2014 Annual Accounting Update for Not-for-Profits

Annual Update for Not-for-Profits

Welcome to the Welch LLP 2014

NPO Update Seminar

Moderator

Garth Steele, CPA, CAIndirect Tax Partnergsteele@welchllp.comwww.welchllp.com @garthsteele

Agenda

• Refresher of Last Year’s Topics

• NPO Income Tax Update

• HST Update

• Audience Q&A

• BREAK

• Compliance after Continuing

• Canada’s New Anti-Spam Law – CASL

• Accounting Update on New Principles

• Governance Best Practices

• How to Prevent Fraud

• Audience Q&A

Shawn Kelso, CPA, CAPartner, Director of Professional Standards skelso@welchllp.comwww.welchllp.com @WelchLLP

Refresher of last year’s topics

Update on AcSB & PSAB Joint Statement of Principles

• Joint Project of AcSB & PSAB

o Proposed improvements

o Impacts private sector NPOs, public sector NPOs or both

o Feedback requested

o Significant number of responses (public accountants & NPO officials)

o Boards mulling over feedback, next steps uncertain

• Accounting for contributions

o Recognize when control funds & amount estimable

o Eliminates accounting policy choice (deferral, restricted funds)

o Eliminates restricted/unrestricted classification

• Other proposed changes for private sector NPOs

o Controlled NPOs must be consolidated

o Controlled profit oriented entities - equity method must be used

o Capital assets must be capitalized

o Expenses must be presented by nature and function

• Other proposed changes for public sector NPOs

o Follow PSA standards for tangible assets

o Follow PSA financial statement presentation

net debt

budgeted figures

o Controlled/related entities follow PSA standards

NPO Income Tax Update

Damian LaflammeSenior Tax Managerdlaflamme@welchllp.comwww.welchllp.com @WelchLLP

• Estate Donations

o New Provisions Will Provide More Flexibility

• Donations of Ecologically Sensitive Land

• Donations of Certified Cultural Property

• State Supporters of Terrorism

• Electronic Filing

Registered Charities/Donors – 2014 Federal Budget Measures

• Federally Incorporated Charities / Continuance Requirement

• CRA Charities Program Update

o Guidance / Outreach / Applying for Registration

o Compliance activities

o Loss of registered status

o Charities and political activities

o Frequent Non-compliance Issues

• Donation Tax Shelter / Assessment Delay

o Ficek

Charities

• NPO Risk Identification Project-Update

• NPO – Rental Income

• NPO – Interest Expense

• Shareholder of a Not-for-Profit Corporation

o Expanded Definition of “Shareholder”

o S.15(1) May Apply

Non-profit Organizations (NPOs)

HST Update

Mona Tessier, CPA, CASenior Manager, Indirect Taxmtessier@welchllp.comwww.welchllp.com @WelchLLP

• What’s New

• ITC Allocation

• Tips & Traps – EHT & HST

Agenda

What’s New?• Hospital parking

o Exempt where provided by a charity or a public sector body

Patients Visitors Volunteers

o Taxable for hospital staff and medical professionals

• Health Care expansion of exemptionso Acupunctureo Naturopath

ITC Allocation

• Memberships – election to make membership fees taxable

• Maximizing ITC allocation

• Fair and reasonable

• Documentation

Tips & Traps• EHT

o Employee vs contractoro Obligation to remit EHT if payroll > $450,000

• HSTo Requirement to self-assess when importing services from

another province (even if service is rendered in that other province – i.e. advertising)

Have questions so far?

Ask us now!

Audience Q&A

We will now have a 15 minute break.

Thank You.

Now What?

Compliance Issues after Continuing

Adam Aptowitzer LL.B.Drache Aptowitzer LLPaaptowitzer@drache.ca

October 22, 2014

Adam Aptowitzeraaptowitzer@drache.ca

226 MacLaren St.Ottawa, OntarioK2P 0L6

Overview

1. Continuances…continued

2. By Laws

3. Controlling Membership

4. Written Resolutions

5. Soliciting Corporations

6. Financial Statements

7. Reporting Obligations

8. CASL

By-laws

• Only two mandatory provisions• Default rules may not be in your best

interests• Making by-law amendments• Borrowing • Fundamental changes

Submitting the Required Documents

• Form 4031 – Articles of Continuance • Form 4002 – Initial Registered Office

Address and First Board of Directors• NUANS Name Search Report, if the name

of the corporation is changing on continuance.

• By-laws do not have to be filed to obtain a Certificate of Continuance.

