Category: Not-for-Profit

On December 15, 2022, Bill C-32, Fall Economic Statement Implementation Act, 2022, received Royal Assent. As a result, there have been changes to the Disbursement Quota (DQ) rules for charities.

As of January 1, 2023, the following came into effect:

• On the portion of property exceeding $1 Million, the DQ rate increased from 3.5% to 5%. For property equal to or less than $1 Million, the DQ rate remains at 3.5%.
• The Canada Revenue Agency (CRA) has discretion to grant a reduction in a charity’s DQ obligation for any particular tax year, and the CRA can also publicly disclose information related to such a decision.
• The CRA is no longer accepting requests to accumulate property. Previously approved property accumulation agreements are still valid until the expiry of the approved period.

Read more about the changes here:  C-32 (44-1) – Parliament of Canada.

Nonprofit organizations are either striving to make a bigger impact, or they are falling behind. The following infographic highlights four strategies nonprofits can adopt to help them fulfill their missions to the best of their abilities.

 

 

Download the infographic

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Source: RSM Canada
Used with permission as a member of RSM Canada Alliance
https://rsmcanada.com/insights/industries/nonprofit/4-ways-nonprofits-can-drive-mission-impact.html

RSM Canada Alliance provides its members with access to resources of RSM Canada Operations ULC, RSM Canada LLP and certain of their affiliates (“RSM Canada”). RSM Canada Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM Canada. RSM Canada LLP is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms. Members of RSM Canada Alliance have access to RSM International resources through RSM Canada but are not member firms of RSM International. Visit rsmcanada.com/aboutus for more information regarding RSM Canada and RSM International. The RSM trademark is used under license by RSM Canada. RSM Canada Alliance products and services are proprietary to RSM Canada.

How do you know if your nonprofit needs to modernize?

Being stuck in the past is not a good place to be. However, many nonprofit organizations continue to operate the same way—year after year or even decade after decade—when more effective and inexpensive options can be implemented. The mission may not have changed, but the optimal way of conducting business certainly has. Modernizing has never been more crucial for mission-driven organizations. Inefficient procedures can bust budgets, create internal turmoil and limit the ability to achieve mission objectives. In contrast, improving your nonprofit’s operational efficiency can greatly increase your organization’s impact. So how do you know if it’s time to update your processes? Here are some signs that your nonprofit needs to modernize:

1. Paper everywhere

The most glaring issue is when a nonprofit has skipped technology altogether. Hard copies have their uses, but there is likely not a single situation or process in which paper is a better solution than digital. Nonprofits that rely on paperwork rather than technology are not just losing the race. They aren’t even at the starting line.

2. Email overload

You’ve received five emails from four different people, with three different versions of the same document. You need to download the attachment, reformat it and email it out again. But then someone is accidentally left out of the email chain, and another person has the message trapped in her spam folder, and … well, it just gets worse from there. It’s far more efficient to automate decisions, track changes and establish approval flows outside of emails. Online dashboards—such as those within enterprise resource planning enterprise resource planning (ERP), content management (CMS) or customer relationship management customer relationship management (CRM) systems—allow you to set up processes so you don’t need to email every request. People can access the dashboard and work within the system. Everything is tracked, no one is left out and communication is vastly improved.

3. Spreadsheet dependency

Microsoft Excel is a great tool for static data storage and presentation, but it is usually not optimal for dynamic data that is constantly changing. For many nonprofits, Excel or other spreadsheet programs have become the default application for too many functions, even if there are better tools that are specifically designed for certain activities. For example, grant financial reports and trackers can be built and updated directly within an ERP, and member data can exclusively reside within an association management system (AMS). Doing the same task in Excel might get a similar result, but only after a great deal more effort and with a higher error rate. The more you use Excel for everything, the more likely it is that your technology is not being optimized.

4. Manual data entry

One of the most powerful aspects of technology is its ability to automate processes. However, many nonprofits still rely on planting a staff member in front of a computer to manually input mounds of data. But whether it’s membership management, event organization or some other essential function, there is likely a way to automate the entire process. Wasting staff members’ time by having them type in names or numbers is not just inefficient. It is also prone to errors and can lead to job dissatisfaction. If names or numbers exist somewhere, like on a statement or a third-party report, chances are that it can be uploaded or automatically brought into your core systems of record. Automating your processes can make manual entry seem like a relic from another era—which is exactly what it is.

