Ten Tips for Audit Committees of Not-for-Profit Organizations

KPMG has put together an excellent tip sheet on audit preparation for not-for-profit organizations.

The tips can be found in brief below, but visit the full tip sheet at KPMG’s website to view each “to do” item in detail.

KPMG’s Ten To-Do’s for Audit Committees of Not-for-Profit Organizations

  1. Stay focused on the audit committee’s top priority: financial reporting and related internal control risk.
  2. Stay on top of the first year audited financial statements applying the accounting framework.
  3. Continue to monitor accounting judgments and estimates, and prepare for accounting changes.
  4. Consider whether the audit committee has the right mix of talent.
  5. Consider whether the financial statements and disclosures tell the organization’s story.
  6. Focus risk governance efforts on reviewing reputational risk identification and management efforts.
  7. Consider updating policies. In almost all processes, IT developments are leading to rapid increases in electronic transactions.
  8. Understand how technology change and innovation are transforming the business landscape – and impacting the organization.
  9. Focus on the organization’s plans to grow and innovate.
  10. Reassess the organization’s vulnerability to business interruption, and its crisis readiness

Click here to view the full KPMG tip sheet.


We were audited by the Canada Revenue Agency but we don’t understand or agree with the outcome. What recourse do we have?

The results of your audit should be contained in a formal letter from the Canada Revenue Agency (CRA). It should advise you on the procedure for filing an appeal: the contact information, the time limit by which you must file, and the required documentation. Or, you can contact the CRA’s Business Window at 1-800-959-5525 for assistance.

If you’re in doubt about the findings of the audit, consider this. If you file an appeal, you can always withdraw it – but if you don’t file by the expiry of the time limit, you will be considered to have accepted the audit results.

This is a great example of a case where you should seek expert professional advice on your particular situation. Many accounting and legal practices have tax experts on staff, or can evaluate whether you would benefit from discussing a tax appeal with a specialist.

Does an audit mean that my statements are correct?

Auditors are engaged to express an opinion on the quality of your financial statements. A typical positive audit opinion will say that your statements present your financial position “fairly, in all material respects.”

This isn’t the same as being free from error!

Straight from the CICA Handbook (Canadian Institute of Chartered Accountants): “An item of information, or an aggregate of items, is material if it is probable that its omission or misstatement would influence or change a decision.”

As part of their audit, your accountant makes a determination on what amount is material for your organization. They assess any errors they identify relative to this materiality threshold. Thus, they may pass small errors without making corrections.

This would be a good point to discuss with your auditor, so that you understand their process around addressing any bookkeeping errors they find.

How can I tell whether my accounting reports are correct?

This can be a perplexing question when you’re relying on the services of bookkeepers and accountants, but you don’t entirely understand what they do.

Here are a few ideas that may help:

Revenue and expense allocations are pretty much up to you, the manager. Do you want a single expense account for Salaries? That’s entirely correct. Would you prefer to have a separate expense account for each salaried position? That’s also correct. Do you want one account for Office Overhead? Not a problem. Would you prefer to have a series of accounts to distinguish amongst various supplies, phone, insurance, etc.? Also entirely acceptable.

Management (perhaps with input as appropriate from your Treasurer, Boardaccountantbookkeeper, staff) needs to decide what level of detail works best for your organization’s situation. Once you’ve established a set of revenue and expense accounts, it’s important to confirm on a regular basis that transactions are being allocated to the right place. Many accounting software packages provide detailed reports that allow you quite easily to scan the contents of these accounts for misplaced items.

Your cash resources – contained in your bank and investment accounts – are the lifeblood of your organization. It’s important to know how much money is readily available to your day to day operations. See our FAQ on how to tell for sure what’s in the bank.

Knowing who owes you money, how much, and since when, is very important. Most accounting software will produce a “customer aging” report that contains this information. (See the glossary for a definition.)

In the same way, you need to be able to review your list of payables, itemizing the suppliers to whom you owe money, how much and since when. On most software, a “vendor aging” report provides this detail.

Beyond that, if your bookkeeper is on their game, they will be able to provide an explanation of the contents of each account, and to pull out documentation from the files that substantiates the amounts. If your organization is audited, your chartered accountant will also be able to provide these explanations, as at your fiscal year-end. If these folks can’t provide a satisfying explanation, you need to challenge them! They should be able to help you understand your accounts, and justify that each balance is properly stated.

