Fact Sheet: Getting Started: Setting up
Financial Management Systems
October 2021
It is the board's responsibility to monitor the financial management of
the community foundation through the development and approval of
financial policies and an ongoing monitoring process. IT is critical to get
professional assistance as soon as possible in setting up your financial
management systems.
CONSIDERATIONS:
It is the board's responsibility to monitor the financial management of the community foundation
through the development and approval of financial policies and an ongoing monitoring process.
IT is critical to get professional assistance as soon as possible in setting up your financial
management systems.
A community foundation must have a financial management system that can track and provide
answers to questions such as:
● What are our current assets?
● How many funds do we have? How many are in each category? (i.e. - restricted and
unrestricted, advised?)
● Investment issues:
o How are the assets invested?
o What is the current rate of return on the investments?
o What are the current administration costs?
o Investment fees?
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o Custodial fees?
o How can we allocate and track earnings/costs to each fund?
● How are administration costs funded?
● How much is available for grantmaking?
This document covers the following financial management systems:
o Accounting
o Banking
o Audit
o Tax Reporting and Charitable Status Requirements
o Processing Donations
ACCOUNTING
CONSIDERATIONS:
● Get professional assistance as soon as possible. Problems and patterns established at the
beginning can have long term implications.
● Chose an accountant who has non-profit accounting experience. A “common sense”
approach and the ability to explain and discuss at the layperson’s level is important.
● Use a computer system – options:
o Quick Books
o Simply Accounting
o Sage
o Adhere to the appropriate Chartered Professional Accountants Canada standards
o All board members should understand the principles of non-profit accountability.
Check out the CFC Resource Library.
REFERENCE AND SUPPORT:
● Chartered Professional Accountants Canada, has a number of resources on financial and
nonfinancial reports for not-for-profit corporations.
● Sector Source, a division of Imagine Canada, has good resources on financial management.
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ACTION CHECKLIST
WHO
WHEN
Create/approve operating budget
Set up accounting systems
● Use professionals as soon as possible to advise/review your
financial set-up
● Refer to Chartered Professional Accountants Canada document
“Financial and Nonfinancial Reporting for Not-for-Profit
Corporations”
● Refer to the suggested chart of accounts in the CFC Resource
Library and ensure that it allows the summarization of financial
transactions in ways that are meaningful for the organization and
that allow good financial decisions.
Operating funds
● Keep separate section in your accounting records for operating
funds
● Payroll:
o Can be done manually until you have more than five to ten staff
o Open a payroll account with the Canada Revenue Agency
o Investigate possible benefit plans for small groups (combine
with others, e.g. United Way-Centraide, local chamber of
commerce)
o Check provincial regulations re. Worker's Compensation,
employee health tax or other mandatory employee-related
costs.
o Refer to CFC’s Human Resources Policy and Procedure
Template guide which has links to provincial and territorial
employment legislation
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Investment/Returns
● You may want to consider outsourcing this function to a larger
community foundation.
● Establish a credible committee with clear roles and responsibilities,
including to develop investment objectives and guidelines.
Committee should include a representative from your investment
firm as a non-voting member.
● Check out provincial/federal regulations regarding investment
● Establish Investment Policies on Investment Returns - Decide on
parameters for investments (% of portfolio in bonds, etc.) - Establish
benchmarks at which point a review of parameters and
diversification of portfolio takes place – i.e. $3M - $5M
● Select a credible external investment advisor who will provide
custodial services for your portfolio. Options: Trust Company,
discount broker, full- service stockbroker; larger community
foundation
● Schedule regular investment review meetings to monitor
investment performance vs. the benchmarks established and
review anticipated long-term rates of return
● Once per year review the investment objectives and guidelines vs.
investment performance and compare with results from community
foundations with similar investable assets
● Set up fund tracking and reporting systems (can be done initially
using a spreadsheet or database package) that align with
accounting system
● Distribute reports to investment committee/board
● At year end finalize investment earnings for the year
● Based on earnings, less custodial and administration fees, the
investment committee in conjunction with Treasurer, makes a
recommendation to the board re disbursement quota (i.e. 3.5% for
the grants for the following year)
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● Organize meetings between investment committee and external
advisor (if the advisor does not sit on the Committee as a
non-voting member)
● CAUTION: be careful not to give investment advise to fund holders
Reporting to the Board
● Yearly budgets must be approved by the board that ideally
should align with annual goals and operating plans
● Present current financial statements at each board meeting
reporting actual to budget
● Review how your organization is performing vis-à-vis the
approved budget.
