The Federation of Calgary Communitiesfinancial Accountability Handbook

The Federation of Calgary CommunitiesFinancial Accountability Handbook

Section II – The Policies and Procedures

Financial Policies and Procedures Manual

What is a Financial Policy?

It is part of the Treasurer’s responsibilities to ensure that the Board develops, reviews and updates, as necessary, a set of financial policies that will provide an overview of how the not-for-profit will manage it finances. The financial policies should also incorporate the internal controls that help to define how transactions will be documented. Within each policy there should also be detailed procedures documenting how the organization will make effort to ensure compliance.

A financial policy is a written document that clarifies the roles, authority, and responsibilities for essential financial management activities and decisions. The purpose of the financial policy is to describe and document how the Board wants the financial management activities to be carried out.

In the absence of an adopted policy, staff and Board members are likely to operate under a set of assumptions that may or may not be accurate or productive.

TIP: Developing and adopting a written financial policy is a valuable practice for any not-for-profitorganization, no matter how small or large.

Developing and Approving a Financial Policy

It is important to create and adopt a policy that meets your organization's needs. There are some helpful steps you can take to make the policy as useful as possible:

1. Discuss policy needs with the Treasurer and Finance Committee or Executive Committee.
2. Conduct informal risk assessment.
3. Draft financial policy, followed by review and discussion by staff and Board leadership.
4. Present to Board for adoption.
5. Train staff on policy.
6. Review at least annually.

TIP: Because of the turn over in voluntary organizations, like community associations, setting policy will help to provide continuity over the long term.

Remember the Board has the following responsibilities which might help you in achieving your responsibilities as the Treasurer.

1. The Board should engage in ongoing planning activities as necessary to determine the mission of the organization and its strategic direction, to define specific goals and objectives related to the mission, and to evaluate the success of the organization's services toward achieving the Mission.
2. The Board should approve the policies for the effective, efficient, and cost-effective operation of the organization.
3. The Board should annually approve the organization's budget and assess the organization's financial performance in relation to the budget at least four times per year.
4. The Board is responsible for the financial health of the organization and should actively participate in the fundraising process through members' financial support and active seeking of the support of others. As part of the annual budget process, the Board should review the percentage of the organization's resources spent on program, administration, and fundraising, with a goal of at least ____(70)% of revenue used for programs.
5. The Board should hire, set the compensation for, and annually evaluate the performance of the executive director/CEO.
6. If the organization employs staff, the Board should annually review its overall compensation structure, using industry-based surveys of salaries and benefits and at minimum ensure that:

• a livable hourly compensation is paid to all employees, whether full- or part-time
• sufficient funds are allocated to contribute to full-time, permanent employees' benefit plans
• the Board establishes policies, when appropriate, on employee benefits, vacation, and sick leave

1. The Board should approve written policies and procedures governing the work and actions of its employees and volunteers. These policies and procedures should address the following: working conditions; evaluation and grievance procedures; confidentiality of employee, volunteer, client, and organization records and information; and employee and volunteer growth and development.
2. The Board should ensure that an internal review of the organization's compliance with known existing legal, regulatory, and financial reporting requirements is conducted annually and that a summary of the results of the review is provided to the entire board.
3. The Board should periodically assess the need for insurance coverage in light of the nature and extent of the organization's activities, its financial capacity and compliance with the insurance requirements required through their Lease or License of Occupations Agreement - any decision to make changes to general liability insurance coverage or Directors and Officers liability insurance coverage should be made only by the Board of Directors.

Policies, Best Practices and Suggested Procedures

In order to supply our members with the most critical information, the following provides some high level policy statements, best practices and suggested procedures that relate to the specific policy. The Board of Directors will clearly see policy statements and then, using the suggested best practices and procedures make their own custom policy and procedures that will meet their unique needs. This section is not exhaustive but rather highlights some of the most important areas of consideration.

1. Policy- Property, Plant & Equipment

Policy Statement

The Association values its assets at cost and amortizes Property, Plant & Equipment at the following rates:

Buildings - 20 years straight line

Furniture and equipment - 5 years straight line

Computer hardware - 3 years straight line

Other equipment - may vary*

*assets are amortized based on useful life, for example, building improvements, buy-out of leased equipment

Best Practices to Be Achieved

1. To reduce the possibility of a material misstatement on the financial statements, all Property, Plant & Equipment should be amortized according to Canadian generally accepted accounting principals.

TIP: According to Canadian generally accepted accounting principles Property, Plant & Equipment can be expensed or capitalized according to Section 4430 of the CICA Handbook.

Expense

“…if the average of annual revenues recognized in the statement of operations for the current and preceding period of the organization and any entities it controls is less than $500,000” then Section 4430.40 is allowable (can expense Property, Plant & Equipment in the period they are acquired).

Section 4430.40 states:

“…Organizations meeting the criterion…should disclose the following:

(a)the policy followed in accounting for Property, Plant & Equipment;

(b)information about the major categories of Property, Plant & Equipment not recorded in the statement of financial position, including a description of the assets; and

(c)if Property, Plant & Equipment are expensed when acquired, the amount expensed in the current period.”

