We posted on July 12, 2022, the financial statements of many Registered Canadian Amateur Athletic Associations or RCAAAs that were obtained through access to information. Unfortunately, CRA does not post the financial statements of charities or RCAAAs on their website. One of the financial statements was for Hockey Canada.
As many know, over the last few days, Hockey Canada has been under scrutiny by the media. If you look at Hockey Canada’s financial statements filed with CRA, you can see they are not complete – it includes pages 6, 14, 17, some information on ‘fiscal tax receipts’, a repeat of page 6, a repeat of page 14 and then page 16. I am really not that good at math but there seem to be a few pages missing! BTW, I looked at the Hockey Canada website and did not see the full audited financial statements for Hockey Canada. So, if someone else sees them, please do send them through to us. We have seen and received a number of comments that it is outrageous that Hockey Canada filed such an incomplete financial statement with the CRA.
So, here are a few thoughts on registered charities and RCAAAs and their financial statements.
Entities like non-profit organizations or non-profit corporations should have financial statements. For example, under the Canada Not-for-profit Corporations Act (“CNCA”), the financial statements of a CNCA corporation are supposed to be approved by the board and provided to the members before an AGM.
- Whether you need audited financial statements (as opposed to unaudited financial statements (notice to reader or review engagement) relates to corporate law such as the CNCA, not whether you are a charity or RCAAA. So, for example, Corporations Canada sets out when audits are required for CNCA corporations.
- CRA makes a recommendation “If you have income over $250,000, the Charities Directorate recommends that you get your financial statements professionally audited; otherwise, the treasurer for the charity should sign them.” There is no CRA requirement that they be audited. So, if you have a trust deed and it does not have an audit requirement, then you might not need to audit your financial statements. This CRA recommendation is really a recommendation and not a requirement.
- As an aside, many charities work quite hard on their audits and spend considerable funds every year on the audit. In my experience, the audit and audited financial statements provide limited value to a charity and donors/public. Many of the matters that are most important to CRA are not even covered by most audits. I know that some would say that audited financial statements are very valuable but I tend to think the T3010 annual return for charities is far more valuable, but occasionally the audited financial statements have some value. Unfortunately, I see some charities with audited financial statements prepared by major accounting firms and then half completed T3010 filings filed with CRA. For smaller charities, the cost of an audit may be prohibitive and for even bigger charities the audit may provide little value for money. Hence, it is not surprising that CRA does not mandate the necessity of providing audited financial statements.
- It is so aggravating that some registered charities and RCAAAs, in some cases, spend tens of thousands per year or more on audits but not are making the financial statements available to the public. These groups are soliciting donations, asking for volunteers from the public and sometimes taking government money provided by taxpayers, and then not providing basic transparency when it costs almost nothing to disclose the financial statements, for example, on their website.
- All registered charities and RCAAAs need to file their financial statements with CRA every year. This is supposed to be done with their annual filings within six months of the end of the fiscal year.
- Furthermore, CNCA corporations, like Hockey Canada, if they are a soliciting corporation, must file their financial statements with Corporations Canada, as we discuss here.
- It would appear obvious that if you have audited financial statements, you should provide the audited financial statements and not just any financial statements. However, I don’t think that that is clearly stated by CRA. More importantly, CRA has appeared in the past to have relatively low standards for what is a “financial statement”. Keep in mind that about a third of charities have under 50k in revenue and CRA’s priority has been to encourage groups to file something because many charities were omitting to file any financial statements in the past with the T3010. Today, if you don’t file a financial statement with the T3010, CRA will view the return as incomplete and return it to the charity.
- The CRA guidance for registered charities from the T3010 guide “a copy of the charity’s own financial statements, including notes to the financial statements (if the charity has income over $250,000, the Charities Directorate of the CRA recommends the financial statements be professionally audited; otherwise, the treasurer for the charity should sign them)”
- The CRA guidance for RCAAA in the T2052 guide provides “Attach FINANCIAL STATEMENTS for the fiscal period covered by this return. These should include a statement of revenue and expenditures for the fiscal period and a statement of assets and liabilities as of the end of the fiscal period. The statements should indicate the different sources of revenue in sufficient detail to show how funds were spent or invested.”
