Accounting for Alberta Not-for-Profits and Charities: What Boards Should Know

Instead of focusing on owners and profit distributions, these organizations are accountable to boards, members, donors, funders, government agencies and the communities they serve.

That makes accurate accounting, clear financial reporting and strong internal controls especially important.

For Alberta not-for-profits and charities, here are some of the key areas boards and management should monitor.

Not-for-Profit and Registered Charity Are Not the Same Thing

The terms “not-for-profit” and “charity” are sometimes used interchangeably, but they are not the same for Canadian tax purposes.

A registered charity has been approved by the Canada Revenue Agency as a charity and has specific responsibilities, including annual charity reporting and rules around issuing official donation receipts.

A non-profit organization may operate for qualifying non-profit purposes without being a registered charity.

This distinction can affect tax filings, donation receipts, GST treatment and other compliance requirements.

Before determining which filings an organization requires, it is important to understand its legal and tax status.

Build Accounting Around Your Funding

Many not-for-profit organizations receive money from several different sources.

These may include:

Government grants
Membership fees
Donations
Fundraising
Program fees
Sponsorships
Gaming proceeds
Investment income
Municipal funding
Other grants and contributions

These funds may not all be available for the same purpose.

For example, a grant may be provided specifically for a youth program, capital purchase, staffing initiative or other approved activity.

Good accounting records should make it possible to determine not only how much money the organization received, but also where it came from and what it can be used for.

Track Restricted Funding Separately

Restricted contributions require particular attention.

If a funder provides $100,000 for a specific program, management should be able to demonstrate how that money was spent.

Mixing all funding into one revenue account can make this difficult.

Depending on the organization’s accounting policies and applicable accounting framework, restricted contributions may require different accounting treatment.

Even apart from financial statement presentation, management should maintain enough detail to report back to funders.

Useful records may include:

Grant agreements
Approved budgets
Eligible expense requirements
Program-specific revenue
Program-specific expenses
Amounts spent
Amounts remaining
Reporting deadlines

This makes funding reports easier to prepare and reduces the risk of spending restricted funds on costs that are not permitted by the funding agreement.

Grant Agreements Matter

A grant deposit appearing in the bank account does not tell the full story.

The underlying agreement may specify:

The purpose of the funding
Eligible expenditures
Ineligible expenditures
Reporting periods
Matching requirements
Required documentation
Repayment provisions
Deadlines
Audit requirements

Management should provide significant grant agreements to the accountant rather than only providing a list of deposits.

The terms of the agreement can affect both accounting treatment and year-end reporting.

Watch Deferred Contributions

An organization may receive funding before completing the activities associated with that funding.

Depending on the nature of the contribution and the accounting method being followed, some amounts may not be recognized immediately as revenue.

This is why cash received and revenue reported on the financial statements are not always the same.

Boards may otherwise see a large bank balance and assume that all of the money is available to spend.

Part of the balance may relate to:

Future programs
Restricted grants
Capital projects
Funds received in advance
Other commitments

Understanding these amounts is important when assessing the organization’s true financial position.

Maintain a Clear Budget

A budget is particularly useful for a not-for-profit organization because resources are often limited and tied to specific programs.

A good budget should be detailed enough to allow management and the board to compare actual results throughout the year.

Consider reviewing:

Budget vs. actual revenue

Are grants and donations being received as expected?

Budget vs. actual program costs

Are programs operating within approved funding?

Administrative expenses

Are overhead costs increasing?

Cash flow

Does the organization have enough unrestricted cash to meet upcoming obligations?

A budget should be an active management tool rather than a document approved at the beginning of the year and not reviewed again.

Reconcile Grants to the General Ledger

When a funder requests a financial report, the amounts reported should agree with the organization’s accounting records.

Maintaining separate spreadsheets that do not reconcile to the general ledger can create unnecessary risk.

Ideally, the accounting system should allow expenses to be tracked using appropriate accounts, classes, projects, departments or other tracking methods.

This is especially important when the same organization operates several programs.

Establish Strong Internal Controls

Not-for-profit organizations sometimes operate with small administrative teams and rely heavily on volunteers.

That can make segregation of duties difficult.

But limited staff does not mean internal controls should be ignored.

Basic controls may include:

Requiring approval before significant purchases
Having a second person review bank reconciliations
Requiring two appropriate approvals for certain payments
Reviewing credit-card statements and supporting receipts
Restricting access to online banking
Reviewing payroll changes
Maintaining supporting documentation
Presenting regular financial reports to the board

The appropriate controls depend on the size and structure of the organization.

The goal is to reduce the risk that one individual can initiate, approve and record a transaction without any independent review.

