Do your homework before volunteering
15 Jul 2006
Originally published in The TaxLetter, Vol. 24, No. 6, Your Guide to Tax-Saving Strategies, July 2006
by Eileen Reppenhagen
Revised August 2016
I can help. It is 8 a.m. on Saturday. I stand in the hotel lobby clutching my coffee. The incoming president of the nonprofit organization I am proud to be a member of comes directly through the crowd to stand beside me. "I need help," she says. "How can I help?" "Well, we need another person on the board. I would like you to stand for the position."
I am not awake. I respond, "Of course I will help." Five minutes later, I stand proudly beside my fellow members, being introduced as a new board member. Someone else is the treasurer, which I think to myself is a good thing. I do enough accounting already.
What do I find? At the first board meeting, the rough financial report for last year causes me instant concern. I ask a few key questions and after attempting to convey my concerns at the local and national level for the better part of a month, I resign my position. I feel like an outcast, but I have no choice. As a professional, I am required to display a higher standard of care, and anyone seeking redress could attack my assets first. This is very personal.
What should concern you if you're asked to be on a board of a not for profit (non profit)? Some or all of these points could require action:
- Taxable supplies (GST/HST speak for sales) of over $50,000 last year, and there is no GST registration.
- Assets over $200,000
- Non active income from interest
- Rent income is over $10,000
- No NPO reports to CRA
- Sales from active business income not from non profit activities that is not reported on a T2 Corporate return.
- Errors and Omissions insurance coverage is based on the consolidated financial statements. Chapter results not included on 'consolidated' statements.
- People are hired, but paid under the table as consultants; no compliance with employment standards, payroll, or WCB.
- Non-profit organizations can be the target of unscrupulous individuals who utilize the cash flow of the organization for their own purposes. Some Board members belong to boards for the personal perks. I heard a story about how the open bar after meetings at one organization was locked by the new treasurer and three quarters of the board resigned.
Why would I worry? As an accountant, even as a retired one, I have a higher duty of care because of what I know or should know. What do I know? I know that there are laws that govern nonprofits.
- There may be provincial laws governing the association of groups that operate non profits, meaning that chapters are part of a larger organization
- There are federal laws about the reports NPOs must file with CRA
- It may be necessary to charge and report provincial sales tax on products or services and GST/HST on sales over $50,000.
- Board and directors have liabilities for employment standards and payroll including Workers Compensation Board in case of accident or injury.
If you want to read more about responsibilities of directors and officers of non profits and charities, I highly recommend a government publication from Industry Canada titled Primer for Directors of Not-for-Profit Corporations (Rights, Duties and Practices)
Tips from the cops: The Durham Regional Police in Ontario claims fraud is perpetrated by someone who has been employed at a non-profit for years, and the theft is systematic. No one is exempt. Preventative tips include separation of duties and good record-keeping along with budgets. Here's a real life story from their website!
Do you know the difference between a non-profit and a charity? They may or may not be incorporated in their province under a "society’s act." A charity is a non-profit, but a non-profit may not qualify to be a charity. A charity has met the stringent standards to become a charity by having and performing charitable functions that meet a "Public Benefit Test."
When someone comes to your door and presents you with the opportunity to donate to their organization, you can check out whether they are one of about 80,000 organizations with charitable status under the charities listings tab at CRA’s Website, www.cra-arc. gc.ca.
If you’re approached to take up a volunteer director on the board of a not-for-profit or charitable organization, think twice and ask lots of questions before you say, "I can help." It could be your assets on the line. And get professional advice if you are in doubt about the status of the organization you volunteer for.
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