Evaluating COVID-19 Impact: Effective Bookkeeping Practices

Your accounting system is your primary tool for capturing and reporting the financial dimension of everything that happens within your organization. This tip sheet will help you consider changes to the structure of your books to enable clear and accurate reporting on the impact of COVID-19. Our view, grounded in accounting principle, is that the permanent account categories should be minimally altered, and that you can achieve your temporary reporting needs through alternatives like “classes” (explained below).

Note that we use QuickBooks as the basis for illustrations; that’s where the term “class” comes from. We endeavour to explain in a way that will work for other accounting apps too.

Need help? Contact us at info@youngassociates.ca. 

For those who’d rather DIY, here’s how. 

The audiences for your accounting reports

It’s useful to think of writing for an audience – or, more commonly, multiple audiences. The readers of your financial statements (staff, board, third parties) make decisions: developing internal strategy, passing a budget revision, awarding a grant, renewing a membership, etc. What information might each stakeholder require, and at what level of detail?

Review the existing account categories in your books. Are they sufficient for the array of COVID-19 related reporting you anticipate? 

It is likely you will need some additional categorization. The following tips will help you achieve your COVID-19 reporting needs efficiently.

Our recommendations

Minimize changes to your chart of accounts.

Utilize reporting by class and other bookkeeping subdivisions to produce COVID-19 impact reports.

Good housekeeping

Skilled bookkeepers think about short- and long-term reporting requirements, bearing in mind the importance of year over year comparability. They have an eye to the relevance of accounting information, and its usefulness in providing feedback (e.g. on the impact of change) and in supporting forecasts of future activity.

We know that COVID-19 reporting will be required in the short-term. No one knows yet what the long-term ramifications may be. We favour a conservative approach to adding account categories.

A good rule of thumb is to add categories that will contain at least 0.5% of your expenses. Thus, for a company with a budget of $1,000,000, the smallest expense lines would contain at least $5,000. Same applies to revenues.

Account categories and financial statements

The account is the basic unit of categorization in your books. When your bookkeeper produces a balance sheet and operating statement (also known as income statement or P&L) from your books, you’re seeing the account categories. One account = one line on the financial statements.

Suggestions for new COVID-19 related accounts

Revenues: The federal wage subsidy may merit its own account, as a unique revenue source, or you might bookkeep it to an existing “Federal – Other” account. Consider any new sources of revenue that might arise from your pandemic response.

Expenses: Same concept. A new category of spending may merit its own account.

Contra accounts:  A contra account has the opposite balance to the normal account. For instance, an organization issuing COVID-related refunds might add a contra-revenue account to capture the refunds. That way, the statements would show 100% of the initial revenue and 100% of the refund, thereby clearly demonstrating the impact of COVID-19.

Balance sheet accounts: New cash accounts, lines of credit and other loans require separate accounts. If you are creating a new fund related to COVID-19 (e.g. a relief fund) you may need a separate net assets account to segregate it properly.

Accounting by nature & by function

Accounting recognizes two broad approaches to revenue and expense information: by nature (what it is; also known as natural category) and by function (what it’s used for; for instance, events, projects, activities, programs, shows, etc.). 

Well-structured books maintain clarity on this point. Make sure that your COVID-19 additions are consistent with your organization’s established practice.

By nature – A gallery might have accounts for Artist Fees, Installation and Marketing

By function – Alternatively, the gallery might create a new expense account for each exhibition. The account would be named for the exhibition, and would capture all associated costs (artist fees, installation, marketing, etc.) in a blended account. We would never advocate for this! (Although we’ve seen it...) We would always recommend using classes - read on!

Additional categorization within accounting software

Accounting apps offer additional ways of aggregating financial detail which may track impact more effectively than new accounts.

Each software package has its own proprietary features – but conceptually many of these features are alike.  We’ll use QuickBooks as an example. 

Classes – Allow you to subdivide accounts by activity, program, event or show. A theatre company might have accounts for Actors, Sets, Advertising and Theatre Rent. These accounts would capture the total spent on each category, but wouldn’t help anyone understand what was spent on each show. By creating a class for each show, and then tagging each entry with a class, the bookkeeper can run a P&L by Class report to produce a statement for each show.

Projects (QuickBooks Online) or Jobs (QuickBooks Desktop) – Allow you to track items by funder. A project (or job) has only one revenue source. In the business world this would be a customer – and in the nonprofit world, a funder. By tagging each entry with a project, the bookkeeper can run a P&L by Customer report to produce a statement for each project.