The Board Should Receive Regular Financial Information

Board members cannot properly oversee an organization if they receive financial information only once per year.

Regular reporting may include:

Balance sheet
Statement of operations
Budget-to-actual comparison
Cash position
Accounts receivable
Accounts payable
Grant balances
Restricted funds
Significant commitments

The frequency and level of detail will depend on the organization, but the information should be understandable enough that board members can ask meaningful questions.

Understand the Difference Between an Audit, Review and Compilation

Not every not-for-profit organization requires the same level of financial statement service.

A particular organization may require an audit or review because of:

Legislation
Bylaws
Funding agreements
Lender requirements
Board or member requirements
Government contracts

Another organization may have different requirements.

The financial statement requirement should therefore be determined before year-end.

If an organization is unsure, it should review its governing documents and funding agreements and discuss the requirements with its accountant.

Seniuk & Marcato’s separate guide on Audit vs. Review vs. Compilation explains the differences between the three engagements in more detail.

Registered Charities Have a T3010 Filing Requirement

Registered charities must file an annual T3010 Registered Charity Information Return.

The CRA requires the complete return to be filed no later than six months after the end of the charity’s fiscal period. Failure to file can ultimately put registered charitable status at risk.

For example, a registered charity with a December 31 fiscal year-end generally has a June 30 T3010 deadline.

This makes maintaining accurate accounting records throughout the year particularly important.

The information used in the T3010 should be consistent with the organization’s accounting records and financial statements.

Some Non-Profits May Have Other Information-Return Requirements

Non-profit organizations that are not registered charities may have different CRA filing requirements depending on their circumstances.

Organizations should not assume that being “tax exempt” means there is nothing to file.

The organization’s accountant should consider its legal structure, revenue, assets, activities and tax status when determining applicable filing requirements.

Don’t Overlook GST

GST can be particularly confusing for charities and non-profit organizations.

Depending on the organization and its activities, there may be issues involving:

GST registration
Taxable supplies
Exempt supplies
Input tax credits
Public service bodies’ rebates

Registered charities and certain qualifying non-profit organizations may be eligible for a public service bodies’ rebate of GST paid on eligible purchases and expenses. CRA states that charities and qualifying NPOs may be eligible for rebates, with specific eligibility requirements applying to each category.

For example, CRA generally provides a 50% rebate of the GST or federal portion of HST on eligible purchases for charities, subject to the applicable rules.

These amounts can be significant for organizations with substantial operating expenses.

GST should therefore be reviewed as part of the organization’s accounting process rather than treated as an afterthought.

Keep Payroll Records Current

Many not-for-profits employ staff while also relying on volunteers.

Where employees are involved, the organization generally has the same responsibility as other employers to properly administer payroll matters such as:

Payroll deductions
Remittances
T4 reporting
Taxable benefits
Vacation pay
Employment records

Payroll expenses also often represent one of the largest costs for service-based not-for-profit organizations, making accurate allocation between programs particularly important.

Prepare for Year-End Before Year-End

A smoother year-end starts with organized records.

Before the accountant begins the annual engagement, management should consider having the following available:

Bank reconciliations
Investment statements
Accounts receivable
Accounts payable
Payroll records
Grant agreements
Funding reports
Restricted-fund schedules
Capital asset information
Board minutes
Significant contracts
Budget-to-actual reports
GST records
Supporting documents for unusual transactions

If information is missing, identifying it early is far easier than trying to reconstruct it during an audit or review.

Good Accounting Supports the Organization’s Mission

Accounting for a not-for-profit is not simply about compliance.

Reliable financial information helps the board determine whether the organization has the resources to continue delivering its programs.

It helps management demonstrate accountability to funders.

It helps donors understand how resources are being used.

And it helps identify financial problems before they become serious.

For organizations built around a public or community purpose, strong financial management protects the resources needed to carry out that purpose.

Not-for-Profit and Charity Accounting Services in Edmonton

Seniuk & Marcato, Chartered Professional Accountants has experience providing accounting, financial statement, audit, review and tax services to not-for-profit organizations, charities, societies and public-sector organizations in Edmonton and throughout Alberta. The firm’s not-for-profit services include financial statement preparation as well as audit and tax-related services.

If your organization needs assistance with its annual financial statements, audit or review engagement, grant accounting, GST matters or year-end reporting, contact Seniuk & Marcato to discuss your organization’s requirements.

This article provides general information only. Accounting, tax, charity and regulatory requirements vary depending on an organization’s legal structure, activities and circumstances.

Welcome to Seniuk and Marcato, Chartered Professional Accountants, where expert financial solutions and precision meet. Trust us to navigate your finances to your growth.