Controlling Membership

• Members have rights akin to those in private corporations.– They can review information.– Call meetings of the members.– Begin lawsuits in the name of the corporation– Veto certain bylaw changes etc…

KEEP YOUR MEMBERS HAPPY!

Written ResolutionsDirectors and members will be able to pass resolutions in lieu of holding meetings (if signed by all the directors or members entitled to vote on the resolution at the meeting)

When passed, these resolutions have the same effect as if they were adopted at a duly constituted meeting.

Can be signed in Counterpart

Directors will only be allowed to:

a) make by-laws;b) adopt forms of debt obligation certificates and corporate records;c) authorize the issue of debt obligations;d) appoint officers;e) appoint a public accountant to hold office until the first annual meeting of members; f) issue memberships; andg) make banking arrangements

With limited exception, a resolution in writing dealing with all matters required by the CNCA to be dealt with at a meeting of members satisfies all the requirements of the CNCA relating to meetings of members

Copies of every resolution signed by all the directors and all the members must be kept with the minutes of meetings of directors and members respectively.

Soliciting Corporation Definition

A corporation is a soliciting corporation if it receives income during a single financial year in excess of $10 000 in the form of:

• donations or gifts or, in Quebec, gifts or legacies of money or other property requested from any person who is not a member, director, officer or employee of the corporation at the time of the request or related to such a person.

• grants or similar financial assistance received from the federal government or a provincial or municipal government, or an agency of such a government; or

• donations or gifts or, in Quebec, gifts or legacies of money or other property from a corporation or other entity that has, during the most recent financial year, received income in excess of $10 000 in the form of donations, gifts or legacies or grants or similar financial assistance.

Regulatory Differences Between Soliciting and Non-Soliciting

1. Board composition

2. Appointment of a public accountant and waiving the audit requirement

3. Filing annual financial statements

4. Unanimous Member Agreement (UMA)

5. Liquidation of residual assets

Soliciting and Non-Soliciting

Soliciting corporations 50K or less

Between 50K and 250K

More than 250K

Non-Soliciting corporations 1 M or less

More than 1 M

Financial Statements and Public Accountant (PA)

• Qualifications of Public Accountant

Welch LLP

• Financial Statements

Once prepared according to standards get filed. There may be discrepancies with the T3010.

Level of Financial Review

Type of Corporation

Gross Annual Revenues

Appointment of PA

Review Engagement (RE) orAudit

Soliciting 50K or less May be waived

Default to a RE, but members may require audit or no RE at all.

Soliciting 50K to 250K A must Default to an audit but members can pass SR for RE

Soliciting More than 250K

A must Audit

Non-Soliciting Less than 1 M May be waived

Default to RE, but members may require audit

Non-Soliciting More than 1 M A must Default to audit

Reporting Obligations

• File Annual Return (Form 4022)• File Change of Registered Office Address

(Form 4003)• File Changes Regarding Directors (Form

4006)• File financial statements and PA’s report• Keep your articles up-to-date• Send copies of by-laws

Questions

For More Information

Visit our website (www.drache.ca) and sign up for our Charity Law Insights newsletter

or contact me ataaptowitzer@drache.ca

Canada’s New Anti-Spam Law

‘CASL’

Alexandra Tzannidakis LL.B.

Drache Aptowitzer LLPatzannidakis@drache.ca

October 22, 2014

Alexandra Tzannidakisatzannidakis@drache.ca

226 MacLaren St.Ottawa, OntarioK2P 0L6

What is Prohibited?

It is an offence to send or cause to be sent a commercial electronic message, unless 3 major criteria are met.*

*subject to lots of exceptions

Commercial Electronic MessageElectronic:• E-mails, text messages, social media messages,

any other text/sound/voice/image telecom• Not telephone calls or faxes

Commercial:• Has as a purpose the encouraging of

commercial activity• E.g. buy/sell, ads, promoting a person

The Big 3

To legally send a CEM, you need:

1. Consent

2. Sender ID

3. Unsubscribe mechanism

Consent

1. Explicit

Recipient ‘opts in’. Never expires. Only ends when they explicitly withdraw consent.

2. Implicit

In certain circumstances the recipient is presumed to consent. Expires July 1, 2017. Also ends if explicitly withdrawn.

Sender ID

Any CEM must include:

1. Business name of sender

2. Mailing address of sender

3. Telephone number, e-mail address, or web address of sender

Or a clear link to a page with

this information.

