Not-for-Profit Organizations: Thinking Outside the Box€for‐Profit Organizations Thinking Outside the Box! ... • Lack enough staff for appropriate segregation of duties ... there
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Institute of Chartered Accountants of British Columbia Professional Development Course
Not-for-Profit Organizations: Thinking Outside the Box Presented by: Bill Cox, CPA, CA David Geertz Brendan Burns, LL.B Rosanne Walters, CPA, CA, CBC
DISCLAIMER This course material deals with complex matters and may not apply to particular facts and circumstances. As well, the course material and references contained therein reflect laws and practices which are subject to change. For these reasons, the course material should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. Although the course material has been carefully prepared, neither the Institute of Chartered Accountants of British Columbia, the course author and/or firm, nor any persons involved in the preparation and/or instruction of the material accepts legal responsibility for its contents or for any consequence arising from its use. Winter 2014
• Prior to 2011, a gift with a string attached probably should not have been receipted until the condition satisfied
• 2011 CRA administrative changes allow for issue of tax receipt and return of gift in certain circumstances (but still should not be a plannedcircumstances (but still should not be a planned event)
• Requires filing of information return (see next slide)
Giving a gift back – CRA Explanation
• A qualified donee that issued an official donation receipt and later returns donated property must file an information return with the CRA if the fair value of the property is greater than $50.
• The Information Return must be filed within 90 days after the property is returned. A copy of the Return must also be given to the donor.
• This provision applies whether the property is:
• The same property as donated
• Property that was identical to the donated property
• Return of gifts can be viewed as a gift to a non‐qualified donee if not handled 100% properly
• Best bet: add a clause that if project does not go h d h f d ll b d f ( hahead the funds will be used for .......(other good cause/project at NPO). Better not to offer funds back.
• Drivers of fraud in small organizations• Lack enough staff for appropriate segregation of duties• Organizational leaders “too busy” to review their financial records• Organizational leaders do not see the warning signs
• Reasons employees cite for stealing:• Job dissatisfaction• Need to provide for family• Sense of entitlement (e.g. for long hours worked)• Perceived unfair compensation
IN‐HOUSE OR OUT‐HOUSE Management vs. Leadership
• As CEO Executive Director General Manager or whatever• As CEO, Executive Director, General Manager or whatever leadership title you go by, organizational leadership means:
• Making decisions that are good for the organization as a whole
• Being able to evaluate the talent that you have on the team
• Knowing the right questions to ask
• Knowing the right metrics to evaluate and recruit
• Making reasoned decisions based on quality financial information, rather than instinct
IN‐HOUSE OR OUT‐HOUSE? What’s out there in regard to bookkeeping,
accounting, payroll and CFO services?
• Full disclosure – there is a BDO “cloud” service called BDO outsourcing that is one of the options.
• Many/most of you will be aware of third party payroll providers, but true outsourcing takes it past just the calculations any payments but also the input to the system and the recording of the payments when made.the payments when made.
• There are packaged CFO services also available from other sources.
• Suggest compare some alternatives and see what seems right for your organization.
• The economic outcome resulting from leveraging social networks and accessing their Human, Physical and Financial Capital to provide benefit to a specific p p pcommunity group
• New corporate vehicle for social enterprises in B.C.
• Hybrid social enterprise structure– Combines elements of a for-profit business
with those of a non-share capital entity
• Similar to UK model of Community Interest C iCompanies
• First hybrid social enterprise structure in Canada
Unique Features of C3s
1. Must have a Community Purpose
• “Community Purpose” is broadly definedy p y– Includes the purpose of providing health,
social, environmental, cultural, educational or other services
– Purpose must be beneficial to society at large or to a segment of society broader than theor to a segment of society broader than the group of persons related to the C3
d) the remuneration and position held of each person who made more than $75 000who made more than $75,000
e) the financial statements
f) the amount of dividends declared on each class of shares
• Community contribution report must be kept at C3s records office and posted on the C3sC3s records office and posted on the C3s website (if it has one)
Taxation of C3s
• C3s have no special tax treatment under the Income Tax Act• C3s do not qualify as non-profit organizations
under the Income Tax Act
• C3s will be subject to tax in the same manner as a regular company under the Income Tax ActIncome Tax Act
Important factors to consider when choosing board members and how to gprotect your NPO from financial irregularities
Rosanne Walters Terhart, CA, CBV, CFE, Senior ManagerJ 2014January 2014
SPEAKER’S BIOGRAPHY
Rosanne Walters Terhart, CA, CBV, CFE, Senior Manager
R i Ch t d A t t C tifi d F d E i d Ch t d Rosanne is a Chartered Accountant, Certified Fraud Examiner and Chartered Business Valuator. She has over 25 years experience in accounting, auditing and forensic investigations. Rosanne’s practice focuses on forensic investigations addressing allegations of fraud, quantification of economic damages, business valuations, special purpose audits and financial consulting.
