UPDATED: Bureaucracy 101: Today, Class, We’ll File an RC59 Form!

Staff Post
By Heather Young

See update below on a new CRA form which allows changes to a charity’s director, trustee, or like official information .

Somehow, successfully completing an RC59 Business Consent form – which authorizes access to CRA accounts for HST, payroll and more – has often felt like a hit or miss process. Sometimes there’s no issue, and in other cases it has taken repeated attempts to get account contacts updated.

I had an illuminating conversation with a CRA officer that has helped to resolve some important misunderstandings, and I’d like to share what I’ve learned.

The RC59 form identifies two levels of authorization. Level 1 allows information-only access: that’s what your bookkeeper should have. Level 2 individuals are authorized to make changes to the account and the information it contains: that responsibility should belong to your organization’s senior staff. CRA lists the actions that can be performed by each level here.

One of the potential disconnects to understanding the process is that there’s actually a Level 3 which is not directly referenced on the RC59 form, although you’ll find its powers itemized on the preceding hyperlink. A Level 3 individual is also referred to as a Delegated Authority – a term that appears in the RC59 instructions section under the heading “Part 5 – Certification.” Only individuals authorized at Level 3 are allowed to sign (certify) RC59 forms. 

Note that, by virtue of their position, members of your board of directors automatically have Level 3 access to your CRA accounts. Your Executive Director or General Manager does not: they must be appointed by a Director. 

The RC59 instructions state, “This form must only be signed by an individual with proper authority for the business, for example, an owner, a partner of a partnership, a corporate director, a corporate officer, an officer of a non-profit organization, a trustee of an estate, or an individual with delegated authority.” 

The potential misinterpretation is to fail to recognize “delegated authority” as a legal term with a prescribed meaning. In the not-for-profit world, boards of directors commonly delegate a broad span of authority to their senior staff, who, for that matter, may have the term “officer” in their job title, as in Chief Executive Officer or Chief Financial Officer. The fact that you are responsible for CRA reporting, or that you sign T3010s or any other tax-related documents carries no weight, and the only officers CRA recognizes are the officers of your board of directors, such as the President, Treasurer or Secretary.

Individuals can be appointed to Level 3, Delegated Authority, upon proper completion of an RC321 form, Delegation of Authority. Since staff typically handle the nitty gritty of CRA interactions, it may be convenient for organizations to appoint their ED as a Delegated Authority, so that they have the ability to manage other account representatives. 

The whole system rests on CRA having access to a current list of directors and officers of the corporation. We’ve often been in the position of filing an RC59 after a long-serving staff member departs – and learning, after much bother, that the only other contacts on record with CRA are ancient history. 

And, here is another disconnect. Registered charities are accustomed to sending CRA a detailed board list annually as part of their T3010 Charities Return. All corporations (commercial and not-for-profit) must also file annual information returns to the appropriate jurisdiction (provincial or federal), naming their directors so that they can be added to the public record. However, CRA’s Business Number (BN) Services Unit does not employ these sources of information. 

You need to make a special request to CRA to update your board list for the purpose of BN administration. There is no official form for this task. According to the CRA officer I spoke to, you must write a letter requesting the update, listing your board members, and providing proof of their appointment; for instance, a copy of the AGM minutes including the motion electing the board. A search of the CRA website for confirmation of these verbal instructions yielded this link, which affirms the general intent, but does not specify the process. If you need to update your board list with CRA, perhaps a phone call to the Business Window (1-800-959-5525) would be the best place to start.

Note that CRA can ask board members to provide their Social Insurance Number. The Charities Directorate does not collect this information, but the CRA at large requires it because board members bear a personal liability for amounts held in trust for the Receiver General, such as unpaid payroll source deductions and HST remittances. 

With your board list up to date, you will always be able to update the RC59 as needed. Putting this on your AGM “to do” list sounds like a good addition to administrative best practices.

So, class, what are today’s main take-aways?

Well, I hope that this information helps to put RC59 woes behind us – but, really, the most important lesson to be learned is the significance of board members to what we usually classify as an administrative process. I suspect most ED’s would prefer that their board members stay out of the minutiae of CRA dealings – but in fact the law assigns Directors an essential role.