- So all charities and RCAAAs will have financial statements but only some of them will be audited. I would suggest that if you have audited financial statements that those audited financial statements should be filed with regulatory authorities not some sort of unaudited statements.
- Does a charity or RCAAA need to file the whole financial statement or audited financial statement? I think the answer is yes. As per the CRA website dealing with financial statements: “Financial statements should include at least:
- a statement of assets and liabilities (balance sheet)
- a statement of revenue and expenditures (income statement)
- any prepared notes, such as:
- accounting policies (for example, depreciation rates)
- details of investments (for example, maturity dates and interest rates)
- sources of revenue (for example, type of government grant)
- transactions with non-arm’s length parties
- information about funds that a donor has directed you to hold for 10 years or more
- future obligations
Your statements should accurately show your different sources of revenue and your expenditures for the fiscal year you are reporting.”
Therefore, CRA is requesting that if there are financial statements with notes that the notes be provided. “Any prepared notes” not just ones that you would prefer to disclose.
- So, a financial statement is not just any document that is called a financial statement.
- Also, an argument can be made that if you have an accountant prepare a 15-page financial statement that disclosing only parts is misleading or potentially deceptive to the public.
- Certainly, from an ethical and stakeholder perspective, full financial statements, and audited financials if they are available, should be disclosed on the website or Facebook page, etc. of the organization. I would go as far as saying that with respect to larger organizations, say revenue over 500k, donors and government funders should be very careful about donating or granting to such organizations if they don’t have five years of financial statements easily available on their website. Saying ‘please write to us if you want the financial statements’ is not easily available. A summary of the financial statements, while that may be helpful to some readers is not providing a financial statement. Saying that you file the financial statements with CRA and knowing that anyone who wants to obtain those financial statements can do so, but it will take a few months, is not being transparent.
- CRA provides sample financial statements, but if you look at the sample, it is quite basic and does not go into all the information noted above. It is really geared towards simple charities that have very limited resources, don’t have staff, and don’t have professional accountants involved. The sample involves revenue of $41,800, expenditures of $59,830 and only $500 on professional fees. If that is the size of your organization then maybe that sample is good enough. Presumably, some small charities and RCAAAs might just use their financial management program to generate basic financial statements. However, the public would legitimately expect more from larger charities.
- All because CRA takes in your annual return plus financial statements and does not return them to you as incomplete, does not mean they are not incomplete or inaccurate or deceptive. If CRA takes in these minimalistic and butchered financial statements, that does not preclude CRA later from saying that your charity or RCAAA did not actually file your financial statement and eventually, for that and other reasons, revoke your registration. Unfortunately, some charities and RCAAAs that are less interested in transparency would rather provide less information.
- The short summary is to file your complete financial statements with CRA and other regulators. If you have audited financial statements, then file those. Also, put five years of financial statements on your website. If you have audited financial statements, put five years of audited financial statements on your website. Also, if you are a charity, make sure that you are carefully preparing your T3010 and filing that form on time (within six months of the end of your fiscal year). Also, with the T3010, try to file it using CRA’s My Business Account system as it will reduce errors over sending in a paper form. It is also not a bad idea to just double check your T3010 filings and that the Charities Listing accurately reflects them.
We have tried to help with the transparency issue by providing financial statements RCAAAs. We had hoped that with CRA’s new digital services for charities that CRA would provide financial statements along with the T3010 on their Charities Listing. Unfortunately, the Charities Listing does not have the financial statements. We were also hoping that if CRA could not easily provide the financial statements on their website, which financial statements are supposed to be publicly available, that CRA could provide them to someone else who can place them online. Unfortunately, the CRA digital system is not fully developed and CRA cannot easily provide financial statements for a large number of entities. We were able to get about 1,000 financial statements of some of the largest charities in Canada and we have put them up on the CharityData.ca website, but CRA was not able to provide financial statements for all Canadian charities.