The Overhead Myth – Let’s End it Once & For All!

Last week, I was asked to record a 15 minute “Podcast” for Vantage Point on the Overhead Myth.

Historically, some donors and charity rating agencies have tried to evaluate and compare charities using the percentage of income that they spend on management and administration (overhead).

The main message of the podcast is to provide a summary of the research that has been done on this issue – virtually all of which supports the position that using this metric to evaluate or compare charities will likely lead to misleading results.  It is the wrong question to ask if you are trying to compare the effectiveness of different charities.  I also talk about what we can do as funders and as organizational leaders to help shift the conversation to impact rather than overhead.

If you are interested, you can listen to the podcast (or download it) by clicking on the link below:

The Overhead Myth – Let’s end it once and for all!

Five (5) Important Things You Can Do To Improve Board Meetings

Board meetings are often not much fun. Here are five things you can do to dramatically improve your levels of board member enjoyment and engagement and improve your Board effectiveness.

  1. Create an Annual Board Calendar

A Board Calendar is a single document that lists the 12 months of your fiscal year in columns across the top of the page, and all the things that you have to do as a board each year in rows along the side of the page. The annual “To Do” list is often organized into the following headings:

·         Financial Management ·         Strategy & Operations
·         Board Development ·         Board Committees
·         Executive Director Development ·         Monitoring and Policy Making
·         Stakeholder Communications ·         Fund Development

This calendar then serves as the basis for the Agenda’s for each of your Board meetings. Using a board calendar ensures that the Board doesn’t forget do to anything that it is supposed to do and it ensures that everything it is required to do is done on a timely basis.

  1. Keep a Decision Log

Without a single place to record all decisions the Board makes and all the motions that it passes, boards often revisit topics frequently and discuss the same old topics multiple times. Use a decision log – a single document that lists all of the board decision and motions by chronologically by month.

  1. Create Better, More Detailed Agendas for Board Meetings

Most agenda’s for board meetings aren’t very useful. Best practices have developed recently which can make agenda’s much more useful tools. First, use a Consent Agenda. Do a quick Google search and you will find that a Consent Agenda will allow you to approve routine committee reports, and items that do not require discussion or decisions at the same time as you approve your minutes from your previous meeting. This can significantly reduce the amount of time boards spend going over information items that directors have likely already read preparing for the meeting. It also allows more meeting time to discuss important issues and have more strategic and generative discussions. Consent agenda’s require your board to read and understand all information items prior to the meeting. If they have any questions, they should resolve those questions prior to the meeting so as not to waste everyone else’s time. However, Board members always have the option at the beginning of the meeting to pull an item out of the Consent Agenda if they feel it requires Board discussion

Second, use an Annotated Agenda. Annotated Agenda’s provide much more information that just a simple listing of topics. Annotated Agendas often provide background information on the topic as well as the desired outcome for raising it at a board meeting. They also show who will be responsible for leading discussion. Topics are often categorized according to whether they are for discussion purposes only or whether a decision is required. Annotated Agendas usually have a specific amount of time allocated to each issue. Annotated Agenda’s help focus discussion and often significantly reduce the time required for each item. Some organizations use a chart format with the following headings: Item Type (Information, Discussion, Decision); Item Name; Background, Attachments.

  1. End Meetings with One-Minute Essay

The One-minute Essay is an opportunity at, or very near, the end of a board meeting for all board members to fill out a piece of paper or slip with an answer to this question (or a question along these lines):

If we were to continue this discussion, or if the board meeting were to go for another 30 minutes, what would you say next?

Or alternatively: If the meeting were to continue for another 30 minutes, what additional items should be discussed, that did not get raised? What additional items or issues would you have liked to raise tonight?

The anonymous responses are collected by the chair, or someone, and can be used to craft the agenda for the next meeting!

One-minute Essays are a great way to ensure that all board members have an opportunity to voice things that they think are really important, but often do not get discussed in the normal course of events.

  1. Evaluate Your Board Meetings – Every Time

Board members like it when Board meetings:

·         Start on time ·         Allow everyone to participate
·         End on time ·         Are a safe environment to voice concerns
·         Have priority topics ·         Are well organized
·         Engage Board members in meaningful discussion ·         Are respectful of everyone

Meeting evaluations can take under 5 minutes at the end of every meeting and they give prompt feedback to Board Chairs. One of the Chair’s primarily roles is to create enjoyable board meetings where all board members have the opportunity to make meaningful contributions. Help your Board Chair make board meetings better. Insist on regular meeting evaluations.  Do a quick Google search and you will find a number of template to choose from.


