Tips for Creating Your Organization’s Privacy Policy

When it comes to collecting and using data about your organization’s patrons and donors, it is imperative to have a privacy policy which meets the requirements of federal legislation, PIPEDA (the Personal Information Protection and Electronic Documents Act), and in some cases additional provincial legislation. The Office of the Privacy Commissioner of Canada has some information about the application of PIPEDA to charitable and non-profit organizations here.

Need help wading through the PIPEDA waters? Want to draft a privacy policy but don’t know where to begin?  Charity Central has created a Privacy Policy Checklist, a tipsheet designed to help you better understand your organization’s information-handling practices and why and how you should create a privacy policy.

Click here to view Charity Central’s Privacy Policy Checklist.

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Ten Tips for Making Clear Connections Between your Database and Financial Software

What is a database? A database is a means for organizing, storing, managing, and retrieving information. Your fundraising, box office, sales and accounting software are all considered to be types of database software.

Bookkeeping packages (e.g. QuickBooks, Simply Accounting) spreadsheets (e.g. Microsoft Excel) and database software (e.g. Sumac) are electronic tools for delivering a narrative on your operations and programs.  It is essential that you pay attention to the stories they tell;  it is equally important that these different sources communicate effectively with each other in order to deliver a  meaningful tale.

1. Who’s doing the talking? It is important to be consistent when communicating financial information. Decide which system will do the talking and which will do the listening. Having information flow in one direction will reduce errors, confusion, or missed transactions. Multiple databases in a single organization should be used simultaneously and reconciled to each other on a regular basis. Integrating your databases into your daily routine will help to support sound management.
2. Speaking the same language. When communicating financial information from one system to another it is important that the allocation is the same in both systems. For example, if you are tracking donations that are associated with a certain project or event in your database software, make sure you make the same allocation in your accounting software. This will help in the future when pulling reports from either system or doing reconciliations.
3. Doing a little bit at a time. Errors more often happen when you try to condense information. While it might be more efficient to do weekly reports, errors may occur if financial information provided by the database software doesn’t match what is in the bank. For example, if you are doing daily credit card batches, than weekly reports may not catch the information you need. Batch totals and generated reports need to have the same time parameters. Keep things simple and work on a consistent basis. While it might take a little longer initially, it will make it easier to identify errors, saving time in the long run.
4. Take time for the details. It might be easier to group contact information together when going from one system to another, but it can contribute to errors. Make sure whatever information you are tracking in one system is communicated to the other system. For example, record individual names and donation amounts rather than a batch total.
5. Keep an eye on things. Try doing regular reconciliations and comparisons between your database software and financial software. Tracking as you go will make doing a year-end reconciliation go smoothly, and will help you know where you are in regards to budget vs. actual.
6. Remember what you did. You are only as good as your information. (Garbage In/Garbage Out). If your database software gives you the option to record communications, such as emails, memos, or notes, try using the function with regards to financial transactions. If you have special notes relating to a transaction, record it in the communication notes for that contact for easy reference.  Storing important information pertaining to donors or other contacts will contribute to organizational history and make staff transitions easier.
7. Don’t leave it to the last minute. We are often leaving grant reports and year-end audits until the last minute, when it can be a headache to go back through months of activity to get the information needed for the report. Track as you go in both the database software and financial software. Doing it in both will act as a double check to make sure the numbers are correct, as well as take some of the stress of that last minute report.
8. It’s okay to anticipate. It is common to anticipate transactions, especially those reflecting revenues (eg. Held tickets, pledges, and confirmed grants). Make sure that if you are entering an anticipated transaction into your database software as a receivable, that you communicate that information to the financial software. Not doing so could result in double counting the revenue when the money does actually arrive. Be sure to compare receivables list from all databases on a regular basis.
9. Break it down. Most database software packages will allow you to break out details on transactions. Breaking out gross amounts, taxes, and any service fees applicable will help eliminate errors or the need for further calculation when entering data into the financial software. Make sure you have taken full advantage of all the setup features to automate standard charges (eg. service charges and sales taxes).
10. Where it all belongs. Similar to your financial income statement where revenues are tracked on a yearly basis, it is important to do the same in your database. Most database software doesn’t have the concept of deferred revenue, so you may have to indicate what year funds are allocated to. For example, allocating things like donations, grants, and ticket sales to your 2009-2010 season will make reconciling and reporting easier. It will also help in the budgeting process when you are able to pull up reports with precise data pertaining to certain years.

