COVID led to charity closures

COVID has had a chilling effect on the activities and revenues of charities, as indicated by a steady stream of charities remarking on how the pandemic affected their fundraising, volunteering, social activities and how they serve their constituents. It’s now becoming clear which types of groups didn’t make it – which have closed and sought voluntary revocation of their charitable status or had their status revoked by Canada Revenue Agency (CRA) due to a failure to file the annual (T3010) tax return. (This story is part of our “Charity Trends and Revocations” series.)

The best information on reasons for closure comes from voluntary revocations where the groups comment on their recent T3010s about the challenges they faced. Revocations for failure to file are not as forthcoming, because changes to activities or revenue generation create a crisis that lead to failure to file. The time lag in reporting means the critical years of 2020 and 2021 have few or no reports.

Over the past two and a half years, I have come across 93 charities where COVID has been a major factor in their demise. It’s a small sample (that likely under-reports the real extent of closures), but the patterns are clear: reductions in revenue in 2020 and 2021 and a lack of volunteers and restrictions on meetings and social interaction were key factors in closures.

Which charities were hit hardest?

To read all Don McRae’s stories in our “Charity Trends and Revocations” series, click the above image.

The majority of the organizations that made comments about COVID restrictions have been groups with older people and those that use face-to-face methods of service and interaction.

Churches were hit hard, accounting for 20 of the 93 (21%). Many churches already had declining numbers of congregants which was exacerbated further by the pandemic restrictions. So, they were already vulnerable, and the cancelling of religious services affected their financial situation leading to premature revocations.

Having studied revocations, I can safely say that the number of groups talking about a lack of volunteers as one of the reasons for revocation has increased substantially. The lack of volunteers is usually coupled with decreasing revenue (something that shows up in cold hard numbers in their revenues).

Groups of seniors or those serving seniors were particularly impacted due to the lack of volunteers as older people stopped volunteering due to health concerns. This has affected everything from hospital auxiliaries to historical societies to older niche museums or “Friends of” societies. These groups usually have modest revenues or are barely keeping their financial heads above water at the best of times. The pandemic restrictions further limited their contact and ability to raise funds.

The effect on volunteering

More generally, COVID broke the cycle of volunteering, as it forced people to take time out and consider if they should continue to risk their health. It broke their volunteering habit. We know from surveys and anecdotal information that seniors want some assurance that their well-being is respected and protected before they go back. That said, in a number of cases of closure, the groups also cited a lack of succession planning or new blood. This is especially true for churches with aging congregations and for older social service organizational models. Overall, the groups chug along with their greying cadre of volunteers, and an older model of interaction, until it becomes too late to change and recruit new faces.

Volunteering was also impacted by the number of volunteer managers who were let go during the pandemic. With little or no face-to-face volunteering happening and revenue sources drying up, these managers were expendable. People with years of volunteer management experience left and found other work. Now groups are trying to hire for these positions and the field is sparse. Volunteer management is a learned trade and most of that learning comes from doing, so groups will be challenged to keep their programs going. And having inexperienced volunteer managers is not the best way to retool your volunteering needs in reaction to existing COVID concerns, especially from seniors.

The charities that were revoked involuntarily for failure to file had also been vulnerable before the pandemic. Most experienced a decrease in revenue long before 2020, showing that multiple organizational problems already existed. I suspect that the next two years of failure to file revocations may show a different trend; decent revenues and then sudden decreases followed by failure to file.

What seems clear in both scenarios of voluntary revocation and failure to file is that we are only seeing the tip of the proverbial iceberg.

Read Don McRae’s update from April 2024: “Four Trends in the Creation & Shutdown of Registered Charities in Canada.”

Don McRae is a former federal public servant and a longstanding volunteer, consultant, writer and researcher on the charitable sector. Since 2020, he’s been following how the pandemic has affected Canadian charities. His information on closures caused by COVID has come from news stories, the internet, YouTube videos, a few mentions in the Public Information returns from charities, and from reports of revocations of charitable status. McRae is on .

“The association between for-profit provision and lower care quality is obvious and well-understood: there is also a large body of long-term care research demonstrating that for-profits under-perform government providers on a range of quality indicators.”

The three authors also discuss the middling performance of homes run by nonprofit organizations during the pandemic.

They published an article based on the study:

Pue is a postdoctoral fellow in philanthropy and nonprofit studies at ĐÓ°ÉÔ­´´ University, Jansen is a PhD candidate at the University of Toronto, and Westlake is a postdoctoral fellow at Queen’s University. (Photo is courtesy of Katarzyna Grabowska and Unsplash.)

Charities in the UK are facing an existential crisis due to the COVID-19 pandemic. Estimates suggest ÂŁ4.3 billion (CAD$7.5 billion) in lost income and one in ten charities closing, as well as mass staff layoffs and assets being sold off. Therefore, the top policy issue is the need for a comprehensive emergency funding package, rapidly distributed, that reaches all parts of the sector.

Income from both fundraising and trading have been severely affected during lockdown conditions. The biggest fundraising events include marathons, bike rides, group coffee mornings and events held in schools and workplaces, none of which can happen when people aren’t allowed to gather in public. The cancellation of the London Marathon alone resulted in the loss of £50 million ($87 million) in fundraised income. There are many other important changes needed to create an enabling environment for charities and their donors, but ensuring the sector survives the current crisis must be the priority for now.

What does change look like?

The government provided extensive, uncapped support for the private sector and needs to take a similar approach to the charity sector, using existing knowledge and channels to get the money out swiftly and fairly. Larger sums have been distributed to the culture sector in a ÂŁ1.6 billion ($2.8 billion) rescue package, but the entire charity sector, comprising over 100,000 fundraising charities and 500,000 small community organizations, received only ÂŁ750 million ($1.3 billion) in April 2020. Not only was half that money essentially paying for new work, rather than a rescue to plug lockdown-induced gaps, the funding was slow to be distributed and included a ÂŁ1.4 million ($2.4 million) contract to a private-sector accountancy firm to oversee the scheme.

A new package needs to be more generous, related to the scale of need in the sector, rather than a figure pulled out of the air by policymakers, and it must be distributed efficiently and effectively by collaborating with nonprofit grant-makers and infrastructure bodies who know and understand the sector. Charities are playing a key role in providing essential relief during lockdowns, and they need and deserve support to survive and rebuild.

is a Reader in Social Policy and Director of both the Global Challenges Doctoral Centre and the Centre for Philanthropy, University of Kent, the UK. Breeze is on and . Photo of Bakewell, the UK, is courtesy of Tom Podmore & Unsplash.

Next story in the Policy in Europe series