Departments – Allow you to subdivide accounts by department. Everyone in (say) Marketing, Fundraising, Production and Admin needs office supplies, and each department incurs meeting, travel and other common expenses. By tagging each entry with a department, the bookkeeper can run a P&L by Department report so management can evaluate activity by department.

Locations – Allow you to subdivide accounts for different physical locations. An organization with two offices might run the same programs and have the same departments in both offices. By tagging each entry with a location, the bookkeeper can run a P&L by Location report to produce a statement for each location.

Before you jump in to change the structure of your books, pause for a moment and consider how these options might help you generate the COVID-19 impact reports you will need for your funders, members, donors and other parties – as well as for your own management decision-making.

Suggestions for new COVID-19 related classes

A general COVID-19 related class: Tag all pandemic-related revenues and expenses to this class. 

Sub-classes for projects: You might have a class called “New Play #1” which already contains development and pre-production costs. If New Play #1 has been cancelled, you might create a class called “COVID – New Play #1” to capture costs associated with the cancellation. QuickBooks can roll up the sub-class into the class report to give you a grand total for New Play #1.

Sub-classes for COVID: Alternately, you might attach sub-classes to your general COVID-19 class. Any impacts related to overhead would be booked to the general COVID-19 class. You would create sub-classes for each project, event or activity. QuickBooks can roll up the sub-classes into the class report to give you a grand total for COVID-19 impact.

Naming: Start each new class title with “COVID” to make it easy to identify and roll up class reports.

How Young Associates can assist

A consultation with us may make all the difference to your comfort level and confidence that your accounting system is up to the challenge of the pandemic. 

We can help you identify the stakeholders who will need reporting; prepare to meet their reporting needs; and advise on practical and appropriate changes to the structure of your books.

We’d also be happy to give you a quote for full-service bookkeeping. 

We work on the basis of fixed price agreements, so you’ll know upfront how much our work will cost – and we always offer a money-back guarantee: if you’re not completely delighted with our service, we will, at your option, either refund the price, or accept a portion of said price that reflects your level of satisfaction. 

Contact us: info@youngassociates.ca 

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This tip sheet was created by Heather Young CPB and the Young Associates team based on the best information available as of the date of posting.

The contents of this tip sheet comprise Young Associates’ views. They do not constitute legal or other professional advice. You should consult your professional advisor for advice relevant to your situation.

Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, with a focus 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, 2020), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

Tips for Completing Record of Employment Forms with Respect to COVID-19

The Record of Employment Form (ROE) is the tool employers use to communicate with Employment & Social Development Canada regarding employees’ eligibility for employment insurance benefits when they leave the organization.

One of the key elements of the ROE – and the one that is relevant to COVID-19 – is Block 16, Reason for Issuing this ROE. 

The government has assigned codes to the most common reasons for issuing an ROE. Here is the link to the guide, How to Complete the Record of Employment (ROE) Form, which contains an explanation of each code.

What NOT to do with respect to COVID-19 ROE filings

Code K – Other is to be used only in exceptional circumstances, and you must provide a comment.

This might seem like the obvious code for COVID-19 related issues. But, if you use Code K and provide a comment, the ROE must be reviewed by a Service Canada employee.

To be clear: ROEs with comments are pulled out of the processing stream and may cause significant delay, awaiting an individual review while the government deals with unprecedented volume.

Therefore, DO NOT USE Code K if at all possible.

What to DO with respect to COVID-19 ROE filings

To streamline a high volume of processing, Service Canada has asked employers to use existing codes as follows:

Code	Description	COVID-19 Use
A	Shortage of work	Temporary layoff due to lack of work or funds to pay employees, office closure or event cancellations
D	Illness or injury	Anyone confirmed to have COVID-19, under quarantine being tested for COVID-19 or under quarantine due to returning from international travel
N	Leave of absence	Used for anyone that is in self-isolation under an abundance of caution (including refusal to work), is off caring for children, or is taking care of a loved one confirmed to have COVID-19.

Amending a COVID-19 related ROE for new information

Please note: if someone is in self-isolation or is off on a leave for any reason and they later test positive for COVID-19 then the ROE should be amended to code D.

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This tip sheet was created by Heather Young CPB and Alicia McGuire PCP of Young Associates based on the best information available to us as of the date of posting.

Although every effort has been made to provide complete and accurate information, Young Associates makes no warranties, express or implied, or representations as to the accuracy of content in this tip sheet. Young Associates assumes no liability or responsibility for any error or omissions in the information contained in the tip sheet. 

Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, with a focus 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, 2020), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

UPDATED: How Bill 148 affects your organization

There have been a number of changes to employment standards in Ontario since the passing of Bill 148, the Fair Workplaces, Better Jobs Act, 2017. As there are more changes becoming effective as of next month, it is a good time for organizations to review what’s already changed and what changes are still to come. We have highlighted some significant changes as of November 2017, December 2017, January 2018, April 2018, and upcoming in 2019.

