Canada's charity regulator has launched an aggressive crackdown on the abuse of donor dollars after years of inaction.

"We will use whatever tools we have to stop abusive charities from harming the public and the system," said Terry De March, the new director general of the federal Charities Directorate.

The regulator is suspending and shutting down renegade charities; making public a list of serious problems in the 82,000 agency sector; and coming out with clear-cut rules that will for the first time force charities to stop calling fundraising expenses "good works."

Action by the regulator follows a year-long Star investigation that highlighted these problems.

"We are working hard to make sure charities live up to their promises," said De March. He said the "good"charities in Canada will benefit from this tough action because donor money won't be siphoned away from them.

Imagine Canada, a group that speaks for charities, said the action is welcome. "They are being much more aggressive and that is very good," said Imagine president Georgina Steinsky-Schwartz. Her group this fall revealed a new code of ethics for charities, which will complement the regulator's moves.

This marks a change for the regulator, a division of the Canada Revenue Agency. For decades it avoided public comment on problems that its own auditors knew too well. De March was made acting director general in June, and posted permanently to the job in the fall. Previously the director of policy, one of his first actions as director general was tackling the huge problem of charitable tax shelters where donors are encouraged to give money in return for inflated tax receipts.

Typically, tax-shelter firms hook up with a little-known charity that becomes a sort of tax receipt mill, suddenly writing millions of dollars in bogus receipts and making grandiose claims of saving the world.

Some $3.2 billion in receipts given in the last few years to 100,000 Canadians have either been disallowed or soon will be, leaving donors to reimburse federal coffers.

Last month, De March publicly suspended for one year ICAN, a Toronto charity, which was hooked up with tax shelter Global Learning Gift Initiatives and issued $712 million in questionable receipts. Days later the regulator announced it would move to shut the charity down. ICAN is fighting the suspension in court and a judge will make a ruling after the New Year. A GLGI spokesperson said they won't comment until January.

What was remarkable about the ICAN case is that a bold, red warning telling donors of the suspension appears on the regulator's website, and ICAN must also post the warning and stop issuing tax receipts.

Previously, most charity discipline was done secretly. Six months ago, a Star story showed that despite the regulator having the legislative power to take on wayward charities with suspensions or fines they were not taking action. When and if they started issuing disciplinary decisions, De March's predecessor said there was a chance they would not be able to make it public. "All penalties will be made public in the future," said De March, adding that more will be issued in the next few weeks.

The Star probe turned up many excellent charities, along with many rogue or misguided charities that lead the public to believe they are doing more "good works" than they are. The daunting task for donors is to figure out which is which.

Though a division of the normally secret federal tax agency, the charities regulator has also started issuing a series of warnings to the public and charity groups, such as a recent "Top Ten Compliance Issues."

Among them – charities that don't accurately tell donors what they spend on good works. In the public charity statements available at http://www.cra-arc.gc.ca/tax/charities, the Star series has noted that charities frequently fail to properly report their good works (line 5000 on the forms). The regulator has found that many charities don't even complete that section, and hopes that an information campaign will change that.

Other compliance issues include high-cost fundraising campaigns that some groups pass off as charity.

The Star found charities (Mother's Against Drunk Driving for one) were recording millions of dollars in third-party telemarketing and direct-mail expenses as charitable works, on the theory that if they educated people a little while asking for cash that was "charity."

De March said his group would publish guidelines by March, adding, "if a charity is using professional fundraisers and everything is to do with fundraising it is hard to say it is an educational activity."

MADD said recently it would stop calling fundraising "good works."

One Star series revealed a network of charities that claimed to be raising money for health issues, but in fact much of the money stayed with professional fundraisers.

Star stories also probed charity directors who received unusual benefits through their work, such as one who ended up using charity money to buy an airplane.

De March, while not commenting on specific charities, said he thinks the upcoming guidelines will help donors figure out "what is a charitable activity and what is not."

The regulator is stepping up its audit system (for years it was poorly staffed) and in the past nine months has completed audits that led to revocation of 32 abusive charities in the past nine months. That's up from 27 revocations for the 12-month period preceding it.

ACTIONS

Many of the changes in Canada's charity world were called for in Give and Take, an investigative Star series published this year, and in stories dating back to 2002. With the news that the charity regulator is talking tough on bad charities we look at what's been done and what's left to do to protect good charities, weed out the bad, and help donors choose wisely.

What's Done:

More audits, more bad charities having status revoked.

Public suspensions beginning, which include donor warnings.

Crackdown on charitable tax shelters.

Guidelines coming in March that will separate fundraising expenses from charitable works.

Industry has code of ethics which, among other things, targets commission fundraising, which can lead to aggressive tactics.

Crackdown on directors/officers who take advantage of involvement in a charity.

What's Left to be Done:

No movement on independent watchdog that would oversee charities.

Government silent on charities that have impressive war chests and still fundraise aggressively.

Regulator still not tackling the front end – more scrutiny needed on groups that apply for charitable status.

Regulator not publicizing critical audits of charities (many big, well-known groups) that show problems, but not deemed serious enough to warrant suspension or revocation of status.

Abuses prompt federal regulator to act at last with suspensions, shutdowns, fundraising reforms