Ensure financial controls and risk mitigants in place, including:
● Supervision and review: monitoring by supervisors and
managers.
● Management and board reporting: feedback to supervisors and
managers through written reports.
● Human resources: trained, honest, dedicated and effective
employees and managers.
● Policies and procedures: written and oral policies and
procedures understood by staff.
● Analytical review: to explain variances and results.
● Segregation of duties: so that different individuals are involved
in doing the transaction and recording it.
● Audit trails: to trace transactions after-the-fact.
● Reconciliations: to ensure that records are maintained correctly.
BANKING
CONSIDERATIONS:
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To issue charitable receipts and set up a bank account as a non-profit organization you must have
non-profit/charitable status. At the time of writing this document there were 2 great resources
produced by the federal government: Guidelines for registering a charity in Canada; Creating a
not-for-profit corporation in Canada.
ACTION CHECKLIST
WHO
WHEN
Choose a banking institution
Options: Some community foundations use the same institution for
custodial services and banking services.
Set up accounts
Options:
● Operations Account – used for day to day expenses (rent,
payroll, supplies, etc.)
● Grants Account – used only for issuing grants to the community.
It is important to record each grant separately as this creates
“history” for the community foundation
● Investment Account – for funds which are kept in perpetuity.
You should have independent investment counsel to assist you
with managing these funds
● All donations to capital funds are deposited to the investment
account where the custodian buys securities when appropriate
● Flow-through funds (which are not kept in perpetuity) are
deposited in the Grants Account. These funds are usually
disbursed as grants within a year
Determine who will be eligible to sign on the account(s) – minimum
of two (usually Executive Director + one board member – if no staff,
then Treasurer should be one of the signing officers). Board
decision on signing officers MUST be approved at a board meeting,
align with bylaws and be recorded in the minutes
Obtain documentation and signing cards from your bank. Banks
now require picture identification for corporate account signatories
Set up a cheque requisition system if needed or determine which of
the signing authorities will initial invoices to authorize payment and
preparation of cheques (Executive Director or Treasurer).
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Staff person signs cheques first, then passes to board members for
signature. If doing e-banking for payment of invoices, setup system
with bank and an internal approval system for releasing payments
Receipt Process
● Official receipts will include your Registered
Charitable/Business Number - for other types of receipting use
regular receipt "no tax number"
● Incoming cash and cheques should immediately be logged on
the computer or recorded manually to provide a paper trail of
cash received
● To support a “non-qualified” audit statement, a recording of
receipts must be done by a person other than the one
preparing financial statements or making the deposits (i.e. the
Auditor is satisfied that all donations and receipts have been
properly received and deposited):
o one person opens mail
o one person writes receipts
o one person makes deposits
● Receipts should indicate to what account the funds have been
allocated to satisfy the auditor that the donor knows where the
funds have gone (i.e. General Endowment or XYZ fund for ?). If
donor doesn’t specify, you have to contact them to confirm
where the money is to go. As an alternative, you could have a
policy that says if there is no direction the money goes to
General Unrestricted Funds;
● Keep a log of copies of cheques which provide donor direction
or letters which confirm where each donor cheque has been
deposited. The documentation which you prepare for deposits
to your financial institution could serve this purpose
● Reconciling receipts monthly will save time at year-end with the
auditor.
Cheques are then stamped with proper account number and given
to finance person for logging into the bank deposit book. Some
community foundations are now doing electronic offsite deposits.
Adequate controls should be developed for these types of
deposits. Some community foundations are now accepting
e-transfers for donations. Appropriate financial accounting controls
need to be developed and bank documentation signed for these
types of transactions
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A Petty Cash system works well for small incidental expenses ($200
should be sufficient)
● Receipts or vouchers must be completed before cash is
distributed
● Complete a summary of expenses once petty cash is depleted.