November 2017

As of November 27, 2017, your organization should have already reviewed its classification of employee vs. contractor. We have noticed an uptick in the number of payroll audits among nonprofits. With stricter enforcement around classifications of who is an employee vs. who is an independent contractor (aka freelancer) now in effect with Bill 148, it is important that organizations thoughtfully review their decision-making process around defining an individual as an employee or as a contractor. Organizations should be prepared to  implement necessary changes. 

Factors to consider include:

• Control. An employee is directed by an employer; a contractor has a measure of control over what and how work is done (although they don’t have to exercise that control).
• Tools & Equipment. Employees who use tools and equipment do not own those items. Their employer should provide, maintain, and insure most of those tools. Employers can also reimburse employees for tools and equipment they have acquired for the job. 
• Subcontracting / hiring assistants. An employee cannot subcontract tasks or hire an assistant to do their work. A contractor can subcontract or hire help without approval of the payer.
• Financial risk. An employee’s expenses are reimbursed and generally has no financial risk. A contractor is self-employed and takes on financial risk with each engagement, should the contract go incomplete/unpaid.
• Responsibility for investment and management. An employee does not have a capital investment in the employer’s business. A self employed person generally has an established business, or a capital investment in the payor's business. 
• Opportunity for profit. An employee doesn’t gain profit or incur loss while doing their work, whereas self-employed individuals can take a loss or a profit in the course of a contract. 

Also as of November 2017, your organization should have updated its crime-related child death or disappearance leave. A child is defined as under 18 and can be a step-child or foster child. Employees qualify for this leave after 6 months of employment. It is an unpaid but protected leave of up to 104 weeks.

Employers should note that as of November 2017 the EI waiting period has been reduced from 2 weeks to 1 week, for those who have a reduced EI rate due to an STD (short-term disability) program. The government has provided employers 4 years from January 1, 2017 to have plans to accommodate the reduced wait period or the organization will risk losing the reduced EI rate. 

December 2017

As of December 3, 2017 employers need to have begun preparing to accommodate the following family-related job leaves: employees can now opt to take an extended parental leave (increased by an additional 26 weeks (61 weeks total). This could prove to be a popular option for parents in Ontario, where childcare availability and affordability are a huge challenge, especially for children under 18 months of age. It is important to note that once an employee chooses the parental benefit path (extended or non-extended) they cannot change paths at a later date. Also note that the EI coverage for parental leave is for the same amount, no matter the path chosen. In other words, the recipient will receive the same overall dollar amount whether the leave is 35 weeks or 61 weeks, but their biweekly payments will be more or less respectively. 

Also as of December 1, 2017, women can now take maternity leave up to 12 weeks prior to the birth of a child, and employees who are family caregivers are now able to take up to 15 weeks of unpaid, job protected leave.

January 2018

As of January 1, 2018, several changes related to wages and paid time off have come into effect, as well overtime, job leaves, and holiday pay, and record-keeping obligations. 

Your organization should now be accomodating the following changes related to wages and PTO:

• Minimum wage. Employees have a minimum wage of $14/hour. Student employees have a minimum wage of $13.15 (but if school is in session, they must work less than 28 hours / week to be eligible for this wage). So, if a student is working full time hours while school is in session, they are considered an employee, not a student employee, and are entitled to the full $14/hour minimum wage. The 28 hour per week limit does not apply on school holidays or during summer break.
• Vacation pay. New legislation means that every employee in Ontario is now entitled to 3 weeks (6%) vacation after 5 years of consecutive employment with a single employer.
• Overtime. Overtime pay must be paid out at the rate at which an employee was being paid at the time the overtime occurred. For employers, this means that overtime can no longer be calculated at a blended pay rate, and overtime pay cannot be paid out at, for example, the lower of an employee’s two pay rates. 
• Public holiday pay calculation. To determine the amount of stat holiday pay to pay out to an employee, an employer should now use the single pay period directly prior to the stat holiday to calculate the average daily wage (total gross earnings/number of days worked in that period). Some scenarios require employers to consider some additional factors:
  • For new hires, employers should use the current period to to determine the average daily wage, and pay that. UPDATE: The Ministry of Labour has announced that effective July 1, 2018, the ESA will be reverting back to the former statutory holiday calculation of 1/20 of the prior 4 weeks earnings as an interim measure while the public holiday changes to the ESA continue to be reviewed. This change is due to concerns arising from the Changing Workplaces Review, which found that "public holiday rules were the source of the most complaints under the ESA and needed to be simplified."  More info.
  • For anyone on approved leave in the pay period  prior to the stat, employers should use the pay period in which the individual last worked to determine the average daily wage.
  • When determining average daily wage use the gross earnings before statutory deductions. Do not include overtime pay, termination pay, severance and premium pay, vacation pay, personal emergency leave pay, domestic or sexual violence leave pay or pay for other public holidays.
  • The Statutory Holiday Calculator can be found here.

