the near term as the COVD crisis subsides?” it asks.

The report excluded charities directly involved in providing education and those with a religious purpose, and noted some key differences between large and small charities, classified as those with revenue of less than $1 million. For example, the cash positions of smaller charities didn’t increase as much during the pandemic, and they benefited more from government funding. They also had stable tax-receipted gifts from donors while large charities saw initial increases that declined as the COVID crisis wore on.

An Angus Reid Institute survey produced with a consortium of charitable organizations last September found that almost two in five Canadian charitable donors had reduced their giving since the pandemic began, and that support for federal government assistance for the charitable sector topped 70 per cent.

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