By virtue of their position, they have full access to the corporation’s dealings with CRA, and they are the gatekeepers to staff, who are typically charged with direct responsibility for tax filings, remittances and related matters.

And let’s not forget the financial liability issue. When someone joins your board, they assume personal responsibility – legally, up to the point of being held accountable for payment! – for ensuring that taxes are collected, reported and remitted according to the law.

The issues around processing RC59s serve as a good reminder of board members’ fiduciary responsibilities, the details of which may become lost or blurred in the day to day reality of their role as informed, engaged and active volunteers, supporting the paid professionals who carry out administrative operations.

Update:

Some feedback from one of our clients: 

Both Young Associates and [redacted] now have Level 1 authorization to quote "interact with the Canada Revenue Agency." 

I should give a big thank you for all parties involved, with a special shout-out to Heather for giving us very detailed instructions, and for her written column on the RC59, and for [redacted]'s assistance is helping us submit the forms 7x, or so.

I know more now than I ever wanted to do about this process.

update 2: 

As of December 2016, the CRA has created a form to change or update a charity’s director, trustee, or like official information. The form can be submitted by email, fax, or snail mail. Visit the CRA website for more information. 

Note from the CRA: 
This form does not replace the requirement to complete Form T1235, Directors/Trustees and Like Officials Worksheet, when you file your Form T3010, Registered Charity Information Return. Form T1235 is used to update the director, trustee, and like official information in the Charities Listings.

Ten Tips for Reporting Financials to the Board

Ever had a moment of dread when preparing for a board meeting? Board meetings do not always have to be the event we wished we could skip. By establishing expectations for clear communication between board and staff and creating a common base of understanding of the company’s finances, your board of directors can become a foundational resource for your organization.

To uncover some of the best tips for financial reporting to your board, Young Associates interviewed senior managers and collated their views on handling financial reporting to the board of directors. We would like to thank Soundstreams Canada, Prologue to the Performing Arts, Toronto Dance Theatre, Crow’s Theatre, Playwrights Guild of Canada, and Dance Ontario for their support and assistance in creating these tips for financial reporting to boards of directors.

Now, for some tips on best practices:

1. Don’t give up; the right Treasurer is out there! Just like dating…you don’t always meet the right one for you first time out. Seek a Treasurer with a strong financial background who can help you prepare and present board reports, address the Annual General Meeting, and support the development of the annual operating budget. It’s often a balancing act between accounting training or business skill, and an understanding of the not for profit world. Having the right credentials is great, but may ultimately be less important than finding a compatible person. So, finding a CA or Bank Manager may not be essential. If you’ve found somebody who has great technical skills, but is new to the sector, it’s up to you to help them deliver their best by cultivating their engagement with your organization and the sector.
2. Gauge the financial comprehension level of your board. It’s not necessary for everyone on your board to be financially literate, but according to our interviewees, it’s extremely helpful to have multiple board members with at least a basic grasp of financial management. How much they understand the financial stuff will influence how often and how in depth financial reports are presented at each board meeting. With a board comprised solely of artists, you risk a lack of financial comprehension and understanding, making presenting financial data difficult, timely, and at times, ineffective. At the same time, if your board is comprised only of those with strong financial backgrounds but with little understanding of the organization’s mandate, then you risk focusing solely on financial matters and at the expense of other mission related topics that need to be addressed.
3. Sometimes the ideal is not the realistic. While it would be nice to have a healthy balance of individuals with practical financial management experience and arts people (or people from whichever sector your charity occupies) on a board, most of the time, this is not the case. Ideally, it would be great if all board members read reports prior to the meeting, and attended all the organization’s events accompanied by some of their friends and colleagues. The reality is that some board members will not do that on their own accord. Learning from our interviewees, the best approach is to promote the engagement of all members, creating policies for them that ensure that their participation on the board will benefit the organization and its bottom line. Examples include attending 75% of the performances in a fiscal year, contributing an annual donation to the organization, and recommending colleagues with sought-after attributes. Although you may not reach the ideal, you can still reach a realistic goal with your board that benefits the organization, and communicate how the actions of board members impact the financial reality of the organization.
4. People are always changing. Be prepared for that moment when your beloved Chair or Treasurer has reached their maximum time as a board member, and you have to go about finding a new one, (one you are worried will not be as compatible!) But that’s okay… and normal! Outlining the qualities and attributes that your previous member had, or ones that are missing from your current board will help narrow your focus in recruiting a new candidate. All of our interviewees have been in that position, and said they were open to recommendations and referrals from other board members, colleagues, and confidants. Remember, the point in the recruitment cycle when you need to pay attention is when the new VP is being sought. Start setting standards and building relationships then; thus, when they arrive as your new President, you have been grooming them for up to two years!
5. Send out materials ahead of time. Sending out materials (board report, balance sheet, income statement) to your board members prior to the meeting gives them time to prepare questions and concerns in advance. It can save you time at the board meeting because it is anticipated that everyone will have reviewed the material. A board with members who possess strong financial comprehension skills may not need to see copies of the reports prior to the meeting – unless there is a specific issue at hand that needs to be addressed. For most of our interviewees, sending out the material ahead of time allowed some of their directors time to process the information, and save valuable meeting time.
6. Not all board meetings need a balance sheet and income statement. If an organization has a Treasurer who possesses a background in chartered accounting, then that individual tends to keep such a close eye on the finances that regular viewing of the balance sheet and income statement would become redundant and unnecessary for both the Treasurer and the other members. This is not the case for most of our interviewees, who include a balance sheet and income statement in the board reports that are sent out at least a week in advance to the meeting, allowing them some time to review the month’s finances and keep up to date. Most of our interviewees use the balance sheet and income statement to continue engaging their board on financial matters, allowing for complete transparency of the numbers.
7. Consider if your board meetings need to include a standard financial agenda. A common principle for financial reporting to the board is to schedule financial reporting at every single board meeting. For our interviewees, this varies based on the level of financial comprehension of their treasurer and board. For organizations with a strong Treasurer, financial matters would only be discussed if absolutely necessary. For other organizations, it becomes necessary to include a financial agenda at every meeting in order for everyone to be on the same page. Creating a standard agenda focusing on addressing any issues with the financial data is one way to encourage board members with limited financial knowledge to ask questions and become more engaged with the financial operations of an organization.
8. Plan to connect with your treasurer before each board meeting. Most managers do not have a lot of time in a board meeting to talk at great lengths about the financial matters at hand; therefore, preparing beforehand with your treasurer can ensure that both of you are on the same page and more importantly, that they are able to understand your perspective on the finances. If your treasurer has a strong financial background, then he or she can help you determine the reality of your financial position, and work together to map out how to present the information effectively to the rest of the board.
9. Board meetings do not have to occur every month. While common principles call for board meetings to run every month, most of our interviewees push it to every 6-8 weeks. Timelines can be affected by physical distance between members, and scheduling. While it is good practice to plan out each meeting date at the AGM, in reality many organizations decide on the date at the prior meeting. The most important thing to take away is that board meetings should be consistent and require all members to be present and prepared.
10. Make sure your board is “on board”. Remember: your board members are the legal representatives of your organization. It is their responsibility to be committed to your organization by reading the board reports, engaging in the organization’s activities, and helping with fundraising initiatives. You shouldn’t have to parent your board members to make sure they do all their readings. Make it clear to the board what is expected of their position, and how beneficial their efforts are to the organization. It doesn’t matter if they come from a business, finance, or arts background: all of them are expected to be engaged with and updated on the events and happenings of the organization, as well as the financials. Make sure your board members are aware of their duties and do not get caught up in using their position as a resume booster, but rather they prioritize the mandate of the organization.

This tip sheet was created by Caroline Bendiner, Centennial College Intern from the Cultural Heritage & Site Management Program. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

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Ten Tips for Better Financial Planning

If bookkeeping is the bricks and mortar of your financial reporting system, then financial planning is the architecture; effective financial planning can better prepare your organization to respond whatever happens on a daily basis.