Employers also, as of January 2018, need to be prepared to provide to eligible employees 10 days of Personal Emergency Leave, the first two of which are paid. Employees are eligible after 1 week of consecutive employment. Employers are no longer allowed to to ask the employee for a physician’s note to validate the leave.

As well, employers should be prepared to accommodate Domestic and Sexual Violence leave to eligible employees. Employees are eligible after 13 weeks of employment. This is a job protected leave of up to 10 individual days, the first 5 of which are paid, and up to 15 weeks per calendar year for employees, or children of employees, who have experienced or been threatened with domestic or sexual violence.

As of January 2017, all organizations are now obliged to follow several new employee-related record-keeping measures. They should record:

• Dates and times employees are scheduled to work and changes to on call schedules
• Dates and times employees worked
• If an employee has two or more pay rates for worked performed in a pay week
• Any cancellations of scheduled days or work or on call periods and dates and times of those cancellations
• Vacation records for 5 years (instead of 3 years)

April 1, 2018

Upcoming as of April 1, 2018, organizations need to be prepared to issue equal pay for equal work. Part-time, casual, temporary, and seasonal employees must be paid the same as full-time permanent employees if they are doing essentially the same job. All organizations, including nonprofits, often with stretched budgets, will need to think carefully about how they rely on these types of workers and what they budget to pay them. A permanent, full-time employee cannot be paid more for the same task or set of tasks. Exceptions exist jobs paying by quantity or quality of work, or for merit or seniority systems, but these systems must be applied consistently. 

Possible changes coming in 2019

Although not yet confirmed by the government, organizations in Ontario should be prepared for the following in 2019:

WSIB review, which is proposed to 

• Update the 34 industry classifications
• Establish premium rates based on the collective experience of employers in the industry classification
• Set an employer’s actual premium based on individual employer experience based on individual company level of risk 

CPP Enhancements

• Starting in 2019 CPP contribution rate will increase each year until 2023 when it reaches 5.95%
• There will also be an additional enhanced earnings percentage of 4% for earnings between the yearly maximum and the new upper earnings beginning in 2024

Scheduling requirements

• Employees can request a location or schedule change after three months of employment, without penalization
• Employees can refuse shifts that an employer requests they take with less than 96 hours notice, without fear of retaliation
  • exceptions are made for dealing with an emergency, remedy, or reducing a threat to public safety, or continued delivery of an essential public service
• Employers must pay 3 hours wages to anyone who
  • regularly works more than 3 hours but has their shift is cut short
  • whose shift is cancelled without 48 hours notice from scheduled start time
  • is scheduled on call and is available to work but does not work at least 3 hours

An exception will be made when any of these situations arises from an event that is out of the employer’s control (eg. power failure, fire,) or if the employee works in a weather-related industry (eg. snow removal).

This tip sheet was created by Alicia McGuire of Young Associates. Founded in 1993, Young Associates delivers technical expertise and advisory services to support operational effectiveness of nonprofit and creative organizations. We invest in transformative technology and expert human capital to provide our customers progressive solutions in financial, data and information management, human resources, and strategic planning.

Disclaimer
 

Save yourself some pain: collect Tslip data and secure consent for e-distribution upon contract

One of the most painful parts of Tslip season is tracking down any missing information for recipients (e.g. SIN, address, email address) so that you can submit their tslip to the CRA and distribute their copy by the February 28 deadline. 

This can be particularly difficult with T4A recipients who are engaged on a short-term basis,  or who are living elsewhere and not in regular communication with your organization. Sometimes contract workers don’t file their income taxes on an annual basis, and therefore do not feel the same sense of urgency in regards to receiving their T4A on time… but when they’re ready to catch up, they don’t want to be delayed! 

The best way to avoid the pain is to collect all the necessary data upon engagement of the individual. Consider making full name, SIN, phone number, address, and email address standard fields on a contract, letter of agreement, or other initiating document so that you are ready for T-slip season before you pay the individual. 

And, since e-distribution of T4As, T4ANRs, and T5s (as well as certain T4s - click here for more info) requires consent from the recipient, add another standard field on your contracts to allow each individual to confirm their email address and opt in to receiving their tslip via e-distribution. 