Implementing any one of the above tactics to improve Board meetings will have a noticeable impact on the level of enjoyment and level of engagement of Board members. Imagine what you’re Board meetings would be like if you implemented all five!

6 Things to do Before You Agree to Join a NPO or Charity Board

They say that life begins when you are 45 years old.  This is the age at which many people start volunteering and giving back to their communities.  Its also when most people start to feel happier.  So volunteering to serve on an NPO or Charity board is a definite win/win – good for the organization and good for the individual.  However, serving on a board comes with duties and responsibilities and you need to take reasonable precautions to protect yourself.  Here are six reasonable and responsible things to do before you join board:

1. Read “Primer for Directors of Not-for-profit Agencies: Rights, Duties & Practices”
Every director or prospective director of any NFPO or Charity should read this.  This document was published by Industry Canada specifically to help existing and prospective board members  understand their legal duties and responsibilities as a director.  It should be required reading for anyone who is already on a board or considering joining one.

2. Confirm the organization has Directors & Officers Insurance
Directors get sued.  Not often, but they do get sued by participating in poorly run organizations. The required level of skill, diligence and effort required by directors continues to increase over time.  If you do get sued as a director of an organization, you want that organization to have a good D&O policy that will cover any costs you might otherwise have to incur to defend yourself as well as cover any settlement costs or damages you might otherwise have to pay.  Ask for a copy of the policy, read the policy, make sure the insurance limit is high enough to cover your potential risk, and confirm whether the limit included costs of defence.

3. Read the most recent annual financial statements – and understand them
The buck stops with directors. They are ultimately responsible for the direction and operation of the organization.  Prior to joining any organization, you should ensure you understand its financial  health.  Read the financial statements and read “A Guide to Financial Statements of Not-for-profit Organizations: Questions for Directors to Ask” and ask questions.  This guide was prepared by CPA Canada specifically to help existing and prospective board members understand how to read NFPO and Charity financial statements.  If you join an organization that is in financial difficulty it can be very risky for you personally.  Help reduce that risk by making sure the organization that you want to join is financial healthy.

4. Confirm that the organization is in compliance with Canada Revenue Agency
Directors can be held personally responsible for any GST payments or installments required but not paid as well as any payroll remittances not paid.  Ensure the organization has a process in place to ensure that returns and remittances are filed on time and the organization always stays in compliance with the CRA

5. Google the organization and its directors
You want to know who you’re getting in bed with.  If you become a director, your personal and professional reputation will be linked to the organization and its board members.  Do your research.  Luckily, Google makes that easy.  Check out the organization on google and the directors on Google and LinkedIn.  it’ll give you an idea of the people you’ll be working closely with in the future.

 6. Ask to attend a board meeting as an invited guest
Boards, like families, tend to exist in a variety of states of dysfunction from mostly functional to entirely dysfunctional.  The people around the table may or may not
  • get along well – there may be significant personality conflict
  • follow best practices for organizational management
  • work well as a team
  • have the right combination of skill sets to discharge their legal obligations as a board
  • have hidden agendas
How much you enjoy working with the organization will depend on how well the other board member function well as a team and support each other.  Make sure that board is comprised of reputable individuals who work well together as a team.  If the organization is run by a bully or someone who is incompetent, it won’t be much fun for you.

Obviously being a volunteer director can be personally and professionally rewarding.  But make sure that you don’t take on too much personal risk by following these six steps prior to joining any board.


Employee vs. Independent Contractor

We just recorded our first podcast with the help of the great folks at Vantage Point in Vancouver.  They asked for our thoughts as to whether Not-for-profit organizations and charities should hire people as employees or independent contractors.  We talked to them about the risks and rewards of both.  They also asked our opinion about whether Executive Directors or CEOs could be hired as independent contractors.  We told them what we think.

You can listen to our Podcast directly on their web site, or you can download it and play it on your phone or other device.


What to Look for in NFPO Financial Management Software

There are estimated to be over 180,000 not-for-profit organizations (NFPOs) and charities in Canada. Roughly 90% of these have revenue of less than $500,000 and almost 65% have revenue of less than $100,000[1].