5. Same data, different systems

The nonprofit world, unfortunately, seems more prone than other industries to put information into silos and maintain data in separate systems. Often, an organization’s development team maintains the donor records in their database, but the finance team tracks invoices in the accounting system, and the marketing team tracks the fundraising campaign and so on. Furthermore, these different systems usually do not communicate with one another, so when there are discrepancies (if those are even looked for), who is right? Keeping the same information in different places means staff members have to double their effort, or even triple it if they reconcile the competing systems. The solution is to link data in a centralized system, like a data warehouse, that eliminates duplicate information and redundant tasks, while maintaining master data records to be used across the technology ecosystem. Data gets entered once and is immediately reconciled for different uses. Again, technology can automate this process and keep the organization’s data up to date and accessible.

Conclusion

Most nonprofit professionals have seen and felt the aftermath of botched technology implementations. But upgrading your nonprofit’s technology does not have to be a scary or intimidating process. On the contrary, it can be exciting to unleash your organization’s full potential, freeing it from the constraints of antiquated systems. Of course, it is imperative to work with technology experts when implementing new approaches. Therefore, partnering with a technology provider that has a proven track record—and understands your industry as well as the latest software and its applicability to your practices—is key for a successful implementation. Together, you can make your nonprofit more strategic, more efficient and more successful.

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This article was written by Matt Haggerty and originally appeared on Aug 16, 2022 RSM Canada, and is available online at https://rsmcanada.com/insights/industries/nonprofit/5-signs-your-nonprofit-needs-to-update-its-business-processes.html.

RSM Canada Alliance provides its members with access to resources of RSM Canada Operations ULC, RSM Canada LLP and certain of their affiliates (“RSM Canada”). RSM Canada Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM Canada. RSM Canada LLP is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms. Members of RSM Canada Alliance have access to RSM International resources through RSM Canada but are not member firms of RSM International. Visit rsmcanada.com/aboutus for more information regarding RSM Canada and RSM International. The RSM trademark is used under license by RSM Canada. RSM Canada Alliance products and services are proprietary to RSM Canada.

Nonprofit organizations often have lean operational budgets. They want to put as much of their resources as possible into fulfilling important missions. But a nonprofit that struggles with its operations will soon find itself with limited mission impact as well.

As such, it is vital that nonprofits be as efficient as possible. Their operations must be as smooth, or even smoother, than their counterparts in the for-profit world. Gone are the days when nonprofits could get away with substandard operational practices.

But there are paths to operational efficiency that are cost-neutral or better. Nonprofits can improve their operational efficiency by undertaking four key actions:

• Eliminate
• Automate
• Outsource
• Enhance

Each of these actions is crucial to increasing an organization’s impact and should be looked at individually.

Eliminate

It can feel intimidating to look at an organization’s structure and say, “What can we cut?” This sensation of being overwhelmed is one reason why so many nonprofits never address their processes or methods.

So don’t do it—or rather, avoid trying to overhaul your entire organization all at once. Instead, take inventory of your key tasks and systems. Look for small changes. Are there steps that were once necessary but are now irrelevant? Are certain activities redundant or needlessly complex?

It is unlikely that every process or every task is important, or even necessary. For example, one nonprofit had a policy that three separate people had to approve a certain report. But it became clear that the last reviewer was just a rubber stamp, and two rounds of approval were sufficient. Eliminating that final round of approval created a substantial gain in efficiency, and importantly, it did so without sacrificing internal controls.

Once the philosophy of eliminating the unnecessary takes hold, an organization can tackle the bigger issues. Another nonprofit, for instance, had four different departments that were essentially walled off from one another. That meant four siloes with four entirely different processes for accomplishing one goal. Eliminating the silo mentality provoked an efficiency boom in the organization, with no drop-off in quality.

Therefore, be brutally honest when eliminating those activities that have outlived their usefulness. By rejecting redundancy, your organization becomes more efficient, and employees will find a greater sense of purpose in their jobs.

