The Standards For Auditing A Non Profit Organization In Canada

If you run a Non-Profit Organization (NPO) in Canada, you are probably aware that the standards for audits by the Canada Revenue Agency (CRA) are different than they would be for other businesses. This is due to the inherent difference in business practices and functions.


What you might not know is that back in 2013 a new law, the Canada Not-for-Profit Corporations Act, was passed that establishes new rules and standards for how the CRA handles audits for Non-Profit Organizations. We wrote a quick guide to help you know what’s coming.

How NPO’s Are Selected For An Audit

First, you should know that the CRA only ever audits around 1% of all non-profits and some of those will be by random selection. When it comes to actual issues that might cause the CRA to single out your organization, it could be because one of the following:

Complaints made by the public, the media, or other public sources directly to the CRA
Reviewing legal obligations set out in the Income Tax Act
Red flags found in information from your T3010 in your annual return
Following up on previous complaints and interactions with your organization

Those are the most common issues that can lead to an audit of your organization. You can avoid triggering an audit by following proper financial regulations for NPO’s and maintaining good relations with the public and the media. All that said, you might get caught in a randomly selected audit, so you should always make sure you or your accountants have everything in order.

How Are NPO Audits Handled

If your organization is selected for an audit for any reason, the CRA will conduct it one of two ways: as a field audit or an office audit. Which one they choose depends on the how big your organization is, the reason for the audit, and how complex the audit needs to be as a result. Field audits are conducted at your organization’s location, and are typically less serious. These typically are performed over a period of three to five days they examine your organization’s books, records, accounts, contracts, reports, and any other document related to your activities.

An office audit, meanwhile, is conducted at the CRA’s headquarters where they review all the information in your organization’s files such as your governing documents, financial statements, and descriptions of your activities. Audits conducted to follow up on previous issues, such as compliance agreements, are frequently done in this manner.

Getting The Results

Once any audit of your nonprofit is finished by the CRA, you can expect to receive a follow up letter in the mail with their results. You will either receive the all-clear if they found you have been acting in accordance of the Canada Not-for-Profit Corporations Act, and your registration status will remain the same. If they find that you have acted outside of those laws, the letter will include the following:

Details for each specific violation
What (if any) corrective actions can be taken to bring your organization into compliance without a change in your status
Any sanctions or changes to your registration status as a non-profit

For those found in violation, regardless of what they detail you are given 30 days to reply to their findings, request an extension for your reply, and are given a chance to make a formal presentation to the CRA before their decision in the letter is made final.

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