This tip sheet was created by Samantha Zimmerman 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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Ten Tips on Being a Better Bookkeeper for Smaller Organizations

1. Plug into the bigger picture. Maintaining the accounting records is a foundational element of financial management, and of the management decision-making process. If you only think about posting entries, then you’re probably not giving the client everything they need. Most small organizations need a bookkeeper who can help them manage their financial statements.
2. Keep your eyes on the prize. The ultimate goal of bookkeeping is to issue financial statements. Each session should probably end with you giving the client a report of some sort, e.g. year-to-date statements, or at least a progress update describing what was accomplished today. This engages the client in the process, and reinforces your value to management.
3. Check your own work. The bank reconciliation is a standard verification step. So is checking the invoice detail contained on supplier statements to the invoice detail in the General Ledger. What other steps can you take to prove the accuracy of your work before you issue reports? You may use different techniques in different circumstances, depending on the nature of the transactions.
4. Read reports before you hand them over. Beyond doing account reconciliations, it’s important for you to read the financial statements before you hand them to the client. This will help you pick up misallocations and other errors that your verification steps may not have caught. It also ensures that you are familiar with the statements as complete documents. This is of much higher value to the client than handling a bunch of individual transactions!
5. Encourage the client to read their statements. This may be more easily said than done, depending on the client. Clients who don’t read their financials are always bad news. Sooner or later something will go wrong that will require them to respond. If they aren’t familiar with those documents, look out! It’s much harder to explain something “under the gun.” Regular review builds their ability to interpret both good and bad news, and encourages them to understand and trust your work. Reading the statements with them can offer an excellent opportunity for you to share your expertise – and for the client to keep you fully up to date with the organization’s activities as they affect your work.
6. Be aware of the tax rules. Whether you handle the client’s government reporting, or whether you hand it to an accountant, it’s to your advantage to be aware of the rules. Even the smallest organizations are likely to have some dealings with the Canada Revenue Agency, and perhaps with provincial and municipal tax departments. You’ll almost certainly need to know the basics of payroll and sales taxes. If you’re working for charities or not-for-profits, you need to be aware of the particular filings they may need to make (e.g. T3010B, T2 Short, GST/HST rebate claims).
7. Maintain proper documentation. Ideally, each transaction will be documented by an invoice, contract, receipt, petty cash report, cash register tape, or other third party or internally generated explanation. Decide what you need to retain in the case of direct debits, electronic funds transfers and other online transactions. Know the Canada Revenue Agency records retention rules, which are available on their website at www.cra.gc.ca. In most cases (but not all), you must maintain full detail for the current fiscal year plus six previous. Financial statements and general ledgers must be maintained back to the start of the organization. Make sure that your electronic records can be read for the full retention period. This may mean updating software and transferring documents off old media (remember floppy discs?) onto something current.
8. Maintain a good audit trail. The audit trail links the steps in the bookkeeping process, from source documents to financial statements. Your software probably enforces a certain amount of audit trail notation – for instance, by making you enter invoice numbers in the purchases journal, to link the entry back to the paperwork. You can strengthen the process by recording the account number and a posting reference (e.g. journal entry number) on the invoice. If the organization hires a chartered accountant to perform an annual audit, they will appreciate the clarity this adds to the records. A good audit trail will also help you to review your work and respond to client questions.
9. Keep pace with change: adapt your system and processes. “The way we’ve always done it” can’t last forever – or we’d all still be adjusting our eyeshades as we bent over our quills and inkwells! As new technologies emerge, and as the client’s needs for reporting change over time, think about your software, paper and electronic records, office processes, and the layout of the financial statements (chart of accounts). From time to time, it will probably be to your and the client’s benefit to update. Your ability to take the lead in proposing improvements underscores your value to the organization.
10. Help the client to help you. Determine what you need from them in the way of documentation and instructions. Work out a clear process for getting the information, and for storing records once they’ve been entered. Establish reasonable deadlines – for them providing the raw materials, and for you providing reports. Discuss what reports are required, in what format, and who will receive them. A good bookkeeper can help to create a structured process that makes accounting clearer and easier for everyone – including you!