Ten Tips on Being a Better Bookkeeper for Smaller Organizations

  1. Plug into the bigger picture. Maintaining the accounting records is a foundational element of financial management, and of the management decision-making process. If you only think about posting entries, then you’re probably not giving the client everything they need. Most small organizations need a bookkeeper who can help them manage their financial statements.
  2. Keep your eyes on the prize. The ultimate goal of bookkeeping is to issue financial statements. Each session should probably end with you giving the client a report of some sort, e.g. year-to-date statements, or at least a progress update describing what was accomplished today. This engages the client in the process, and reinforces your value to management.
  3. Check your own work. The bank reconciliation is a standard verification step. So is checking the invoice detail contained on supplier statements to the invoice detail in the General Ledger. What other steps can you take to prove the accuracy of your work before you issue reports? You may use different techniques in different circumstances, depending on the nature of the transactions.
  4. Read reports before you hand them over. Beyond doing account reconciliations, it’s important for you to read the financial statements before you hand them to the client. This will help you pick up misallocations and other errors that your verification steps may not have caught. It also ensures that you are familiar with the statements as complete documents. This is of much higher value to the client than handling a bunch of individual transactions!
  5. Encourage the client to read their statements. This may be more easily said than done, depending on the client. Clients who don’t read their financials are always bad news. Sooner or later something will go wrong that will require them to respond. If they aren’t familiar with those documents, look out! It’s much harder to explain something “under the gun.” Regular review builds their ability to interpret both good and bad news, and encourages them to understand and trust your work. Reading the statements with them can offer an excellent opportunity for you to share your expertise – and for the client to keep you fully up to date with the organization’s activities as they affect your work.
  6. Be aware of the tax rules. Whether you handle the client’s government reporting, or whether you hand it to an accountant, it’s to your advantage to be aware of the rules. Even the smallest organizations are likely to have some dealings with the Canada Revenue Agency, and perhaps with provincial and municipal tax departments. You’ll almost certainly need to know the basics of payroll and sales taxes. If you’re working for charities or not-for-profits, you need to be aware of the particular filings they may need to make (e.g. T3010BT2 ShortGST/HST rebate claims).
  7. Maintain proper documentation. Ideally, each transaction will be documented by an invoice, contract, receipt, petty cash report, cash register tape, or other third party or internally generated explanation. Decide what you need to retain in the case of direct debits, electronic funds transfers and other online transactions. Know the Canada Revenue Agency records retention rules, which are available on their website at In most cases (but not all), you must maintain full detail for the current fiscal year plus six previous. Financial statements and general ledgers must be maintained back to the start of the organization. Make sure that your electronic records can be read for the full retention period. This may mean updating software and transferring documents off old media (remember floppy discs?) onto something current.
  8. Maintain a good audit trail. The audit trail links the steps in the bookkeeping process, from source documents to financial statements. Your software probably enforces a certain amount of audit trail notation – for instance, by making you enter invoice numbers in the purchases journal, to link the entry back to the paperwork. You can strengthen the process by recording the account number and a posting reference (e.g. journal entry number) on the invoice. If the organization hires a chartered accountant to perform an annual audit, they will appreciate the clarity this adds to the records. A good audit trail will also help you to review your work and respond to client questions.
  9. Keep pace with change: adapt your system and processes. “The way we’ve always done it” can’t last forever – or we’d all still be adjusting our eyeshades as we bent over our quills and inkwells! As new technologies emerge, and as the client’s needs for reporting change over time, think about your software, paper and electronic records, office processes, and the layout of the financial statements (chart of accounts). From time to time, it will probably be to your and the client’s benefit to update. Your ability to take the lead in proposing improvements underscores your value to the organization.
  10. Help the client to help you. Determine what you need from them in the way of documentation and instructions. Work out a clear process for getting the information, and for storing records once they’ve been entered. Establish reasonable deadlines – for them providing the raw materials, and for you providing reports. Discuss what reports are required, in what format, and who will receive them. A good bookkeeper can help to create a structured process that makes accounting clearer and easier for everyone – including you!

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.


Rebuttal to Toronto Star article “Audit of charities encounters resistance”

Staff Post
By Katie Chasowy 

In a week of stories involving several Greater Toronto Area charities being stripped of their charitable status, the Toronto Star also published a story by Raveena Aulakh and Amy  Dempsey on Tuesday, November 15, 2011 with the headline “Audit of charities encounters resistance”. The article begins by accusing several large Canadian charities of not being transparent because they do not post their audited financial statements on their website and refused to give their statements to an “independent agency that evaluates charities”. This independent agency, Charity Intelligence, also coincidentally was launching their new website on the same day that this article was published. The article also criticized charities for spending too much on fundraising and having too much cash in the bank, then published the names of several organizations deemed to be serious offenders.