This triggers a new petty cash cheque.
● Petty Cash expenses are entered into accounting system –>
allocated to appropriate expense accounts.
AUDIT
CONSIDERATIONS:
● You must have an independent auditor (not a board member).
● If the audit is subsidized or provided pro bono, be aware that the auditor will most likely not
be available from early February to mid-May.
● A fair audit is dependent upon how well your information is organized on the initial
presentation to the auditor.
● Schedule the audit after your yearly investment returns and calculation of administration fees,
allocation of investment income to various funds and the allocation of grants are all
completed
● Auditor checks for motions or instructions to support any and all transactions. Be prepared –
have answers ready in advance.
● Audit must be completed before the filing of the Annual Charities Information Return (T3010)
which is due 6 months from the foundation’s fiscal year end.
ACTION CHECKLIST
WHO
WHEN
Board appoints auditor at Annual General Meeting – must be recorded
in the minutes.
A month prior to the audit start date, ask the auditor for their listing of
required schedules and backup documentation.
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Provide direction to the auditor - regarding terms of reference of the
audit committee, etc. The TOR should be in either the Finance
Committee Terms of Reference or in your Bylaw).
Provide the auditor with:
● Your computer accounting disk, if requested. Check for compatible
software where applicable
● Monthly financial statements with all supporting documentation
● All bank reconciliations for the year
● Set of board minutes for the year – highlight the resolutions
(motions) for grant allocations. (A comprehensive summary of grants
for board approval can be presented to the board all at once.
Miscellaneous grants not included in the summary must be
presented to the board separately for their approval. Minutes of the
board meetings must document these approvals)
● Back-up materials on donations and receipts
● Receipts - Charitable donation receipts and regular receipt book or
list
● Deposit book, cheque stubs and any other banking information (i.e.
wire documentation, etc.)
● Other documentation requested by the auditor
TAX REPORTING AND CHARITABLE STATUS REQUIREMENTS
CONSIDERATIONS:
● Timely, accurate tax reporting is mandatory to maintain your charitable status. The deadline
date for submission to Canada Revenue Agency of accurate and complete forms is very
important. Failure to provide accurate and complete forms by the deadline date can result in
loss of charitable status.
● Professional services, or at the least, access to advice, from a certified professional
accountant with non-profit experience is strongly recommended.
GOVERNMENT REPORTING REQUIREMENTS:
● Employee Tax Reporting Requirements:
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o TD1 forms - employee completes and is kept in personnel file
o Canada Revenue Agency and employer remittance
o Provincial reporting as required (e.g. Ontario Employee Health Tax)
● GST (Goods and Services Tax)
● PST (Provincial Sales Tax) – only if you are selling materials
● HST (Combined Goods and Service Tax and Provincial Sales Tax)
● Federal – Charitable Status Tax Reporting:
o T3010 – Registered Charity Information Return
o T4033– Completing the Registered Charity Information Return
REFERENCE AND SUPPORT
● Canada Revenue Agency Charities Directorate website is a good source of information. You
can also contact them over the phone as they are very helpful.
● Canada Revenue Agency will do workshops on completing “Charitable Status Returns”.
Consider organizing a group of non-profits in your community and have a workshop.
● Contact CFC’s Director of Member Services for access to peer support groups and training on
specific administrative, financial and tax issues.
ACTION CHECKLIST
WHO
WHEN
TD1 – have all new employees on payroll complete within first week of
employment or with any change in status (marital status, etc.). This is
used simply to determine the level of tax deduction - file in employee
file.
Get a registration form from the Canada Revenue Agency for your BN -
Business Number (formerly called your registered charitable number)
GST – non-profits are eligible for 50% rebate. Accumulate your GST
Input Tax Credits as you enter each payable/cheque into your
accounting system.
File for your GST rebate annually on form provided by the Canada
Revenue Agency
Determine your payroll frequency – weekly, biweekly, or monthly.