Automate

Consider the case of the nonprofit that published a special report every 90 days. The data was important to the organization’s mission, but because it took 90 days to compile, by the time the report came out, it contained nothing but old data. As such, the organization’s employees were taking a great deal of time and effort to provide instantly obsolete information.

Today, that organization creates a new report daily, so every morning the nonprofit’s leaders have access to the latest data. But it wasn’t magic that turned 90 days of labour into a few hours of work. It was automation.

There are certain tasks where the human touch is essential and cannot be replaced. For the other tasks, however, automation can speed up processes and eradicate tedious work. Nonprofits should embrace technological solutions as much as possible to automate their processes.

Standardizing processes and adding controls for critical data will help nonprofits support their members and donors. Speed to insights is essential. Nonprofits need to align their data strategy, governance, centralization and self-service initiatives to achieve innovative data maturity. 

Data inputs, advanced calculations, information consolidation—all of these and more are functions that can be automated. Changing manual tasks into automated procedures will increase data accuracy, enhance the ability of leaders to make informed decisions and allow staff members to focus more on their core jobs.

Enterprise resource planning (ERP) systems, customer relationship management (CRM) systems and association management systems (AMS) can help nonprofits take advantage of the latest technological options, saving a tremendous amount of human effort and personnel costs. Whatever technology an organization adopts, it needs to optimize the system to its own unique needs.

It’s not just about having the latest and greatest systems. It’s about using those systems to the best of the nonprofit’s ability. The goal is for staff members to view repetitive, boring tasks as a thing of the past, letting the machines take over.

Outsource

While your staff members may be great at fulfilling the missions of your nonprofit, they probably aren’t experts at converting a database to the cloud or troubleshooting tech issues. And they don’t have to be.

Outsourcing your information technology can free your staff members from moonlighting as “accidental techies” (as they are affectionately known in the nonprofit world), while enhancing the effectiveness of your IT platform. A managed services provider (MSP) can offer experienced professionals who are knowledgeable about the latest tech developments. Outsourced IT advisors can often solve problems faster than nonprofit staff who are not as well-versed in IT. And more important, these professionals can suggest upgrades, monitor cyberthreats and utilize advanced features that minimize the chances of those problems occurring in the first place.

IT is the most common function that nonprofits outsource, but there are other areas in which an MSP can be invaluable. Many providers offer finance and accounting outsourcing (FAO), in which experienced professionals handle the nonprofit’s books, provide enhanced financial reporting and look for the best ways to maintain the organization’s finances. Some nonprofit organizations also outsource parts of their human resource departments, streamlining their HR functions.

A premier MSP offers not just plug-and-play solutions, but actively engages with the nonprofit’s brain trust to transform the organization. In such cases, a nonprofit can work with an interim chief financial officer or chief information officer to hone its overall approach.

Whether the nonprofit adopts IT, FAO, HR or strategic outsourcing, the MSP’s professionals will typically offer advanced tools and present best practices that they have learned by working with other clients. Another key benefit of working with an MSP is the ability to scale up or down at each level of expertise, depending on the organization’s needs. For such reasons, outsourcing has the potential to create a tremendous return on investment for the nonprofit.

Enhance

Your nonprofit does something better than any other organization, which is why donors make contributions, sponsors sign up and staff members work so hard. But the final key to increasing your impact is to aim higher than maintaining those standards. The goal is to enhance, refocus and double down on your differentiators.

Of course, by virtue of eliminating, automating and outsourcing where possible, the tasks that remain are essential by default. As such, these are the core critical elements of your nonprofit, and you can achieve optimal efficiency by devoting more resources to those mission-specific activities.

Consider the time and money your organization has saved, and invest those newfound reserves into driving your mission forward. Keep in mind that with improved systems now in place, your nonprofit will have better data, smoother workflows and more energized employees to tackle challenges.

Good governance and insightful analytics build trust within your organization. To maintain effective communication, partner with the different areas of your nonprofit to understand the downstream and upstream impact of changes in your data and reporting demand. Align your data and reporting strategy with your team’s key data elements to produce quality analytics.

At this stage, it’s not about making fundamental changes or altering your procedures. Rather, it is about honouring your nonprofit’s vision. Enhancing your nonprofit means being open to new ideas while maintaining a strong focus on achieving your organization’s objectives.

