Every few years the media raise the spectre of improper activity, misuse of funds, etc. in the non-profit world. Several years ago, the Starr affair in Ontario, concerning alleged political contributions, drew great attention. Whatever the truth in media coverage, how can non-profits and charities protect themselves against such allegations? The simple answer is to do what you are supposed to do. But saying so doesn't make it so; seeing that the work of the organization is properly done is far from easy.
This column describes a method organizations can use to monitor themselves on an on-going basis - a way to ensure objectives are met and limits placed on them by statute, contract, regulation, and public expectation are observed. It is addressed to limiting the liability of the organization. By doing so, it will test whether paid staff, volunteers, and directors fulfil their respective functions. This perpetual evaluation can be relatively simple and an effective deterrent to situations which might result in front page coverage.
The Idea
Every organization has to have some way to keep track and compare, some method to mark progress against established guideposts. This is particularly important for charities and non-profits with their tendency to turn-over in staff and volunteers. This technique is called a Compliance Audit. It has two elements: obeying the various kinds of rules which apply to the organization and regularly checking to see that these rules are being followed. Just like a financial audit, the compliance audit should be an integral part of the annual evaluation cycle of the organization.
The Method
What follows is an idealized statement of the approach. It presumes paid staff and a board that meets several times a year. The various parts of the technique require adjustment according to the size and complexity of the organization. The important point is to use some variation of the technique and modify it to meet the needs of your group.
Two key words and one phrase taken together describe the Compliance Audit method: authorities, compliance, and Compliance Audit Committee.
Authorities
Authorities refers to the laws, regulations, policies, contracts, and other rules an organization must observe. For a charity registered under the Societies Act, this includes the requirements of the Societies Act (records, meetings etc.), the need to file an annual return, the Income Tax Act rule to file T3010 every year as well as the requirement that administrative costs not be more than 20% of the income for which charitable receipts have been issued.
Compliance
Synonyms for compliance are obedience and observance. It means seeing that you do what you are supposed to do.
Compliance Audit Committee
This is a Committee of the Board of Directors like a Finance Committee. The Compliance Audit Committee will express its opinion to the Directors whether
- the organization has complied with the authorities which govern it;
- the matters which come to the Committee's notice during its investigation, or as directed by the Directors, are carried out in compliance with the organization's authorities;
- the policies and decisions taken by the Directors are in compliance with the organization's authorities;
- the management and information systems are organized, directed, and implemented to carry out the organization's mandate in keeping with its authorities;
The Compliance Audit Committee will report to the Directors any inconsistencies or non-compliance with authorities it finds.
Once fully operational, the role of the Committee is to monitor the operating health of theorganization. It is important that a proper tone be set. The Committee is not to be an organizational busybody, slapping wrists at every opportunity. Instead, it is to demonstrate that there are a range of rules to be followed. It also comments on whether that is being done and recommend ways to do it better.
Steps to Take
Set up a Compliance Audit Committee (CAC). Two is a good number, one person from the Board and one a staff or a volunteer. Give the Committee the job of determining what authorities apply. Make sure lists are made. Have the Committee review existing policies and procedures, contracts, returns, funding agreements, and anything that requires something to be done. Set up a compliance calendar: when things are supposed to be done and by whom. Have it reviewed by the Board and get agreement about its contents.
Create a Compliance Summary Sheet. The summary sheet is a tool used by the Committee to carry out the compliance audit. The summary sheet lists all resolutions passed by the Directors at each meeting, identifying whether the decisions are in keeping with the relevant authorities. At the next meeting, make the Report of the CAC the first item after adoption of the agenda. Any decisions taken at the immediately previous meeting which stray from what is supposed to be done can be attended to before it is too late. Once a year, conduct a general review based on specific directions from the Board. Keep it up. By doing so, your organization will gain a confidence that it is doing what it is supposed to do. Your planning will improve. And perhaps, least important of all, you'll keep out of the news.
Laird Hunter is a lawyer with the firm of Worton & Hunter in Edmonton, Alberta.