Taking a bit of extra care at the contracting phase will save you a lot of frustration when February rolls around.  
 

New URL required on tax receipts

News from the CRA - Registered charities in Canada have until March 31, 2019 to update their tax receipt templates. As of then, all tax receipts must include the new web address for the charities directorate: canada.ca/charities-giving

Get more information from the CRA on how to format tax receipts here. 

How do I record a US$ or other foreign currency transaction?

Staff Post
By Heather Young

Accounting logic says that your financial statements must be denominated in one currency. Many organizations make regular payments to foreign artists, suppliers and others – so how can they record the transactions correctly?

Let’s take two cases.

In the first instance, let’s assume you only have a Canadian dollar bank account. That means you’re purchasing foreign currency (e.g. bank drafts or wire transfers) as needed. The bank calculates the cost in Canadian dollars by applying today’s exchange rate. This becomes your expense.

Suppose you’ve engaged an American soloist and agreed to pay them $2,500. The day you purchase the US draft, the US dollar is trading at 1.23. Your artist fee expense becomes 2,500 x 1.23 = $3,075.00, and you’ll see that amount being withdrawn from your Canadian bank account.

In this instance, the $2,500 US dollars don’t appear in your accounting records: the only value that counts is the Canadian equivalent. And, yes, that amount depends on the day! Yesterday the US dollar might have been worth 1.22 and tomorrow it might be 1.24! That doesn’t matter: what counts is the prevailing rate on the day of the transaction, because that determines how many Canadian dollars came out of your account. It is important to add a memo/note to the journal entry to indicate that the fee was $2,500 US dollars. This will create a link between the original fee agreement and the amount withdrawn from the bank, in case it is ever in question.

The process is different – and a little more complicated – if your organization owns a US dollar bank account. Now, the $2,500 US dollars must be part of your accounting entry, because that’s the number of US dollars you’re expending. Your accounting system must accomplish the following:

Record the number of units of the foreign currency you hold. (So, if you have $3,456 US dollars in the US bank account, that’s the number you should be looking at on your balance sheet.)
Record the correct value of that asset. (So, if you have $3,456 US dollars and today’s rate is 1.23, those US dollars are presently worth $3,456 x 1.23 = $4,250.88 Canadian.)
Record US revenues and expenses at the Canadian equivalent. (So, if you’re using $2,500 of those US dollars to pay your soloist, you must record an expense of $3,075 as calculated above.)

Many organizations deal with the problem by pairing the US bank account with a second asset account, named “Revalue US Dollars” or something similar. The foreign bank account captures the number of units of the foreign currency you hold. The paired account captures the difference in value to the Canadian dollar.

Thus, if your organization held $3,456 US dollars and the exchange rate was 1.23, the Revalue US Dollars account would contain $794.88.

Your entry to pay the American soloist would look like this:

This entry states the true cost of the soloist; it updates your US bank balance correctly; and it revalues your asset (those US bucks) according to today’s exchange rate.

Let’s take another example – a deposit. Suppose an American visitor paid for their ticket in US dollars. If they paid $45.00 US a day when the US dollar was worth 1.23, your entry would look like this:

Now: the face value of that ticket may have been some other amount. But, as a matter of fact, at today’s exchange rate you made $55.35 Canadian – so that becomes your revenue. 

As the month proceeds, you might have any number of transactions, each valued at the day’s exchange rate. Because the rate floats up and down, the amount in your “Revalue US Dollar” account eventually becomes inaccurate. For that reason, it’s important to “true up” the value of your US dollars from time to time. 

Many organizations would make a separate entry on the last day of the month to update their US currency to the month-end rate. 

Using the examples above, we started with $3,456.00 US dollars. We spent $2,500.00 and deposited $45.00 – bringing the account balance to $1,001.00. 

And, the Revalue US Dollar account started at $794.88; we subtracted $575.00 and added 10.35, bringing the account balance to 230.23.

Let’s say that the exchange rate on the last day of the month was 1.25. At that rate, our $1,001.00 is actually worth $1,251.25. Our month-end balance sheet misstates the value of the US dollars. The following entry “trues up” to the current Canadian equivalent. 

Note that this adjustment isn’t tied to any particular transaction: it simply corrects for the month-end exchange rate. The “pick-up” is allocated to a revenue account that specifically captures currency gain or loss. In months when the US dollar increases in value, you show a gain, because your “greenbacks” are worth more. But, when the Canadian dollar surges, you show a loss on your American currency.

These techniques allow you to have a foreign currency bank account – while still ensuring that your asset, and your revenues and expenses, are properly stated at their Canadian values.