Using tables provided by the Canada Revenue Agency for CPP, EI and
tax to be deducted from each employee.
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Note: Canada Revenue Agency will automatically send reference guides
after you have setup a payroll account
Calculate employer portion of remittance. Currently, CPP=same as
employee; EI=1.4 x employee.
Calculate total employee and employer portions and make monthly
remittances to the Canada Revenue Agency for payroll deduction using
form provided by the Canada Revenue Agency (due by 15
th
day of the
following month).
In some provinces you can apply for a PST exemption for printed
educational materials (Newsletters, Annual Reports, pamphlets, etc.). For
all other materials, PST is simply expensed. Check with your accountant
Federal Reporting – Canada Revenue Agency re Charitable Status
(forms available on their the CRA Charities Directorate Website
Form T3010 (Registered Charity Information Return)
● Must be submitted within six months of your fiscal year-end
otherwise you risk losing your charitable registration status,
● Make sure that the mailing address for the Foundation is correct,
● Make sure that the T3010 is sent to the correct address,
● Make sure that the T3010 is filed on the most up-to-date version of
the form,
● Must include relevant financial statements with the same fiscal
period ending as the T3010 return,
● Fundraising activities instead of charitable activities are described in
Section C2,
● there is no entry on line 5000 for charitable program expenditures,
● Ensure that there are no math errors and internal inconsistencies
(note: some foundations have their external accountant complete
this form at the same time they are doing the year end audit/financial
review)
T3010 common mistakes:
● lines 5000 to 5040 do not add up to the amount on line 4950,
● there are entries on lines 5500 to 5520 when the charity has not
been granted permission to accumulate funds,
● there are no entries on lines 5900 and 5910 when required,
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● Director/Trustee dates of birth are missing on Form T1235,
Directors/Trustees Worksheet,
● Directors/Trustees arm’s length status is missing on Form T1235,
● Directors/Trustees postal codes are missing on Form T1235,
● Qualified Donees’ BN/Registration numbers are missing on Form
T1236,
● the Certification area in Section H is not signed.
In addition to the T3010 form you must prepare an addendum which
includes:
● Name of each qualified donee or recipient of grant funds during the
reporting year.
● Charitable status Business Number (BN) of each donee
● Location (city)
● Amount granted (if organization received more than one grant, total
all grants into one entry)
PROCESS FOR HANDLING DONATIONS
CONSIDERATIONS:
● Appropriate response to donors is dependent on size and nature of gift.
● Be aware of rate of return on your bank accounts and when to move larger donations to your
investment account (i.e. some small foundations may deposit monthly – a large cheque could
sit in the office with interest being lost).
● Issue either a charitable or a non-charitable receipt for every $ given to you.
REFERENCE TO OTHER RESOURCES:
The CFC Resource Library has a Regulatory Checklist that includes great links to additional
resources.
ACTION CHECKLIST
WHO
WHEN
Issue tax receipts according to Canada Revenue Agency requirements
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Rule of Thumb:
● If donation is to become the property of the foundation, support
operations or is for a flow-through fund, issue a charitable donation
receipt
● If donation comes from another non-profit (like the United Way) you
give a non-charitable regular receipt (United Way has already issued
a charitable receipt on this gift to the original donor)
● Issue receipts for every penny of donated money you receive (there
are exceptions, for example: A retirement dinner for longstanding
board member where money was gathered from each participant to
cover the cost of the event. No receipts to be issued. Deposit into
operating account – expended as payment of the bill);
● “Free” office space – services in kind, and special events must be a
traceable revenue source;
● For "services in kind", some community foundations use an exchange
of cheques. Community foundation pays for the service, the donor
issues a cheque to donate funds back to the community foundation.
Community foundation then issues a tax receipt.
Set up procedures:
● Clarify with donor – to which fund is the donation to be credited
● Prepare receipt – note fund name if designated to a particular fund
● Receipt must include your charitable registration number as well as
the website for CRA’s Charities Directorate
● If gift in kind, a description of the gift must be included on the receipt
● Letter to donor with receipt
● Input monthly into accounting system – allocated correctly
● Deposit at least weekly
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