Capitalize

“The Accounting Standards Board encourages even those organizations meeting the criterion in paragraph 4430.03 to follow all of the Recommendations of this Section.” (CICA HB 4430.04)

This means that all organizations should “capitalize all classes of Property, Plant & Equipment, amortize and write down those assets in accordance with this and other relevant Handbook Sections” (CICA HB 4430.04A)

Property, Plant & Equipment should be recorded at cost and amortized over its estimated useful life.

“The cost of a capital asset includes the purchase price and other acquisition costs such as installation costs, design and engineering fees, legal fees, survey costs, site preparation costs, freight charges, transportation, insurance costs and duties.” (CICA HB 4430.08)

“Useful life is the estimate of the period over which a capital asset is expected to be used by an organization.” (CICA HB 4430.05 (i))

Amortization

“The cost, less any residual value, of a capital asset with a limited life, should be amortized over its useful life in a rational and systematic manner appropriate to its nature and use by the organization. Amortization should be recognized as an expense in the organization’s statement of operations.” (CICA HB 4430.16)

Suggested Procedures

Property, Plant and Equipment Purchases

1. Property, Plant & Equipment purchases will be made according to the capital budget and approved by the Board before purchase.
2. Purchases with a value over $_____ will require three quotations before Board approval is sought.
3. Property, Plant & Equipmentwith a value greater than $______will be recorded as Property, Plant & Equipment and amortized over their useful life. Items under this amount will be recorded as expenses.
4. The Association will keep a list of Property, Plant & Equipment including the item, when purchased, and the purchase price.
5. When Property, Plant & Equipmentis no longer in use by the Association, it is disposed of and removed from the list and the accounting records.

2. Policy - Annual Budget

Policy Statement

In order to ensure that planned activities minimize the risk of financial jeopardy the Board will approve and monitor the Annual Operating and Capital Budgets

Best Practices to Be Achieved

1. The Board approves, monitors, and revises as necessary an annual budget that is tied to program outcomes and supports operations.
2. Board approves budgets that contain realistic projections of revenue and expenses.
3. A method is established for budget planning and monitoring at the program level.
4. Annual budget is tied to outcomes, is in alignment with available resources, includes staff input, and supports programs, administration, evaluation, and fundraising.

Suggested Procedures

Budget Process

1. The fiscal year of the Association commences ______.
2. The business plans developed by the Board of Directors will be used by the committees and staff to develop work plans and budgets for the year.
3. The budget planning process will commence at the end of the third quarter with a draft budget being presented to the Board at their regularly scheduled meeting the prior to year end - final approval will follow shortly thereafter, but before the first of the new year.
4. To start the process, the Board will provide certain budget assumptions to committees, program directors, staff and contractors and include things such as economic considerations, potential capital projects, and adjustments to programs and some salary increase guidelines.
5. The finance committee will review the draft budget and provide feedback to the committees and others who will update and return to the finance committee.
6. The finance committee will provide the budget with a recommendation to the Board as noted above.
7. The finance committee will develop a capital budget with input from others and make recommendations to the Board for approval.
8. Capital item expenditures will be approved by the Board as per the contracting policy.

3. Policy – Authority

Policy Statement

The Board of Directors is ultimately responsible for the financial management of all activities of the organization.

Best Practices to be Achieved

1. No one position is given total authority.
2. Checks and balances are in place to mitigate the risk to the organization.

Suggested Procedures

Authority

1. The ______(senior staff person or Treasurer) is authorized to act on the Board's behalf on financial matters when action is required in advance of a meeting of the Board of Directors.
2. The ______(senior staff person or treasurer) is responsible for the day-to-day financial management of the organization. The Board authorizes the ______to hire and supervise staff and independent consultants, pay bills, receive funds, and maintain bank accounts.
3. Two signatures will be required on all cheques.
4. The ______(senior staff person or treasurer) is authorized to enter into contracts for activities that have been approved by the Board as a part of budgets or plans. The Board of Directors must authorize any contracts outside of these parameters and all contracts with a financial value greater than $______.
5. The ______(senior staff person or treasurer) is authorized to manage expenses within the parameters of the overall approved budget, reporting to the Finance Committee on variances and the reason for these variances.
6. The Board of Directors must approve any use of the Board designated cash reserve fund.

4. Policy - Contracting

Policy Statement

The Association contracts with individuals and organizations to provide service to the Association.

Best Practices to Be Achieved

1. All contracts will be awarded in an atmosphere of openness, competitive opportunity, and equal access to information.
2. No contracts will be entered into that place the association in financial jeopardy.
3. If a contract is awarded to a company of a staff or board member, relative of the staff or board, this has to be documented and approved at a board meeting.