Rosanne has provided expert witness testimony for civil and criminal trials in the Supreme Court of British Columbia. She has also acted as a court-appointed special referee.
R i h P id f h V Ch C ifi d F d
rterhartbdo.caDirect: 604 646 4381
600 Cathedral PlaceRoseanne is the President of the Vancouver Chapter, Certified Fraud Examiners. She is also a frequent speaker on topics related to fraud for the Institute of Chartered Accountants of British Columbia, Continuing Legal Education, universities and other organizations.
925 West Georgia StreetVancouver, BC V6C 3L2Tel: 604 688 5421Fax: 604 688 5132www.bdo.ca
• Select individuals who know what is expected of them and are prepared for the time commitment required.
• Time commitments can include attendance at meeting, preparation for meetings NPO acti ities and committee preparation for meetings, NPO activities and committee meetings.
• Ask candidate to estimate the time they can dedicate and assess if this is sufficient.
NPO - BOD
Choosing board members
Step 5 – Community Involvement
• Ensure the potential candidate is willing to go out into the community and actively persuade others to support the work of your organization.
In hat a s has the board member demonstrated • In what ways has the board member demonstrated community involvement in other ways?
Step 6 – Skills and diversity• Consider the skills and experience each potential member can bring to
the organization.
• Ensure the board members compliment each other and are willing to support each other on a common mission. Team players.
• Consider mix of age and experience and transitioning of responsibilitiesresponsibilities.
• Ask candidate to describe skills and experience that they are bringing to the organization.
NPO - BOD
Choosing board members
Step 7 – Service individuals
• Consider selecting individuals who are service professionals. They bring knowledge and experience to the board.
B t remember that the are their to assist in the • But remember that they are their to assist in the governance of the organization and not to provide services for free.
• Consider potential director’s relationship with management. Ensure they do not have a conflict of interest concerning management and key personnel.
• Consider potential director’s relationship with customers Consider potential director s relationship with customers and suppliers
• Must be willing to act prudently and in the best interests of the organization while fulfilling their responsibilities.
• Ask what relationship exist.
NPO - BOD
Choosing board members
Step 9 – Due diligence
• Perform proper due diligence to ensure the potential candidate has strong values and personal integrity.
• These values help members make decisions that are best for the organi ation and not for the financial gain of for the organization and not for the financial gain of themselves or others.
How was it detected? • Management review/by accident, director looking up
information in general ledger and noticed unusual payments
Type of Scheme?Fraudulent Disbursement• Fraudulent Disbursement- Finance Manager created weakness in internal controls- Given authorization to electronically transfer funds
between bank accounts- Instead wired funds to friend’s bank account
EMPLOYEE FRAUD
Case Study #1 – Best Friends Jailed
How booked?
• Consulting expenses
Red Flags?
• Friend frequently hanging around organizationF i d l id l• Friend was only person paid as consultant
Case Study #2 – Bookkeeper Steals from the Vulnerable
How were transactions booked?
• Amounts spread to various expense accounts
Red flags?
• Expenses kept increasing but organization activities did not change
• Reviewer commented that bank reconciliations and supplier Reviewer commented that bank reconciliations and supplier reconciliations were not performed on a timely basis
• Accounts payable showed large unpaid balances
• Amounts of cheques written to bookkeeper were round amounts and cheque numbers were out of sequence
EMPLOYEE FRAUD
Case Study #2 – Bookkeeper Steals from the Vulnerable
Prevention?
• BOD did not question increase in expenses and why organization was facing hardship
• BOD did not consider compensating controls like occasional review of bank statement and cancelled cheques directly from bank
• BOD placed much trust and reliance in bookkeeper