Unsubscribe Mechanism

• Readily usable

• E.g. Button with word ‘unsubscribe’

(some of the) Exceptions

1. Implied consent Until July 1, 2017

For NPOs:- Recipient is a member, or- Recipient was a member sometime in prior 2 years

For Registered Charities:- Recipient donated or volunteered sometime in prior 2

(only an exception to the ‘consent’ part of the big 3)

2. Messages that are:• Sent internally, re: org’s activities• Sent between orgs with a relationship, re:

recipient org’s activities• Solicited by the recipient• In satisfaction of a legal obligation• Accessed in a foreign state

(etc.)

(excepts a CEM from all of the big 3)

3. Charity Fundraising

There is a blanket exception for messages sent by registered charities that have the primary purpose of raising funds for the charity.

(excepts a CEM from all of the big 3)

Questions?

Visit our website (www.drache.ca) and sign up for our Charity Insights newsletter

or contact me at:atzannidakis@drache.ca

Accounting Update on New Principles

Christa Casey, CPA, CAPartner & Director of the Not-for-Profit Sectorccasey@welchllp.comwww.welchllp.com @WelchLLP

Key Accounting Changes

• Employee Future Benefits

Employee Future Benefits

• New section 3462 in ASPE & 3463 in ASNFPO

• Effective for periods beginning on or after Jan 1, 2014

• Immediate recognition method must be used

• No more defer and amortization approach

• Presentation of remeasurements:

o Recognize directly in net assets

o Present as a separate item in statement of changes in

net assets

o No reclassification to the statement of operations

• Re-measurements

o Changes in

Fair value of plan assets

Measurement of plan obligation

Asset ceiling

o Past service costs

o Gains/losses from settlements and curtailments

Governance Best Practices

Audit Committee Best Practices

• Audit Committee - Committee of the Board of Directors that

ensures audit quality

• Publication in January 2014 entitled “Oversight of the

External Auditor – Guidance for Audit Committees”

o Chartered Professional Accountants Canada

o Canadian Public Accountability Board (CPAB)

o Institute of Corporate Directors

• Summarizes responsibilities of audit committees with best

practices

Responsibilities

• Some of their responsibilities:

o Oversee the work of the external auditor

o Recommend to the Board the nomination of auditor

With the primary objective to ensure audit quality

Composition of Committee

At least 3 members, all must be:

• Independent

• Financially literate

• Director of entity

Audit Quality

Likely to be achieved by an audit team that:

• Exhibits appropriate values, ethics and attitudes

• Has the requisite knowledge, skills, experience and

sufficient time allocated to perform the audit work

• Applies a rigorous audit process and quality control

procedures that complies with law, regulation and

applicable standards

• Provides useful and timely reports

• Interacts appropriately with relevant stakeholders

Relationships in Financial Reporting Governance

Board of Directors or

Audit Committee

Management

AuditorsCulture of Integrity, Respect and Transparency

Oversee the Work of Auditor

Review overall audit strategy

• What reports will be needed (consolidated, funders, etc.)

• General timing of work and composition of audit team

• Geographical locations to be visited by group auditor

• Results of previous evaluation of auditor that may affect

current year

Review overall audit strategy – FOCUS ON:

• Rationale supporting critical audit planning decisions and

choices

• Timing of major audit activities

• Whether the auditors’ analysis of risks = sufficient

knowledge of business

• Key audit deliverables

• Resources needed to execute the plan

Auditor should report any difficulties in executing audit plan:

• Areas where audit was behind schedule and reasons

• Unexpected and extensive auditor effort to obtain

evidence

• Changes in business conditions or circumstances

• Identification of unexpected audit results

Separately meet in camera with auditors and management

Evaluating Auditor’s Findings

• Primary focus of review of auditor’s communication

o Enough information to recommend approval of financial

statements to board

o Auditors have exercised professional skepticism and

performed a quality audit

Prompt communication and in-depth discussion with both

management and auditors are required if findings could:

• Require auditors to modify their opinion

• Add an emphasis of matter paragraph to report

• Lead external auditors to question organization’s ability

to continue to operate as a going concern

Recommend Auditors to Board

• Informed decision by doing annual assessment

o Audit quality considerations

Auditor independence, objectivity & professional skepticism

Quality of engagement team provided by auditor

Communication & interaction with auditor

o Quality of service considerations

• Review with auditors to continually improve effectiveness &

performance

• Consider if there are actions that can improve committee’s own

processes

Periodic comprehensive review of auditor

• Fear of complacency & independence concerns

• Recommended every 5 years

• Outcome:

o retain the firm or

o put the audit out for tender

• Identify areas for improvement for both

the auditors and committee

Comprehensive review includes reviewing and evaluating:

• Significant trends and results identified in previous

annual assessments

• Safeguards against independence & familiarity threats

• How the audit firm has responded to past evaluations

Common reasons for audits going to tender:

• Lower fees

o Ensure RFP outlines all of the required services –

avoids misunderstandings and surprise bills

o Evaluate firm’s performance on regular basis

• Complacency and independence

o Enquire about firm’s quality control procedures to

address this risk

o Consider requesting a rotation of certain audit team

members if this is a concern

How to Prevent Fraud

Andre Auger, CGA, CFEGovernment Services Advisoraauger@welchllp.comwww.welchllp.com @WelchLLP

• Definition of Fraud

• Some Statistics

• Occupational Fraud

• Warning Signs

• What to do if You Find Fraud

• Penalties & Offences

• Assessing Susceptibility

• Prevention Measures

• Fraud Risk Assessments

Agenda

• Financial fraud is defined as one or more intentional acts to deceive other persons and cause them financial loss.

• Involves a violation of trust

• The violation of trust is sometimes more harmful than the actual financial loss

• Fraud Triangle

• Internal fraud = Occupational fraud

• External fraud = mortgage fraud, insurance fraud, bankruptcy fraud, money laundering, tax fraud

Definition of Fraud

• The typical business loses 5% of its revenues

to fraud each year

• The avg. loss for small businesses is $140K.

• Occupational fraud is the biggest threat to

small businesses (asset misappropriation,

corruption, F/S fraud)

Some Statistics – CFE Survey

• Financial statement schemes

o improper revenue recognition, inadequate disclosure of related party transactions, improper asset valuations, fictitious fixed assets, improper capitalization, improper deferral of expenses

• Employee schemes

o expense abuse, theft, fictitious documents, forgery

• Bribery and Corruption

o conflict of interest, bid rigging, kickbacks, economic extortion

Occupational Fraud

• Personal characteristics of a fraudster

o intelligent, inquisitive, egotistical, risk taker, rule breaker

• Behavioural red flags

o living beyond means, big spender, keeps unusual work hours, financial difficulties

• Other signs

o cash flow issues despite regular sales’ activity

o decreasing profit margins despite normal market activity

o significant drop in inventories

Warning Signs

• ‘Tone at the Top’ is critical; adopt the zero tolerance approach

• Seek advice from your legal counsel

• Contact your local police force for guidance and advice

• If employees are involved, consider termination of employment

• Pursue recovery strategies; negotiate repayment agreements

• Press charges

• Proceed methodically, do not jeopardize a potential investigation

What to do if You Find Fraud

• Applicable sections under the Criminal Code

121 ‘Frauds against the Government’

122 ‘Breach of Trust’

322 ‘Theft’

380 ‘Fraud’

397 ‘Books and Documents’

• Section 380: where the offence > $5,000, a term of imprisonment not exceeding 14 years; if the offence is< $5,000, a term of imprisonment not exceeding 2 years

• Section 397: falsifying documents, term ofimprisonment not exceeding 5 years

Penalties & Offences

• What sector do you operate in? Are you in a high risk sector?

• What controls do you have in place; are they reasonable & practical for your organization

• Stay away from costly and resource consuming controls

• Is your staff experienced & loyal?

• Emphasize prevention

Assessing Susceptibility

• Be visible, let people know you are watching the money; sign cheques, ask for original documents, ask questions

• Show up on site unexpectedly

• Let people know you are looking for fraud

• Never sign stacks of blank cheques

• Do your homework before hiring employees; background checks, references, etc…

• Have employment contracts in place with clear sections dealing with fraud and consequences

Prevention Measures

• Check the monthly bank statements

• Review your F/S regularly, compare to previous periods

• If you are a small organization, consider hiring an external accountant for a few hours per month to do your bookkeeping and review your records

Prevention Measures

• Helps you identify risks and gaps in your organization’s controls

• Focus is on deterrence

• Not a complicated, costly exercise

• Assesses the risks associated with employees and management

• Assesses the risks associated with outside parties dealing with your organization (vendors, customers, banks, etc…)

• Assesses the likelihood of cash schemes, purchasing schemes, contracting schemes, payroll schemes, theft of inventory, conflicts of interest, etc…

• Looks at the physical controls in placeto deter fraud

Fraud Risk Assessments

Have questions?

Ask us now!

Audience Q&A

All event registrants will receive a

digital copy of the presentation via e-mail.

Event recording & slide content also available soon at www.welchllp.com

Thank you.

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