CRA recently revoked a registered charity. There is a 59-page letter detailing the many reasons. One paragraph I thought was quite interesting:
CRA notes:
The Organization reported the majority of its disbursements on line 4920 ”All other expenditures not included in the amounts above”. This amount represents all of the disbursements made to agents outside of Canada. However, line 4920 is intended to include expenses that do not fit into any of the expense lines between lines 4800 and 4910. Where an organization funds its activities through an agent, it should be receiving sufficiently detailed financial reports to allow it to allocate the expenses among the appropriate expense lines to accurately report the breakdown of its expenses. For example, if the agent spends the Organization’s funds on travel or vehicle expenses, these disbursements should be reported on line 4810 – Travel and vehicle expenses. By reporting all disbursements to the Organization’s agents on line 4920, its expenditures are not accurately reported which further substantiates our concerns with respect to the Organization not maintaining adequate direction and control over its resources and over the conduct of its purported activities.
I see sometimes, more than I would like, charities putting a large amount of their expenditures in the “other” category. CRA has made it clear that with agency agreements above that having so much of the expenses in the “other” category may be inappropriate. Something to think about when filling out the T3010 form.
As an aside for numerous reasons, CRA has stopped referring to agents in their guidance. Agency agreements were a common agreement for registered charities conducting foreign activities decades ago but has now been replaced by other agreements such as contractor agreements, co-operative participant agreement, etc. So there is nothing illegal about using an agency agreement but it is a very out dated concept that probably requires a higher amount of involvement than say a contractor agreement and potentially has greater liability. It can also create unintended consequences in some countries for your agent being an agent of a foreign organization. The agency concept also is more difficult for some people to understand than a contractor agreement. So I will reiterate that there is nothing illegal about using an agency agreement, but my experience is that if a group uses an agency agreement, it is more often than not a red flag that they have not revisited the rules in decades and probably are not maintaining direction and control.