Who Signs the Organization’s Cheques?

Who Signs the Organization’s Cheques?
By Arthur Drache, C.M. Q.C.

A couple of months ago in the Ottawa area, there was a puzzling issue with regard to the disappearance of about $70,000 from the accounts of a parents’ council at a local primary school. The funds were primarily from monies paid by parents and were to be used to fund after school day care services which were provided by a third-party organization. The matter became public when the day care provider sent a letter to the school administrators saying that they were withdrawing services as they had not been paid for several months.

An investigation showed that the bank accounts were essentially empty. It turned out (based on media reports) that a long-time volunteer with the council had suddenly disappeared and to our astonishment it was reported that he had sole signing authority over the Council’s bank account.

This incident of course raised in our mind the issue of who has or should have signing authority over bank accounts.

Usually, the matter is addressed in by-laws which indicate which officials of the organization have signing authority. If the organization does have a bank account (and only the most tiny will not) the bank will of course require notice of who has signing authority and usually, some evidence (such as a by-law). But the bank itself will not care how many signatories there are.

But how many should there be.

It is easy to say that prudence suggests that there be at least two signatories to every cheque. This may consist of two out of a larger number of authorized individuals or a named individual with any one of a larger group. The named individual need not be an officer or director (the Chief Financial Officer could fill the role) but we would normally expect the second signature be that of a director or officer.

While this advice seems mundane, it is worth noting that there are often logistical problems, particularly in smaller charities. If you have a small group of eligible signatories, how hard is it on a day or day basis to find two who are available to sign. For example, in one organization we are familiar with, in a particular week where cheques had to be signed, one was in Ottawa (where the banking was done), one in Budapest, another in Italy, a third in Winnipeg and the fifth person wasn’t answering his phone or e-mail. The signing of the cheques had to wait.

Of course, the easy way out is to get one of the authorized people to sign (say) half a dozen cheques at a time in anticipation of travels but of course that, while convenient, essentially negates the protection involved in requiring two or more signatures.

It is easy to say that there is organizational trust in those who have signing authority. But as the School Council we referred to found, trust is sometimes misplaced. And a significant percentage of embezzlements from charities and non-profits are done by trusted employees, very often with cheque signing authorization.

So a simple and mundane administrative issue such as who signs the organization’s cheques is in fact an important decision which the board has to make.

And to make matters even more interesting, consider this. To qualify as a non-profit or charity, the legislation requires that no part of the organizations income be “available or payable” to a member. This requirement pre-dates the legislative framework for charities. An early case involved a church which had three board members, only one of whom had signing authority for banking purposes. The Minister of National revenue took the position that the organization did not qualify as a charity because the funds were “available” to the individual who had sole signing authority even though there was no evidence that he had ever taken a dollar personally. The tax authority’s interpretation was upheld by the Tax Appeal Board

We have serious doubts as to whether this line of logic would pass muster with today’s courts but the case exists and could be used by an over-zealous CRA auditor.

The bottom line as they say is that deciding what arrangements are to be made for signing cheques, mundane an exercise as that might seem, can be very important and serious though should be given to the matter including the “mechanics of getting cheques signed in a timely but also prudent manner.

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