Suggested Procedures

Contracts for goods and services

1. Contracts must be consistent with the objectives of the Association and within approved budgets.
2. All contracts over $5,000 require a minimum of three quotations. The lowest bid will not necessarily be accepted; however, the reasons for accepting the higher bid must be documented and kept on file.
3. A Board member identifying a real or potential conflict of interest must withdraw from any discussion and voting on the contract.
4. Committee chairs must review all contracts for content and format.
5. The executive committee must give final approval for all contracts and approve all changes to contracts.
6. The Board chair, committee chair and the contractor must sign all contracts.
7. The committee chair requiring the contracted services must monitor delivery of the service.
8. They must review invoices to be sure that services have been received and that billings are consistent with contract specifications.
9. The committee chair then signs the invoice and forwards to the accountant for payment.

Employment contracts

1. Contracts will be signed by all employees of the Association, contracts will include start date, job title, details of compensation and benefits.
2. All contracts will be in accordance with Alberta Employment Standards and adhere to the Canada Revenue Agency around employment of employees or contractors.

5. Policy - Diversified Funding Base

Policy Statement

The organization generates sufficient revenue through a diversified funding base to support the administration, programs and life cycling of the community’s assets.

Best Practices to Be Achieved

1. There is a fund development plan that ensures a diversified funding base.
2. The organization engages in cost effective fund development activities.
3. Direct and indirect costs are monitored, including allocation of staff time to program, administration, evaluation, and fundraising activities.
4. A system exists for tracking revenue and expense streams to comply with government reporting requirements, funder's expectations and to effectively manage the organization's finances.
5. The association should follow the ethical fundraising & financial accountability code developed by Imagine Canada (

Suggested Procedures

Fund Development Plan

1. A fund development plan will be developed each year in alignment with the strategic, operating and marketing plan. The fund development group will work with the finance committee to help meet the revenue needs.
2. So as not to be, or appear to be, overly dependent on donations from any particular sector or type of individuals no more than ____(30)% of the overall budget will be obtained from any one funding source.
3. The association may solicit and accept donations from any individual or organization that supports the mission of the association. The association will not solicit or accept donations from ______.
4. The costs of fundraising activities are clearly reported on financial statements and during the campaigns themselves.
5. The donors’ restrictions will be respected for all funds. The funds will be restricted and reported upon as per agreements with the funders in return for their support; all donors shall be acknowledged graciously, thanked appropriately and kept apprised of the ongoing activities of the organization.
6. Investment and management of the funds shall be inline with the investment policy.

6. Policy - Financial Data

Policy Statement

All financial data is kept up to date and use Canadian generally accepted accounting principles.

Best Practices to Be Achieved

1. Organization obtains periodic independent reviews of financial record-keeping methods.
2. Board regularly approves financial statements.
3. Annual audits or reviews are conducted.

Suggested Procedures

Accounting system

1. The Association will use a commonly recognized accounting system for the day-to-day accounting of all transactions of the Association and will include all committees and programs of the Association.
2. Day-to-day accounting will be completed on a timely basis using resources as determined by the finance committee.
3. The accountant will use accrual accounting to provide the finance committee and the Board with up-to-date information upon which to base decisions.
4. The monthly financial statements will be available to the finance committee the third week of the month for previous month’s activities providing a monthly and a year to date budget to actual comparison and an explanation of variances greater than 10% of that month’s budget or 5% of the annual budget.
5. Adjusting entries into the general journal (ie. Not going through a sub ledger like A/P, A/R, Invoice, Payroll) will be provided to the Treasurer for approval once per month.

Financial Documentation

1. All transactions need to be entered into an accounting system.
2. Adequate documentation will be maintained to support all general entries.
3. At the end of each month, the ______(staff position) will prepare a balance sheet, income statement.
4. The statement of activities report will include a comparison to the budget.
5. ______(organization) will maintain its accounting records on the accrual basis in a manner that facilitates the preparation of audited financial statements conforming to Canadian generally accepted accounting principles.

Bank reconciliations

1. Bank reconciliations for all Association bank accounts will be completed and adjusting entries entered into the accounting system.
2. Bank reconciliations will be provided to the Treasurer for approval once per month.

Documentation filing

1. All documents relating to the accounting function will be filed using an appropriate filing system. This documentation will be readily available for finance committee questions and for audit purposes.
2. The documentation will be stored for the periods required by legislation.
3. The secretary of the board will prepare accurate minutes of all meetings of the board of directors and committees, and note all items in the minutes relating to finance and take appropriate action.

Selection of Auditor

1. The Finance Committee will recommend appointment of external auditors to the Board who will recommend the appointment to the membership at the Annual General Meeting of the Association.
2. After the AGM notify the auditor that they have been appointed.
3. One month before the year end call the auditor to book a drop off time for the records.
4. In order to facilitate the timeliness of the audit process, the finance committee will ensure that the engagement letter and other documentation required by the auditor are completed in a timely manner.
5. The committee will ensure that all documentation is readily available when required by the auditor.

7. Policy - Financial Filings

Policy Statement