In sum, nonprofits can eliminate, automate, outsource and enhance their way to improved operational efficiency. Doing so greatly increases the odds that they will make a significant impact and continue to fulfill their missions.

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This article was written by Matt Haggerty, Joy Cruz, Morgan Diestler, Jacob Petraitis and originally appeared on Jul 14, 2022 RSM Canada, and is available online at https://rsmcanada.com/insights/industries/nonprofit/increasing-a-nonprofits-impact-through-operational-efficiency.html.

RSM Canada Alliance provides its members with access to resources of RSM Canada Operations ULC, RSM Canada LLP and certain of their affiliates (“RSM Canada”). RSM Canada Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM Canada. RSM Canada LLP is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms. Members of RSM Canada Alliance have access to RSM International resources through RSM Canada but are not member firms of RSM International. Visit rsmcanada.com/aboutus for more information regarding RSM Canada and RSM International. The RSM trademark is used under license by RSM Canada. RSM Canada Alliance products and services are proprietary to RSM Canada.

One of the greatest benefits of a not for profit organization being categorized as a registered charity is its ability to issue official donation receipts.  Potential donors are more inclined to donate because they are able to claim the donated amount as a credit on their personal income tax return thus increasing the opportunity of these organizations in soliciting funds.

This benefit however comes with administrative time and responsibility to ensure that the official receipts issued are complete and accurate.  There are many rules and guidelines that the Canada Revenue Agency (CRA) has with respect to donation receipting that must be followed in addition to the specifics of what has to be included on the receipt itself. 

The starting point is determining if the donation qualifies as a gift eligible to be receipted as an official charitable donation.  A gift is the voluntary transfer of property without consideration.  In other words, it must be freely given, with no advantage received by the donor and consist of property.  As a result of this definition CRA specifically excludes donation receipts for the gift of services.  If a supplier of a service wants to donate their time, skill, or expertise and get a donation credit for it they must issue an invoice to the charity for the service provided, be paid by the charity and then donate funds back to the organization.  Without this payment and contribution exchange, no donation receipt should be provided.

After confirming that the gift qualifies the next determination is the value of the gift.  This may be straightforward for most cash donations but what about non-cash gifts?  The value is determined based on the fair market value of the property or goods however making this determination could be as easy as doing a search to determine what the product or good would sell for, or may have to involve other professionals to provide an appraisal. 

Finally, the last step is considering if there was any advantage provided to the donor and the value of that advantage.  This step is often needed for fundraising events such as dinners or golf tournaments.  For example, if a charity charges $250 to attend their annual golf tournament, which includes a round of golf, dinner and prize, the golfer is obviously getting something for the money paid.  If the value of the golf, dinner and prize is $200 then the eligible gift would be $50 being the amount that is in excess of the value that the golfer received.   

If you need assistance in determining whether the benefits of donation receipting outweigh the administrative time and responsibility, or have additional questions about CRA’s guidelines related to donation receipting, one of our Not-for-Profit Professionals would be happy to assist.

There have been a number of changes in recent years to modernize the laws governing corporations without share capital. These corporations were previously governed by the Corporations Acts in the various jurisdictions, but the laws and regulations created for business and for-profit enterprises were not effective at times for the not-for-profit sector. In 2011, the new Canada Not-for-Profit Corporations Act (CNCA) came into force to govern the not-for-profit corporations incorporated federally. Ontario created a similar Act, the Ontario Not-for-Profit Corporations Act (ONCA) that received Royal Assent in 2010 and was finally brought into force on October 19, 2021. There is a three-year transition period during which all existing non-for-profit corporations registered in Ontario have to make any necessary changes to their incorporation and other documents to bring them into conformity with ONCA.

There are a number of various legal changes addressed in the new legislation, but we wanted to focus on the section on Financial Statements and Review. A corporation must prepare financial statements each year which comply with the requirements of the Not-for-Profit Act. The financial statements must be prepared in accordance with the Canadian Generally Accepted Accounting Principles (GAAP) as set out in the CPA Canada Handbook.

There are new guidelines introduced in both the CNCA and the ONCA on the level of public accounting assurance required. We have summarized these below in a chart and included some important definitions.

