Organizations that have Annual General Meetings at this time of the year look forward to new beginnings and welcoming new board members. Well-managed organizations also take stock, do a bit of spring cleaning, and have an eye on the risks that they can or should be managing. Those eager new board members that have been recruited are expecting that this has been done. There are a few essential things that should be on every checklist to ensure organizational survival and others that just keep the stress level down in light of a few recent court cases.
Are you alive and well in 2016?
I am amazed at how many organizations incorporated under various provincial and legislation have been struck off the register in their jurisdiction for failing to file basic information returns, and therefore legally do not exist anymore. I was troubled to hear that, despite the years of warnings with letters, email, and articles in many publications, there are still thousands of Canada Corporations Act, Part II organizations that should have been legally continued under the new Canada Not-for-profit Corporations Act by 2014 but still have not been. Check out your organization to see if its birth certificate under its incorporating legislation is still accurate or if a death certificate has been issued. In some provinces, such as Alberta, there is further legislation that provides that the assets of an organization that no longer legally exists actually belong to the government after a certain period. What a tangled web this is when an organization tries to sort it out.
It’s never too late to get rid of those cobwebs
Are some of your governance practices old-fashioned and dusty? Shiny new legislation like the Canada Not-for-profit Corporations Act encourages and allows electronic voting and the use of technology for holding meetings remotely. Check to see if your bylaws and operating practices are in conformity with any new practices allowed by the legislation that governs your organization.
Has the size of your board of directors grown over the years, and if so has anyone checked to see if the numbers of directors on the board are actually allowed? Articles of Incorporation, governing documents, or legislation often dictate how large or how small your board of directors can be. Registered charities that want to remain as such should pay attention to the number of board members and the blood and business relationships they have with each other if they want to remain designated as a charitable organization, public foundation or private foundation. There are specific non-negotiable requirements for board composition for each of these types of charities that must be followed to keep such status.
While you are checking this out, look back to your original incorporating documents or amendments to review your objects or purposes. This is what the organization was created to do. Is it still doing it? Or are you guilty of mission creep and what you do today is not exactly what you originally said you would do? If so, take careful steps to change the objects purposes to be more reflective of your current operations. If you have changed your objects, you need to do proper filings in the jurisdictions where you operate and deal with CRA Charities Directorate if you are a registered charity.
All organizations should review their bylaws on a regular basis to see if the procedures outlined still work for them or to comply with any changes in the legislation that governs their bylaws. By now, those organizations that did continue under the Canada Not-for-profit Corporations Act should have reviewed and probably drafted new bylaws in conformity with this Act. They should have been properly approved and filed with the regulators.
The more sophisticated organizations that are cleaning out cobwebs should be reviewing the committees’ terms of reference, code of conduct for directors, skill sets of directors etc. Do you know what governance model your organization follows and are you clear about the role between board and CEO staff? Is there a regularly-updated manual for new directors, staff and volunteers? Do directors know what fiduciary means and what standard of care they will be held up to if there is a court case? An ongoing governance committee should be in charge of all of these things and is a valuable group of people in any organization. There is so much public information in Canada about non-profit organization governance that no committee will feel that it is on its own.
The troubles you can get caught in if you do not clean out your cobwebs could range from being challenged in court because you do not have the authority to do what you are doing to finding you have been hijacked by a group that has seen the loopholes in your governance and taken advantage of the opportunity for any number of reasons. If you value your organization, do not let it slip away.
Are there skeletons in your closet?
CRA will find them. It is unlikely that we will see many charities and non-profit organizations on the list of “panama deals” to attract the attention of CRA, but all organizations should do a general compliance check to see that they are keeping up with the rules that the Income Tax Act allows them to operate under to maintain their status of either tax exempt non-profit organisation or registered charity, whatever applies. If you are claiming to be a tax exempt organization, one big question comes to mind: are you filing the tax or information returns with CRA that are required? Many organizations are unaware of these requirements even though they are clearly prescribed in the Income Tax Act.
It should be well-known by now that failure to file the annual T3010 charity return is grounds for CRA to revoke the charitable status of an organization. However, due to a recent case (Opportunities for the Disabled Foundation v. Canada (National Revenue), 2016 FCA 94) charities need to pay special attention to the actual contents of the returns and ensure the information is accurate. In the case, the court stated that “the significant number of inaccuracies in the T3010 information return” of the organization justified the CRA’s and Minister of National Revenue’s decision to revoke the organization’s charitable registration. Review all lines in the T3010 for completeness and accuracy now that CRA has been armed with this.
If you are a registered charity, one other thing needs to be checked out. Are your books and records actually kept in the cloud somewhere but you really do not know where? It is still CRA’s position that if a registered charity keeps their records stored in the cloud on a server kept outside Canada, even if these records can be accessed electronically from Canada they are still not considered to be records in Canada. You may find that you will have to change your technology practices to get rid of the new and go back to the old way of doing things. This is especially true when you see courts saying things about books and records like “this basic requirement is foundational in the sense that the absence of proper books and records places the Minister in the position of being unable to meet her basic obligation to verify the accuracy and validity of the charitable donation receipts that the Charity has issued. Thus, it is apparent that this non-compliance on the part of the Charity is serious and justifies the Minister’s conclusion that the extreme sanction of revocation is warranted.”(Jaamiah Al Uloom Al Islamiyyah Ontario v. Canada (National Revenue), 2016 FCA 49)
Out with the old and in with the new.
If you cannot use the cloud and all the new technology that it offers, is there anything new that can be embraced by charities and not-for-profit corporations? There are a few things one could bring in to keep up with the times. Have you adopted guiding documents such as advocacy, privacy, harassment, and sexual orientation non-discrimination policies? Have you considered new investment and gift acceptance policies? Have you adopted rules and procedures for your meetings? There are myriad policies you can create to streamline your operations. See what other successful organizations are doing and emulate them.
Speaking of policies, if you do nothing this spring but one thing, please make it a review of your insurance policies. I am in Alberta so I remember the flood of 2013 and am watching with horror the fires of 2016 (a shout out to our very brave firefighters!) Many organizations rally to help in these disasters but many are evacuated and see their operations interrupted or destroyed like everyone else. Could this happen to you? Do you have proper insurance coverage? I recall an old proverb that goes something like when a crisis hits it is too late to act. Spring cleaning should start earlier.