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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Ten Tips for Managing Your Bookkeeper

Your bookkeeper is a key member of your team. To get the best out of them you need to manage the relationship, as you would any staff.

1. Be involved in the process. You may have hired a bookkeeper to “make it all go away.” But, no matter how wonderful that bookkeeper is, they can’t do a good job without your input. Yes, they should be able to code the phone bill to the telephone expense account – but there will be other transactions where they’ll need your clarification and instructions; and you need to understand the underlying logic as you prepare your management reports.
2. Bookkeeping feeds into financial management. You are still the manager. You must be in charge even if you hate numbers. Ditto for your board.
3. Ask questions. Provide feedback. Ask more questions.
4. Decide how much detail you require for program decision-making, management/board decision-making. Use this to shape the chart of accounts, as well as the nature and frequency of reports you require from the bookkeeper.
5. Make things simpler where you can. Standardize processes for gathering information.
6. Provide a space, a desk, a computer, storage for active files (waiting to be processed) and completed work.
7. Provide advance warning of meetings/other needs for reports – e. g. grant deadlines – to avoid scheduling conflicts.
8. Know what your government reporting obligations are for payroll, sales tax, charities reporting, etc. Learn what the tax returns look like and how to read them. Put the due dates in your calendar. Check up from time to time.
9. Know how the work is verified. In particular, learn what a bank reconciliation looks like and read it from time to time.
10. Read your statements . . . no surprises!

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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Ten Tips for Analysing Your Organization’s Operating Statements

Understanding your organization’s financial statements is essential to controlling the purse strings. These ten tips are intended to help you better assess and interpret your Statement of Operations – a.k.a. Income Statement, Statement of Revenues and Expenses, Profit and Loss Statement (P&L).

Your operating statement captures revenues and expenses, and the difference between them: a breakeven (revenues = expenses), or a surplus (revenues > expenses), or a deficit (revenues < expenses). This statement mirrors your day to day activities. Understanding it is essential to making sound operational decisions for your charity.