1. Failing to plan is planning to fail. It’s an old saw, but a good one! You wouldn’t start on a long trip without a road map and a destination; by the same token, you shouldn’t launch a new year of activities without a financial plan that lays out some sensible goals – and boundaries. That plan is your annual operating budget – a statement of your programs and activities in dollars and cents. The budget is your financial road map, a key operating document approved by your board as a current-year operating policy, defining and quantifying your targets for spending and raising money.
2. Put it in writing. Your plans will undoubtedly change as the year unfolds, and you respond to changing circumstances (a budget is an adaptable planning tool to help predict your future; financial statements are historical documents that record where you’ve been). However, keeping a clean copy of that initial budget is important! It serves as a yardstick for measuring your progress in fulfilling your plans – and your success at adapting them to your organization’s evolving situation. A written document provides a solid basis for comparing plans to results. It is also an excellent tool for sharing information amongst your organization’s leadership and staff.
3. Share responsibilities effectively among your staff, board and volunteers. What’s effective depends on the nature of your organization and the individuals involved. For some charities, financial planning is staff’s hands-on responsibility, with board members in a governance role, approving the results or requiring changes. In other charities, board members – e.g. the President or Treasurer – take an active role in planning. Some have a Finance Committee, where volunteers outside the board contribute to the process. Often, smaller organizations need more volunteer support, and larger ones delegate more responsibility to staff. Consider what will work best for your organization at this moment in its life cycle.
4. Identify and use all resources. Chances are, you recruited board members based on the skills, connections and support they could bring to your charity. Are your directors fulfilling those roles for your organization? If not, have you talked to them about stepping up to the plate? Consider, too, that your directors may be able to recruit colleagues or friends to provide pro bono support for specific needs. If your organization has an annual financial audit, don’t forget to use your auditor for accounting, planning and tax compliance advice. Your banker, broker, government funding officer and others should be able to contribute planning advice on trends and opportunities for your organization.
5. Think about how to share financial information. Personal data such as staff compensation must, of course, be treated with care. More broadly, though, it is important to think about who needs to know about your charity’s financial situation, and at what level of detail. You wouldn’t want staff or volunteers to be worrying needlessly.But, if you need their input, you must provide enough information for them to offer an informed opinion. You can share financial data in a controlled way by preparing mini-statements by program or activity, as well as a complete operating statement. You can also prepare both detailed and summary (“high-level”) financial statements, to be disclosed depending on people’s level of engagement with the challenges at hand.
6. Secure board buy-in to your plans. A charity’s board of directors is legally responsible for the organization. In situations where staff are front and centre in terms of running the show, board members may become complacent – but they are still on the hook! Staff should ensure that board members receive – and read – and understand – budgets, cashflow projections, financial statements and other key financial planning documents. It’s important to be clear with your directors where the risks lie in your plans for the year. If those plans go awry, you need them to stand behind you and back you up. The organization’s financial plans must be the board’s plans too.
7. Secure staff buy-in to your plans. Staff are instrumental in carrying out the plans for the year. The more they feel ownership of the targets set for their position or their department, the more invested they’ll be in achieving those goals. If belt-tightening is in order, you need your staff, especially those in leadership, purchasing and revenue generation roles, to be fully on board with whatever needs to be done. Develop appropriate ways to bring them into the process of brainstorming, generating options, and making decisions.
8. Follow an annual planning agenda. If an organization is very project-driven, each year may be quite different from last year and next. However, many organizations have a well-understood annual routine. In these cases, financial planning should also follow a well-defined pattern where the tasks associated with creating, reviewing and adjusting plans happen in the same order, within about the same time frame, with the same participants each year. A written annual planning agenda (for instance, setting out key tasks by month) can be used to ensure staff and board understand what will be expected from them. Your planning calendar will also help you identify and meet external reporting deadlines, e.g. funding applications and tax returns.
9. Create time for planning. Make sure your work schedule allows time to read and analyse financial reports, think about the implications, consider your options and prepare well-researched plans for your programs and overall operations. This is even more important for Board members who meet intermittently; get the financial statements to them before they need to act on them. The worst decisions are often the ones made under pressure in the midst of a crisis. If you’ve invested time in contingency planning – anticipating problems and brainstorming “what-ifs” and possible responses – you will be much better prepared to give a measured response and a sound decision.
10. Take the long view. “Now” always seems to be the imperative. Staying on top of today’s demands can take all your time. However, this year is just one more milestone in your organization’s life. You need to consider this year’s plans in context with medium- and longer-term objectives. This year’s operating budget carries through from last year’s results, and it should help your charity achieve its plans for the future. Situating each year’s budget within a multi-year strategic plan is an excellent way to anchor your financial planning.

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

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