The ONCA classifies not-for-profit corporations into two categories – public benefit corporations and non-public benefit corporations. A corporation is considered to be a public benefit corporation when it is a charitable corporation or when it has received more than $10,000 in revenue from public sources in a single financial year. Public sources include gifts or donations from people who are not members, directors, officers or employees, grants from all levels of government and funds from another corporation that has also received income from public sources. A non-public benefit corporation is a corporation that has received no public funds or less than $10,000 in public funds in each of its previous three fiscal years. The CNCA has the same requirements and classifies these as soliciting and non-soliciting corporations.

The differentiation is important as the government wants to ensure that organizations receiving public funds are sufficiently transparent and accountable for that income.

Private foundations may be considered a non-public benefit corporation, depending on their revenue sources.

As a reminder, all corporations governed by the ONCA and CNCA must send a summary of its annual financial statements or a copy of a document reproducing the required financial information (such as an annual report) to the members not less than 21 days or a prescribed number of days, before the day on which the annual meeting of members is held, or the day on which a resolution in writing is signed by the members to all members who request a copy.

A soliciting corporation incorporated federally must provide its annual financial statements to Corporations Canada not less than 21 days before the annual general meeting of members or without delay in the event that the corporation’s members have signed a resolution approving the statements, instead of holding a meeting. The date must also not be later than six months after the corporation’s preceding financial year.

Incorporated Federally

Type of Corporation	Gross Annual Revenue per Financial Year	Appointment of Public Accountant by Members	Financial Review Required
Soliciting	$50,000 and less	Must appoint a public accountant by ordinary resolution unless members waive appointment by annual unanimous resolution	Public accountant must conduct a review engagement; but members can pass an ordinary resolution to require an audit instead. If no public Accountant is appointed, then only a compilation is necessary.
Soliciting	$50,001 to $250,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit; but members can pass a special resolution to require a review engagement instead.
Soliciting	more than $250,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit.
Non-Soliciting	$1,000,000 and less	Must appoint a public accountant by ordinary resolution unless members waive appointment by annual unanimous resolution	Public accountant must conduct a review engagement; but members can pass an ordinary resolution to require an audit instead. If no public Accountant is appointed, then only a compilation is necessary.
Non-Soliciting	more than $1,000,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit.

These rules were effective as of October 2011 when the CNCA came into force.

Incorporated in Ontario

Type of Corporation	Gross Annual Revenue per Financial Year	Appointment of Public Accountant by Members	Financial Review Required
Public benefit corporation	$100,000 and less	Must appoint a public accountant by ordinary resolution unless members waive appointment by an extraordinary resolution (at least 80% approval)	Public accountant must conduct a review or audit engagement. If no public accountant is appointed, then only a compilation is necessary.
Public benefit corporation	$100,001 to $500,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit; but members can pass an extraordinary resolution to require a review engagement instead.
Public benefit corporation	more than $500,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit.
Non-Public Benefit	$500,000 and less	Must appoint a public accountant by ordinary resolution unless members waive appointment by annual unanimous resolution	Public accountant must conduct an audit or review engagement. If no public accountant is appointed, then only a compilation is necessary.
Non-Public Benefit	more than $500,000	Must appoint a public accountant by ordinary resolution at each annual meeting	Public accountant must conduct an audit; but members can pass an extraordinary resolution to require a review engagement instead.

These rules were effective as of October 19, 2021, when the ONCA came into force.

These rules allow members in Ontario corporations with $100,000 and less in annual revenue to pass an extraordinary resolution (80% approval) to waive both the audit and review engagement requirement.

Before a Board of Directors decides to take advantage of these new rules allowing the organization to be exempt from an audit (presumably to reduce annual professional fees), it is important to remember that an independent, external review of management’s financial reporting is an effective tool to fulfill a Board member’s governance responsibilities. We would also caution against moving away from an audit if you anticipate your organization’s revenues to exceed the minimum thresholds that require an audit in the near future. The costs of transitioning to and from an audit in a short period of time generally exceed the cost savings from moving away from an audit.

If you require any further information or explanation with regard to recent changes for your organization’s external financial reporting requirements, please contact your DJB advisor.