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Monitoring and auditing registered charities
9-10-2014
The CRA is responsible for monitoring the operations of registered charities within Canada to make sure they comply with the requirements of the Income Tax Act (the Act). Audits are an important element of this process.
For example, the Act requires that registered charities devote all of their resources, including financial, human, and physical resources, to charitable purposes. To verify how a charity uses its resources, CRA look at the information in a charity’s annual returns, financial statements, and other documents. The administrative procedures that CRA follow ensure that they treat all charities fairly, impartially and consistently throughout the audit process.
Generally, aside from the most serious cases of non-compliance, the CRA takes an education-first approach to compliance. This provides charities with the opportunity to correct their actions through education or compliance agreements before resorting to other measures such as sanctions or revocation.
What triggers a Charity Audit?
The following are some of the reasons that a charity is selected for audit:
¦ random selection;
¦ to review specific legal obligations under the Act;
¦ to follow-up on possible non-compliance or complaints; and
¦ to confirm that assets have been distributed after revocation.
Occasionally, CRA will make an on-site visit to gather information to help CRA understand the purposes and activities of an organization that has applied for registered charity status. This is referred to as a pre-registration audit.
When the audit is completed, a letter is sent to the charity outlining the results of the audit.
· If the charity’s operations and activities appear to comply with the Act, CRA will confirm that there will be no change to the charity’s registered status.
· In cases where the audit has raised concerns, the letter will notify the charity of CRA’s specific concerns.
The Charities Directorate can use the following tools, ranked in order of their potential severity, to obtain compliance: education letters, compliance agreements, sanctions, or the revocation of a charity’s registration. The facts of a particular case will determine which compliance measure will be adopted. In cases of serious non-compliance, CRA are prepared to move directly to sanctions or revocation.
A charity is responsible for all receipts issued under its name and registration number. It must account for the corresponding donations on its annual information return and in its books and records. Under no circumstances should a registered charity issue donation receipts on behalf of another organization or lend its registration number to another organization for receipting purposes. A charity that lends its registration number may have its receipting privileges suspended and/or lose its registered status.
Footnotes: Footnotes: This column is presented as a general source of information only and is not intended as a solicitation for business. It is always recommended that you consult a qualified tax professional beforeembarking on any of the suggestions outlined above. Mohammed Yasin, CGA, is the principal of M. Yasin & Co. Inc., Certified General Accountants and has offices in Vancouver & Surrey,B.C. For more information on this topic or any other taxation matters, please contact taxes@alameen.ca.
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