Books and Records For Charities: Part III (What to Do about Missing Records)
By Alexandra Tzannidakis
The failure to maintain books and records is ground for suspension of a charity’s tax-receipting privileges. Such a suspension can translate into the loss of big donations. This article is the last in a three-part series on what “books and records” means and how to meet the requirements. Part I (An Introduction) is available here and Part II (How to Actually Keep Records) is available here.
Previously in this series, we discussed what exactly comprises the ‘books and records’ that the CRA requires charities to keep, and how to go about keeping them. This month, we will discuss some ways of mending a patchy set of records.
Now that you know more about what records must be kept and for how long, you can identify the holes in the existing records and act to repair them. Volunteers often inherit the problems that their predecessors at the charity left behind, and this frequently includes a set of books and records that is deficient to some extent. Usually, records exist but are missing certain important pieces of information, such as changes of directors, or perhaps certain years are accounted for but not others.
A timely illustration of the need for precise historical information is the current requirement that every federally-incorporate non-share capital corporation to ‘continue’ to the new Canada Not-for-profit Corporations Act. (We have written repeatedly about continuance over the past year or so, and hope that all our readers are aware that the deadline is October 17, 2014.) As part of the process, the members of the corporation must authorize the directors to execute an application to continue. This means the corporation has to know with confidence whom exactly its members in good standing and its duly-elected (or appointed) directors are. The meeting at which the members grant this authorization must also be duly held in order for the process to have integrity For example, the corporation may need to provide two weeks’ notice of the meeting to every member eligible to vote. Can you say with confidence that you know the identity of every member who is entitled to a vote? Can you prove that the director who signs the application is properly authorized to do so?
Even if the charity does not need to undergo continuance, it is always highly advisable to put some effort into shoring up the records.
The sheer volume of information that a charity must be able to attest to can make tackling the records a daunting task. This is of course all the truer for charities with longer histories. The best approach is a systematic one (coupled with an acceptance of the fact that perfection will probably be impossible!)
1. Figure out what you DO have.
Start by collecting all the documents you can find. Places to check include the charity’s current and previous addresses, the charity’s current and previous lawyers, current and previous members who were involved in the charity’s administration, and long-time and/or highly-involved members who may have kept circumstantial documents like copies of notices, minutes, and flyers.
There is also the possibility of getting copies of certain documents from the government. You can ask the CRA for a copy of the by-laws that it has on file, although there is no guarantee they will be the most recent ones if no one at the charity was taking care to send them in. If the charity is a corporation, you can ask the incorporating body (for example, Corporations Canada or the Ontario Ministry of Government Services) for copies of the by-laws and governing documents. If, in your jurisdiction, such documents are not legal until filed with the incorporating body, then whatever that body has on file will necessarily be legally up-to-date. For example, under the old Canada Corporations Act, the minister had to approve any changes to the by-laws. This is no longer the case under the new Act. You may wish to consult the charity’s lawyer if you are thinking of obtaining documentation from government records.
2. Decide what is useful and what is not.
Take another look at Part I of this series to find out what documents need to be kept, and organize them chronologically. Forming a timeline will not only make the records more legible but will also help alert you to holes in your information.
3. Deal with lingering problems.
You will probably discover that not every corporate action was properly undertaken. If you come across paperwork that was not certified, for example minutes of a meeting that are not signed, find out who the secretary was at the time of the meeting and ask him or her to sign it. If there are significant gaps in the record, you may wish to pass an omnibus resolution that acknowledges the problems in the records, confirms the charity’s attempts to fix them, and indicates that the decisions undertaken in the resolution reflect actual past corporate actions to the best of the knowledge and belief of the directors and members. At the meeting the charity holds to pass such a resolution, you may even find that the members will recall further details that can be added in.
Trying to repair lost records is obviously not a perfect process, but the outcome is sure to be an improvement over making no effort at all. It might also help motivate the charity to keep better records in the future once participants realize how challenging it is to deal with reconstructing events after the fact. Experienced charity lawyers can be also be a great help, both with the reconstruction process and in some cases by taking over the charity’s record-keeping entirely.