Why Your Charity Should Use An Outside BookkeeperLets Get Started
POSTED ON : November 7th, 2018 | AUTHOR: Kim Miller
Why Charities Should Use An Outside Bookkeeper
This guest blog was written by James Thomson, CEO and President of New Path Foundation
Charities do great things for people and communities and are an important part of our society. New Path Foundation is one such charity doing great work by providing assistance to organizations through a shared space model as well as supporting its service partner, New Path Youth and Family Services, to provide a wide range of mental health services to children, youth, and their families in Simcoe County.
While we do great work in providing services and assistance to those in need, behind the scenes, charities have many unique and complex financial obligations they must meet or risk serious consequences.
As a landlord, the importance of transparency for leases, charges for maintenance, insurance, taxes, etc. is paramount. Having financial supports that can run reports for Tenants and provide clarity is very important for us.
Thanks to generous support from donors, we raise the much-needed funds to provide crucial mental health services needed by so many in our community. We are proud to say that 100% of donations to our HelpThe1in5 Fund, set up to directly support New Path Youth and Family services, help those needing mental health supports. As the President and CEO of New Path Foundation, I have an obligation to our donors and to all of our stakeholders to explain our actions and to ensure the funds we collect are properly managed. It is important for donors to have easy access to financial reports to help determine if the organization is managing its financial resources well.
Too often, in small not-for-profit organizations, there is a tendency to try and do everything inside. This often leads to things being done ‘off the side of your desk’ which undermines one’s ability to focus and concentrate. Juggling and trying to fit in time to get the work done is simply not good practice.
We recognized long ago the benefits of using an outside bookkeeper. We value engaging with an outside consultant for our financial support, as having a set of eyes external to the organization is of tremendous benefit. This allows for a more thorough review of processes that, internally, may seem second nature but, to an outside source, are ineffective and costly — both in terms of time and financially.
Here is a list of some of the significant benefits that we realize as a charity by using an outside bookkeeper:
Probably the most significant concern we face is compliance with the CRA’s reporting requirements. The obligations of a charity become more complicated when the organization begins fundraising, hiring staff, accumulating assets or collecting money from investments or property. These obligations include filing remittances such as Employment Insurance and Canada Pension Plan deductions, income tax returns or applying for tax rebates.
To ensure organizations receiving tax exemptions or rebates on taxes are complying with the regulations and guidelines, the CRA requires additional information returns for registered charities. An outside bookkeeper can monitor and ensure the timely filing of all remittances required by the CRA.
Adequate Books and Records
Keeping adequate books and records is essential to the sound financial management of a charity and to maintaining CRA compliance. It also builds trust with the donor community and is necessary to maintain registered status.
Using a knowledgeable outside bookkeeper provides our staff with expert guidance on good financial practice. This includes how to set up our books and records, how to record various entries, and what documents to keep.
Books and records include a long list of documents including financial statements, copies of official donation receipts, copies of annual information returns, bank statements, expense accounts, inventories, and payroll records. They also include items such as invoices, vouchers, formal contracts, work orders, delivery slips, purchase orders, and bank deposit slips.
Audited Financial Statements
Audited financial statements are another essential requirement for a charity and they provide important information about financial accountability and accuracy. They should be prepared by an independent accountant with oversight from an audit committee. An outside bookkeeper can provide support and guidance during an audit and work directly with the president and with the auditors to finalize the annual audited financial statements.
Timely Filing of Annual Returns
As a charity, filing an annual return is critical to keeping our registered charity status. The CRA requires an Annual Information Return six months after our fiscal year ends. This information helps the CRA determine how we raised money to support our activities and the types of expenses incurred.
Regular Financial Reviews
Too often, charities are running on minimal staff and may forgo or overlook having regular financial review meetings for the sake of time. One of the key benefits we’ve found from using an outside bookkeeper is their commitment to reviewing our financials on a monthly basis. Keeping consistent with a monthly review has proven very valuable in avoiding problems and catching errors before they become problems. Errors that are caught and corrected early can save our organization money by avoiding penalties and can prevent even more serious consequences.
Avoiding Serious Consequences
The consequences of failing to meet the CRA’s reporting requirements can be serious.
For example, not keeping proper books and records or not providing them to the CRA when requested can result in a suspension of tax-receipting privileges or loss of our registered status as a charity. And providing incomplete or inaccurate information on an annual information return can result in an indefinite suspension of tax-receipting privileges until the required information is provided to the CRA. Furthermore, registered charities which fail to meet their reporting requirements or are acting outside the CRA’s regulations and guidelines may have fines imposed and could actually have their charity status suspended or revoked. As you can appreciate, these consequences could prove to be catastrophic, not only to the charity but to the people who so greatly rely on our services.
Mental health issues are a major health problem in our society, and thanks to our work, we are able to provide New Path Youth & Family Services and our community partners the much-needed support to assist those who are struggling. It’s impossible to put a value on the services that New Path provides to the people of our community. We want to be accountable to our stakeholders so that we can continue to provide these crucial services, and I am so glad we have an external support providing another layer of oversight to ensure we can continue our good work.
James Thomson is President and CEO of New Path Foundation. The Mission of the New Path Foundation is to lead and inspire change by developing and managing philanthropic investment and to mobilize community support to meet the mental health needs of children, youth and families.