I had a very strong reaction upon first reading this article and spent the next few days thinking about how to respond. I was happy to see that Mark Blumberg of the Canadian Charity Law website had posted a reaction to the Toronto Star article. Blumberg agrees that charities must be transparent, but shares many of my concerns with this article. His post is definitely worth a read and includes many helpful links about transparency in charities around the world, non-compliance with the CRA, and CRA fundraising ratios.

Here are the main points that I took issue with in the Toronto Star article (emphasis mine):

Nineteen of Canada’s 100 largest charities do not release their full audited financial statements to the public and refused to provide them to an independent agency that evaluates charities.

Later in the article Greg Thomson, the director of Charity Intelligence, ponders why certain organizations didn’t respond to their request for financial statements.

“There could be a number of reasons,” Thomson told the Star in an interview. “In some cases, it’s not high priority for them . . . others probably wondered who we are. Some might worry that someone will find something.”

Charities are not legally bound to disclose their audited financial statements to the public, but it is considered ethical to do sobecause they take in public dollars, Thomson said.

“If a charity is not transparent, you may as well reconsider donating.”

Charities do disclose their financial data publicly in their annual T3010 filing with the Canada Revenue Organization. Every organization in this country that is a charity has their recent and past (up to 10 years in some cases) financial information available online from the CRA’s website. As Mark Blumberg points out, many organizations release their financial statements, either summarized or in full, on their own website.

Accusing charities of not being transparent because they didn’t respond to a website’s request for statements and then later implying that you should reconsider donating is quite problematic. Of course you should do research into an organization before donating, but just because you can’t find their statements on the charity’s website does not mean there is a serious enough transparency issue that you should not donate. If you have questions into an organization’s finances, ask the organization directly. If the organization is large enough to have a development department, start there. If not, ask the administrative staff or managing/executive director.

One-quarter of the top 100 charities* have enough cash on hand to run their current programs for three or more years without having to fundraise another penny.

[Charity Intelligence] does not advise against donating to charities with large reserve funds but it does tell donors who don’t want their money to sit in a bank account for several years to go with a charity that has a more immediate need.

“Every charity has a cash cushion,” Trypuc** said. “What we’re questioning is how much of a cash cushion they need.”

* “Top 100 charities” as deemed by Charity Intelligence criteria. Mark Blumberg points out, These are not the largest charities in Canada in terms of revenue or assets.  These are the 100 charities that have been identified by Charity Intelligence (“CI”) as “Canada’s Major 100 Charities” and as having received the largest fundraising revenue.
** Bri Trypuc is in charge of Donor Services for Charity Intelligence. Yes, Charity Intelligence is also a charity. You can donate to themhere.

Yes, every organization does need a cash cushion. These cushions allow an organization to be sustainable and carry forward with their programming even in hard times. Having a large reserve, however, does not necessarily mean that donation dollars are being squirreled away in the bank. Reserve funds are partly for overall sustainability, but also for larger projects whether they be capital or programming.  Reserve funds could also be endowment funds that are actually earned revenue streams via interest. If you’re concerned about where your donation is going, the best way to find out is to ask the organization how your donation will be spent.

Websites such as Charity Intelligence, when used critically, can be very useful tools for deciding where to donate your money, but should not be used on their own. Research into a charity should include sites like this, but should not replace building your own relationship with a charity by asking them questions directly.

Finally, I think one of the most concerning aspects of this article is that it was published on the same day as the Charity Intelligence website launch, however, the article uses no other resources to support its claims. While transparency and direction of donor dollars are important issues, essentially accusing several large organizations of not being transparent and wasting donation dollars to promote a website and organization that is itself a charity raises some interesting questions about transparency and ethics as well.

Reaction to Charity Intelligence:

Toronto Star article “Audit of charities encounters resistance” by Mark Blumberg on Canadian Charity Law.

Charity Intelligence: Transparent on Transparency? by Andy Levy-Ajzkenkopf on Charity Village.

Have a comment on this staff post? Contribute to the conversation on our discussion board.



September 21, 2012: According September 15th’s Canada Gazette (p2662), Charity Intelligence has been sent a notice to revoke their Charitable Status because they haven’t met the filing requirements of the Income Tax Act. (Heard through Charity Village).