Financial management software specifically designed for the NFPO sector can be cost-prohibitive for most organizations. Some options have a base price of $20,000 with increasingly expensive customizations. While they might offer features like full Fund Accounting, donor management, and grant and contract compliance features, they are also expensive to set up, lack intuitive user-friendliness and require intensive training. Typically, only the largest organizations purchase NPFO industry-specific financial management software.

Where does that leave the rest of the sector? Based on our experience, we estimate that most Canadian NFPOs and charities use QuickBooks or Sage 50 – Canadian Edition software to manage their finances. Both options sell for less than $500 per year; they are extremely capable, stand-alone products that provide incredible value for money.

However….neither is designed specifically for NFPOs or charities. With a little upfront setup, they can often meet most, if not all of the reporting requirements unique to this sector.

Making financial management software work for your organization

NFPOs and charities are often required to provide financial reports to two different audiences with two different reporting needs:

  1. Funders want regular reporting that shows how their specific funds are being spent
  2. Directors want regular reporting summarized by strategic programs and projects – regardless of who the funders are.

Many organizations will choose QuickBooks or Sage 50 depending on which program their bookkeeper (or treasurer) is more familiar with. Carefullly consider these features before making your selection:


  • Allows organizations to track all revenues and expenditures by both Funder and Fund, and by Strategic Program and Project, enabling Statement of Operations (Income Statement) reporting to both funders and boards.
  • Does not easily allow full fund accounting. Assets and liabilities may be allocated to specific funds on the Statement of Financial Position (Balance Sheet), but QuickBooks will not automatically allocate Net Assets (accumulated earnings) between funds. Sophisticated users can do this manually – but this is beyond the abilities of most bookkeepers, without some initial specialized instruction on how this works.

Sage 50

  • Allows full fund accounting for the Statement of Operations (Income Statement) and the Statement of Financial Position (Balance Sheet).
  • Only allows reporting either by Funder and Fund, or by Strategic Program and Project – not both.
  • Sage 50 works relatively well for organizations such as foundations where the Funders and Funds are essentially the same as the Strategic Programs and Projects.

In addition to helping select the most appropriate software platform, most organizations could benefit from having their financial management system set up by a professional who understands their specific budgeting and reporting needs. It saves time both time and expense in the long-run, and often leads to new ideas that could boost the efficiency of your internal procedures.


[1] Cornerstones Of Community : Highlights Of The National Survey Of Nonprofit And Voluntary Organizations : 2003 Revised. 1st ed. Ottawa, ON: Statistics Canada, 2005. Web. 7 Apr. 2015.

Top 5 Financial Management Risks for Canadian NFPO Board Members

“…About 41 percent of Canadian volunteers serve on boards and committees. Despite their deep commitment to countless causes and organizations manyboard members may be unaware of the legal ramifications of their volunteer work. Personalliability has become an area of increased concern for board members of not-for-profit organizations. [1]


Financial management is a key risk area because:

  • Organizations that can’t manage their finances will find it next to impossible to acquire

Stable funding and high-calibre board members.

  • Financial management issues often lead to reputational crises that affect stakeholder trust

We believe that top 5 financial management risks to directors are:

  1. Employee (occupational) fraud/theft/embezzlement
  2. Non-compliance with Canada Revenue Agency (CRA) and other regulatory requirements
  3. Funds spent inefficiently or ineffectively to achieve organization’s core purposes
  4. Restricted Funds spent in contradiction to Funders/Donors wishes
  5. Errors and omissions in financial reporting

1. Employee (occupational) fraud/theft/embezzlement

Over 50% of Not-for-profit organizations (“NFPOs”) and Registered Charities in Canada will lose money this year as a result of employee fraud.

  • Directors of charities can be held personally liable for the full extent of these losses
  • Primary fraud schemes: cheque tampering, fraudulent billing, and fraudulent expense reports
  • External financial statement audits only catch about 5% of internal fraud in small organizations[1]
  • The median fraud amount is approximately $150,000 and occurs over 18 months2


2. Compliance with CRA and other regulatory reporting and payment requirements

The CRA requires NFPOs to file annual T2 Corporation Income Tax Returns. If the organization meets certain criteria, an annual T1044 Non-profit Organization (NPO) Information Return must also be filed. Charities are required to file an annual T3010. Directors can be held personally liable for:

  • Penalties associated with failure to file returns on time
  • Any amounts of GST collected, but not remitted by the organization
  • CPP and EI payroll deductions collected, but not remitted by the organization