1. Understand your financial documents. Formal financial statements (including those prepared by professional accountants and those generated by commercial software programs) are designed to be understandable by people who’ve made a reasonable effort to learn how to read them. It’s worth taking the time to become familiar with the layout and terminology. Read your operating results regularly. The more familiar you are with your organization’s reports, the better you’ll become at spotting good news and bad news, and knowing how to address potential problems.
2. Read with a critical eye. If you’re the manager, and you’re not “hands-on” with the bookkeeping, it’s important for you to be alert for accounting errors. Even the best bookkeepers finger-slip from time to time. Does a certain number look surprisingly high or low? Ask about it! Your constructive feedback supports and encourages excellent staff work.
3. Relate your revenues and expenses. The operating statement is designed to compare revenues to expenses, and tell you whether you’ve made or lost money. Within that, though, much can be learned by comparing specific revenue and expense items. For instance, what is the difference between Fundraising Revenue and Fundraising Expenses? Are you getting a satisfactory return from your investment in fundraising? Similarly, compare program revenues to program expenses. Do your various activities net to a financial gain or a financial investment? (Either can be fine!) Comparing revenues and expenses by area will help you to evaluate whether you’re maximizing opportunities, and deploying your resources effectively.
4. Relate this year to your overall financial position. This year’s operating result is Revenues minus Expenses, leading to a surplus, deficit or breakeven. The Balance Sheet shows your organization’s “lifetime” result – the accumulated surplus or deficit – in the Net Assets section. This year’s revenues contribute to the accumulated surplus or deficit, and this year’s expenses reduce it. Reading your operating statement without ever looking at the Balance Sheet can be a dangerous business! Consider: your operating statement might show that you’re in good financial shape this year – but if you have a huge accumulated deficit from the past, you might still be in trouble. You would only know that by reading the Balance Sheet. By the same token, your operating statement might show big financial problems for the current year – but if you’ve got a bigger accumulated surplus from the past, you might still be ok. (NB: see also “Ten Tips for Analysing Your Organization’s Balance Sheet.”)
5. Variance analysis – don’t look at this year’s results in isolation. A single column of numbers showing this year’s operating results can actually be quite uninformative! Compare your revenue and expense actuals to the budget, to assess whether you’re meeting your goals – and whether you need to change tactics. Create this variance analysis column in your report using the formula (Actuals – Budget = Variance). Similarly, compare this year to the same period from last year, to learn how your results stack up against past accomplishments. This can help you to evaluate how you’re managing within an ever-changing environment. Create this variance analysis column using the formula (This Year – Last Year).
6. Ratio analysis – percentages highlight the “weight” of numbers. Using spreadsheet software, it is quite straightforward to calculate each revenue item as a percentage of total revenue, and each expense item as a percentage of total expense. Use the formulas Revenue Item / Total Revenues x 100, and Expense Item / Total Expenses x 100. These ratios can be easier to scan than the “hard numbers,” because they’re all on a common base of 100. You can use a separate column to create another set of ratios that will convert your variance analysis to percentages. For instance, in the previous bullet-point you read about creating a budget variance column using the formula Actuals minus Budget. You can convert this to a percentage using the formula (Actuals – Budget) / Budget x 100. It is easy to scan the percentages and tell at a glance where the high and low rates of change are – and to focus your attention on the items that need it most.
7. Trend analysis – past data has predictive value. Your past accomplishments offer guideposts towards your future. If you know you’ve achieved a certain result before, you can assess whether you’re likely to pull it off again. If you’ve never achieved a certain objective, be careful about counting on it as part of this year’s forecast! You need at least three years of results (ideally more) to identify trends. (A year over year change could be a “blip.”) This can be done easily in a spreadsheet: use Column A to list your revenue and expense categories, and Columns B onward to record past operating results. Each year, add a new column of results to your spreadsheet, to build a picture of your charity’s financial history. Most spreadsheet software will readily convert your table of numbers into helpful graphs, to provide visuals of your financial trends.
8. Comparative analysis – keeping an eye on the Joneses. It’s very easy to be immersed in your own organization’s day to day challenges, and lose sight of what’s going on in the sector as a whole. Knowing how your charity stacks up against comparable organizations can help to validate your results – or it can galvanize change. Networking with colleagues can be very informative. Some sectors of the charitable world have associations that gather and disseminate comparative data to help you assess your progress.
9. Use publicly available comparative research data. All registered charities in Canada must file a T3010B Charities Return within six months of their financial year-end. These returns (minus certain confidential information) are publicly available on the Canada Revenue Agency website, at www.cra.gc.ca/charities. Do you want to know how another charity is doing financially? On this website, you can access a summary version of their financial statements, plus general information on their activities, fundraising practices, staff and board.
10. Go beyond the numbers. Financial figures only capture so much. You need to understand the organization’s context in order to interpret them accurately. It’s important to supplement financial documents with information on your operating environment. Internal factors might include human resources issues and future obligations (e.g. the operating report shows this year’s rent expense, but doesn’t indicate how long the lease is, or what annual escalations you are expecting). External factors might include economic, taxation and regulatory circumstances.

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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Summary of a Simple Bookkeeping System

This basic outline captures the key elements and processes of a bookkeeping system for a small organization. Bookkeeping should follow standardized procedures. It should fit into a management system that includes regular financial statement of review, and feedback to the bookkeeper.

Business papers/source documents. These are the “raw materials” of bookkeeping: invoices, receipts, contracts, leases, sales reports, cash register tapes, etc. Each item may trigger a transaction, such as issuing a cheque or making a bank deposit. Ideally, all transactions will be documented. That is, there will be some explanatory paperwork that offers proof that expenses are legitimate, and that the company received all the revenue it was entitled to. The Canada Revenue Agency requires most organizations to retain their business papers for the current year and six previous years for audit purposes.

