Government Operations Committee on Aug. 13th, 2020

[Kate Bahen]

I listened to the testimony of the government on Tuesday, and the government is lucky. You're going to get your money back. WE has generously promised to repay the $30 million. When donors make a donation to a charity, they don't have the same recourse, so the due diligence we do has to go deeper perhaps.

In the government's due diligence, it didn't use the audited financial statements. It was looking forward at the program design. Different people will use different types of due diligence and for what is most appropriate for their needs.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

So the government may get its money back, but that will not necessarily be the case for donors. Should we see another red flag in what you just said?

[Kate Bahen]

No, donors do not get their money back. When you make a donation to a charity, if the program goes off track or runs into problems, donors don't get their money back.

Donors take on 100% of the risk when they write the cheque to give to a charity, and that's why at Charity Intelligence we've been doing due diligence for donors since 2007.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

This committee, the Standing Committee on Finance and the Standing Committee on Access to Information, Privacy and Ethics would all like to see the due diligence report but it is still not available. However, you were able to produce a report in two days. The report was apparently done; everyone thinks so, but no one has seen it.

Do you find it strange that everyone is talking about the report but no one has seen it, and yet you managed to produce a report in a few days?

[Kate Bahen]

Charity Intelligence's report on WE Charity has been read by 30,000 people in the last month, so....

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

I am talking about the government's due diligence report, the one for the government.

[Kate Bahen]

You mean the government's report?

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Is it not strange that everyone is talking about the report but no one has seen it?

[Kate Bahen]

Different people's notes would be public. Different people would keep their notes to themselves or not; I don't mind.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

All right. Perhaps that points to a transparency issue.

Earlier, you spoke with my colleague Mr. Jowhari about the factors you assess in your reports. Do you have any recommendations to make about the due diligence process? We are actually studying the due diligence process. We are talking about handing over $900 million for a program. The WE Charity program represents many days of activity for young people, but it also involves organizing the allocation and management of $900 million.

Do you have any recommendations for us about verifying the capacity of one or more organizations?

[Kate Bahen]

At Charity Intelligence we look at transparency and accountability, which is 60% of our overall star rating, and we do the financial analysis, which is 40% of the star rating. We look at a charity's results. One of the issues with WE Charity's results....

Let's say we're looking at how many schools it's in. It gives us a number for all schools in America, Canada and the U.K. We do not see a breakdown of how many schools it works with in Canada. We do not have that granular, detailed information on even the number of schools by province.

[The Chair, Conservative, Tom Lukiwski]

Madam, unfortunately I'll have to interrupt you. We are completely over time. However, I would ask you to provide the remainder of your answer in writing and direct it to our clerk. That way we can distribute the full answer as quickly as possible to the rest of our committee members.

We will now go to Mr. Green for six minutes, please.

[Matthew Green, NDP, Hamilton Centre, ON]

Thank you, Mr. Chair.

Thank you to all the witnesses who have made themselves available today.

I have had the privilege of serving for the Hamilton Community Foundation locally. As a former city councillor, I have been involved in our local enrichment fund, which gives out millions of dollars annually.

Through you, Mr. Chair, I'm curious to know whether the Charity Intelligence folks would care to comment on what their processes are for adequate due diligence for their clients and what that means.

[Kate Bahen]

I provided it in the opening statement. It's on the record for your committee.

[Matthew Green, NDP, Hamilton Centre, ON]

Fair enough.

For the record, you've raised a number of red flags publicly in other places. I'll recount them, and then you can comment on them.

These are huge real estate holdings, highly unusual for a charity of this nature; a large amount of debt; debt is constantly changing—

[Kate Bahen]

No, no, no.

[Matthew Green, NDP, Hamilton Centre, ON]

Perhaps I can finish and then you can comment. You can refute it or not.

Debt is changing. WE has been in breach of the bank covenants on its debt for two years, in 2018 and 2019, and through the auditor, says the bank had waived these covenants. ME to WE's app, their past app, was a failure and it's no longer available. It potentially was sold to the WE Charity for a dollar. I saw the question about where that loss went. Six board members of the WE board resigned in March, including their board chair. They were replaced by four new directors, one of whom has since resigned. The new chair is essentially a former high school teacher, so I'm unsure about where the professionally qualified independent board of directors is. ME to WE for-profit is supposed to generate funds for WE Charity, but it appears that funds are flowing in the opposite direction without proper or transparent disclosure. KRP LLP, as has been noted, is the only auditor WE has ever had. It is the only charity, as I believe you've claimed publicly, that KRP audits.

I'll now break that down, you can respond, and we can go from there, because I only have four minutes left. First, would you care to comment on the real estate holdings and the debt?

[Kate Bahen]

Sure, absolutely. At Charity Intelligence, we are financial analysts. We are research analysts and our research is objective and impartial.

On the real estate holdings, we see no red flags there. We see many charities across Canada—YMCAs, universities, hospitals, camps—having significant real estate holdings. That was nothing that Charity Intelligence ever drew a red flag to.

[Matthew Green, NDP, Hamilton Centre, ON]

These are points that have been drawn.

On large amounts of debt, you would agree?

[Kate Bahen]

Not in relation to its equity, no. Relative to its real estate, what we reported was that there was a breach in bank loan covenants. We did not say that it was overextended. We did not say it had poor credit.

[Matthew Green, NDP, Hamilton Centre, ON]

Okay. There has been—

[Kate Bahen]

I think it's really important to be accurate with what is reported and what is not reported.

[Matthew Green, NDP, Hamilton Centre, ON]

What was reported today was that they're looking at selling some of their assets. Would you care to comment?

[Kate Bahen]

Charity Intelligence did not report on that. We do not do real estate. I do not know what their listings are in the Toronto market.

[Matthew Green, NDP, Hamilton Centre, ON]

Given their position as the online pilot project, you identified that they had no previous history in this.