3. Funds spent inefficiently or ineffectively to achieve the organization’s core purposes

Directors are ultimately responsible to ensure that all of the organizations funds are spent properly to achieve the organization’s mission. Failure to do this could result in:

  • Directors sued by the organization itself, by current and former staff and directors for failing to carry out their responsibilities
  • Lawsuits by members, donors, and funders


4. Restricted funds not spend in accordance with donor/funder wishes

Directors are responsible for ensuring that all donor/funder restricted assets are spend in accordance with any signed agreements. These agreements often require scheduled financial reports proving that restricted funds have been spent – and that they have been spent appropriately. Failure to abide by these requirements can result in lawsuits against directors, public relations crises and severed funding relationships.


5. Financial reporting errors or omissions

The most common errors occur in annual financial statements or regular reporting to donors and funders. Regular financial reports should also be reviewed to ensure that the board is receiving accurate and complete information, so that it can identify potential risks.

How to manage and reduce financial management risk for directors

Directors have many options to protect themselves from financial management risk, such as:

  1. Directors and Officers Insurance
  2. Indemnity agreements
  3. Effective financial management policies and procedures
  4. Effective management review and internal controls

Humanity Financial Management Inc. can help you identify appropriate financial management policies and procedures and internal controls for your organization.

Disclaimer and suggested reading:

Liability and legal risk management are ultimately legal issues and all organizations should consult with professional lawyers to get good advice with respect to how to best manage their legal risks and those of their organizations. There are many documents available on the Internet that can help directors understand the exposure to risk and methods of managing those risks. Three of the better summaries are as follows:

Primer for Directors Of Not-For-Profit Corporations. Industry Canada, 2002. Web. 4 Apr. 2015.

Directors’ Liability: A Discussion Paper On Legal Liability, Risk Management And The Role Of Directors In Non-Profit Organziations. Ottawa, ON: Volunteer Canada, 2002. Web. 4 Apr. 2015.

Carter, Terrance, and Jacqueline Demczur. The Legal Duties Of Directors Of Charities And Not-For-Profits. Orangeville, ON: Carters, 2012. Web. 4 Apr. 2015.

Does the Canada Revenue Agency (CRA) consider fundraising by a Community or other foundation to be a charitable activity or a charitable purpose?

Many of our clients, including those at a recent workshop, ask for clarification of the Canada Revenue Agency’s (CRA) administrative guidance on fundraising as it applies to Community and other foundations.

In their summary fundraising guidance document “CG-013 Fundraising by Registered Charities”, the CRA indicates that it does not consider fundraising to be a charitable activity or charitable purpose.  What they do say is that they do not consider seeking grants, gifts or other funding from other charities or governments to be fundraising.


However, soliciting endowment funds from individuals is one of the primary purposes of many community foundations.  Board members and staff often spend a significant amount of time searching for and soliciting private endowments from individuals.


So, does that put them off-side the CRA’s fundraising policies? 


According to the CRA’s answer to question #13 in the appendix of CG-013 Fundraising by Registered Charities, it will generally not consider a public foundation to be offside if they meet certain conditions.  We quote the question and their response below, for your reference.


Q.13 Our public foundation’s staff members spend the vast majority of their time planning, carrying out, and evaluating fundraising activities to raise money to fund other registered charities as efficiently as we possibly can. Does this mean our foundation has fundraising as a purpose?


A.13 No. It is true that the staff members of a public foundation may spend most of their time carrying out fundraising activities. However, under the Income Tax Act, a public foundation is constituted and operated primarily to fund qualified donees, which includes other registered charities. Creating and maintaining a fund or funds and disbursing monies to qualified donees are usually a public foundation’s primary activities.


Assuming a public foundation meets all other requirements of the Income Tax Act, the CRA will consider it to be constituted and operating primarily to fund qualified donees, and not for the collateral non-charitable purpose of fundraising, so long as:

  • Funds disbursed to qualified donees typically exceed expenses related to fundraising, including compensation of staff; and
  • The foundation spends no more on fundraising than is required.


If these criteria are met, and the fundraising activities do not deliver a more than incidental private benefit, and are not illegal, contrary to public policy, or deceptive, fundraising by a public foundation will generally be acceptable.



Please contact us with any questions or comments. And if you have a future question of the month, please let us know. We would be happy to answer it for you and our other readers.