
This Fact Sheet provides information about the legal rules non-profits must follow related to finances in British Columbia.
Non-profits must follow many rules for the management of its financial affairs. For example, the Societies Act requires that a non-profit keep sufficient accounting records and be able to produce a set of financial statements for its members. Sometimes, a non-profit’s treasurer can keep sufficient accounting records and produce financial statements.
While the Societies Act does not require that the non-profit get professional help, to manage finances effectively, many non-profits hire an accountant or bookkeeper.
Financial Statements
Financial statements and accounting records are not the same thing. Financial statements are a broad overview of a non-profit’s financial position, presented for member approval at each AGM. Financial statements generally include four documents: Income Statement, Balance Sheet (Statement of Financial Position), Statement of Cash Flows, and Equity Statement (Statement of Retained Earnings). Financial statements are generated from the General Ledger.
Every non-profit is obligated to produce financial statements on an annual basis and provide them to its members, usually at an AGM. The Board approves the statements and two directors will sign off on them before they are provided to the member’s at an AGM for their consideration. Members do not approve Financial Statements.
Non-profit financial statements must report the amount paid under contracts for services if any of them are for more than the threshold set by regulation. The threshold is currently $75,000 per year. A contract for services is when your non-profit has contracted with a person or company for performing a service such a bookkeeping or cleaning.
Non-profits are not permitted to restrict access to financial statements.
Accounting Records
Accounting records are the records that track financial transactions of the non-profit. These records include details on individual financial transactions such as the date and amount of deposits or withdrawals, cheque numbers, bank account numbers, daily balances, etc. Normally these details are called the general ledger or “the books.”
Accounting records such as the general ledger of the non-profit and supporting documentation such as bank statements and donation receipts contain a great deal of personal sensitive information. For that reason, access to accounting records should be restricted in a non-profit’s bylaws.
Fiscal Year
Financial statements are prepared based on a non-profit’s fiscal year. A fiscal year is the one-year period of time that a non-profit uses for accounting purposes and for preparation of its financial statements. For example, some non-profits have their fiscal year aligned with the calendar year (January 1 to December 31) while others to the government year end (April 1 to March 31). Some non-profits set their fiscal period to align with a natural break in their operations, such as a summer camp with a fiscal year of September 1 to August 31.
Audits
An audit is when a non-profit’s financial statements are reviewed by a third party to ensure they fairly and accurately represent the non-profit’s financial position. Audits are intended to help non-profits ensure financial accountability.
The Societies Act does not require audits. Audits are only mandatory if required by a non-profit's bylaws or by funders. Usually, it is funders that require non-profits to have their finances audited. If an audit is not required in the bylaws or as a condition of funding, an audit is optional. The more revenue a non-profit has, the more an audit is needed to maintain public confidence. If a non-profit chooses to have their books audited, the Societies Act sets out the qualifications for the auditor.
For many small non-profits, an audit may be too expensive to voluntarily undertake. Some non-profits that are not required to have an audit, choose instead to have a review engagement. A review engagement is a review of the financial statements to determine if any material modifications need be made for them to conform to the financial reporting framework. A review engagement is less expensive than an audit, but it only tells the non-profit if its financial statements are properly formatted/organized.
Borrowing and Debentures
Under the Societies Act, non-profits can borrow funds and issue debentures whenever the directors determine, unless it is prohibited by the bylaws. There can be negative consequences if the directors borrow without the proper authority.
A debenture is a debt instrument used to raise capital. Debentures are typically used to raise short term capital for specific purposes such as an expansion of services. Debentures are unsecured by collateral or assets and are generally backed up by the creditworthiness of the borrower. The term debenture is found in many non-profit bylaws because the old Society Act did not permit the issuing of debentures without a special resolution.