Withdrawals and deposits. Most transactions take the form of withdrawals from or deposits to the bank. Not that long ago, most business bank transactions were made by cheque, which provided excellent documentation. Nowadays, online banking, electronic funds transfers, preauthorized payments, direct debits and other electronic transactions are becoming more prevalent. Make sure you retain sufficient documentation of all items. This not only meets your CRA requirements – it also ensures that your bookkeeper has enough information to compile accurate records.

Journals. All of your accounting entries are made in journals. Journals capture financial transactions day by day; note the French root “jour.” Most accounting software packages provide an array of journals, organized by type of transaction. For instance:

• the purchases journal records incoming bills (accounts payable)
• the payments journal records cheques or other forms of withdrawal, to pay those bills
• the sales journal records invoices issued to customers for goods/services (accounts receivable)
• the receipts journal records payments from customers to clear those receivables
• the payroll journal records employee paycheques, with a detailed breakdown of deductions and employer contributions (e.g. EI, CPP, company health plan)
• the general journal offers a catch-all for items such as error corrections that may not easily fit elsewhere

If I purchased a newspaper ad for $1000 plus HST, my journal entry might look something like this:

Date	Description/Account	Debits	Credits
May 30, 2011	The Weekly News re: ad buy
	Adverstising Expense	1,000.00
	GST paid on purchases	130.00
	Accounts Payable		1,130.00

General ledger. The general ledger reorganizes the data captured in your journals into an account by account format. Note that my advertising payable entry, above, updates three accounts: accounts payable, an expense account, and the GST/HST account. The journal entry captures all of this as one record. In the general ledger, the lines are split up and assigned to the individual accounts:

• A $1,000.00 debit would appear in the Advertising Expense account
• A $130.00 debit would appear in the GST/HST Paid on Purchases account
• A $1,130.00 credit would appear in the Accounts Payable account

The general ledger allows you to review transaction detail by account. For example, the Advertising Expense account would list all my ad buys throughout the year, with a running balance showing the total spent in this category.

Check your work: Bank reconciliation. Most business bank accounts provide monthly statements by mail – although with online access, you can see your statement any time you want. Because cash is the lifeblood of small organizations, it is crucial to prove that your books show the accurate bank balance. The bank reconciliation provides a structured way to compare the bank’s records to yours and identify variances. It is normal for the two balances to be different – but you should be able to explain those differences to the penny. Some need to be corrected – for instance, errors (yours or the bank’s) and bank charges or interest that you hadn’t posted. Other variances are legitimate – for instance, cheques that you issued that have not yet cleared. Legitimate reconciling items such as these should explain the difference between the bank statement and your books.

Check your work: Other reconciliations. Your bookkeeper may have similar methods of verifying other accounts. For instance, some suppliers send monthly statements listing all outstanding transactions. These can be compared to the payables records. The Canada Revenue Agency provides regular payroll statements that can be compared to the source deduction remittances you have made.

Financial statements. The statements summarize the information in your ledger. They take the month-end balances in all of the accounts, and slot them into two statements: the Balance Sheet (a.k.a. Statement of Financial Position or Statement of Fund Balances) and the Income Statement (a.k.a. Profit and Loss Statement, P&L, Statement of Revenues and Expenses, Operating Statement).

Read your statements regularly! Typical moments for reviewing statements are: at month-end, at the end of a project, prior to a board meeting. You should always do so with extra care at the end of the fiscal year. Many not-for-profits engage a chartered accountant to audit their statements. The auditor tests the transactions in your books for accuracy, makes any changes s/he feels are necessary (with your approval!) and presents a formal set of statements for the year.

Check your work: Do the statements look right? Some errors can only be caught through the scrutiny of someone who knows the company's financial activities well. For instance, the bookkeeper could record a purchase in the wrong expense account and the bank reconciliation wouldn’t reveal the mistake. The manager, who knows what purchases have been made, may be able to spot the problem by noticing that one expense account is surprisingly high and another surprisingly low. This is not a very scientific way of checking – but it’s extremely effective in the hands of an astute manager who questions everything that looks unusual, and pursues answers until they’re satisfied that the statements fairly reflect the company’s activities.

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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