Glossary:

What is a conflict of interest? Real or perceived conflicts of interest can occur when the personal interests of board members, staff, or volunteers are in conflict with the interests of the nonprofit or charitable organization with which they are affiliated. For the board, conflicts of interest might arise when a director:¹

• Has a personal interest in a proposed contract with the nonprofit organization
• Has an interest in a proposed contract because they are an employee or stakeholder in the organization with which the nonprofit is contracting
• Has an interest in a proposed contract because they are also a board member in the organization with which the contract is proposed

What is a conflict of interest policy?² A conflict of interest policy is a policy that requires that directors, officers, staff and volunteers act in the best interest of the organization and stipulates that they should not be controlled or restricted by any external entity or interest group. The policy (or related procedures) should require disclosure, review and decision on actual or potential conflicts in order to ensure that all conflicts of interest or the appearance of one, within the organization and the board are appropriately managed through disclosure, recusal or other means. The conflict of interest policy should ensure that no person benefits inappropriately, or appears to benefit inappropriately, from any transactions in which the organization is involved.

Why is it important to have a conflict of interest policy? Directors of nonprofit or charitable corporations have a legal obligation to act in the best interests of their organization.¹ As such, it is essential that members of a nonprofit or charitable board of directors understand their role and avoid any actions that could be construed as conflicts of interest.¹ Section 98 of the Canada Corporations Act instructs directors to declare a conflict of interest as soon as it becomes apparent.¹ In cases where legislation does allow contracts in which a director has a conflict of interest to be ratified, the director must declare his or her interest and abstain from voting on related matters. (Also see Standard B12.) Having a defined conflict of interest policy will help boards of directors navigate cases in which conflicts of interest arise.

Conflict of interest policies should include:

• Guidelines on what types of circumstances constitute a conflict of interest
• Consequences for failing to disclose a conflict of interest

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.
2. “Standards Program Definitions,” Imagine Canada, May 2011.

Why is it important to have a privacy policy? Protecting the personal information of nonprofit staff, volunteers, and clients fosters a strong reputation for integrity. This has become an essential part of a nonprofit’s accountability to its stakeholders, many of whom are increasingly concerned about how their personal information is stored, used, and transferred.¹

What government legislation does my organization need to comply with when creating its privacy policy? In 2004, the federal government initiated the Personal Information Protection and Electronic Documents Act (PIPEDA). PIPEDA applies to all nonprofits and charitable organizations that are conducting commercial activities, defined as “...any particular transaction, act or conduct or any regular course of conduct that is of a commercial character, including the selling, bartering or leasing of donor, membership or other fundraising lists. " In certain provinces, including Alberta, BC, and Quebec, provincial privacy legislation has been deemed “substantially similar” to PIPEDA, and should be followed instead.² Organizations in Alberta can use the Protecting Personal Information: A Workbook for Nonprofit Organizations. (Government of Alberta, March 2010) to determine what should be included in their privacy policy. The workbook also contains a sample privacy policy template.

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Protecting Personal Information: A Workbook for Nonprofit Organizations,” Government of Alberta, March 2010.
2. “Canada’s Federal and Provincial Privacy Laws for Nonprofits,” Blog by Tierney Smith for TechSoup Canada, June 9th, 2011.

Why is it important to have a process for addressing complaints promptly? Every organization at one point or another will receive complaints. Instead of viewing complaints as a nuisance, they can be seen as an opportunity to consider the organization’s activities and to make changes that could improve programs, services, or operations. Providing simple and meaningful ways for external stakeholders to express complaints will strengthen your organization’s reputation by demonstrating that it takes their needs seriously.¹ Addressing complaints promptly also helps avoid escalation and is a sound risk management practice.

Why is it important for the board to be made aware of complaints received? Complaints that express dissatisfaction with an organization’s programs, services, or activities can inspire change, leading to improvements in an organization’s operations or ability to fulfill its mission.² Reviewing complaints may also alert board members to risks they may not have considered. A complaints and compliments approach can allow both positive and constructive feedback to be captured and communicated to the board and other stakeholders.

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “The Eye of the Beholder: Managing Reputation Risk,” Carlye Christianson and Melanie Lockwood Herman, Nonprofit Risk Management Center.
2. “Uncommon Sense,” Melanie Lockwood Herman, Nonprofit Risk Management Center E-News, April 27, 2011

Why is it important for Level 3 organizations to have a whistleblower policy? Whistleblower policies and procedures protect individuals who discover that an organization is engaged in illegal practices or conduct that goes against an organization’s policies or other governing documents. Ensuring that “whistleblowers” who disclose illegal or unethical practices are protected from retaliation cultivates transparency and accountability in the workplace.¹ Protecting whistleblowers also increases the likelihood that nonprofit or charitable organizations will be made aware of unethical or illegal conduct internally instead of from law enforcement, other regulatory bodies, or the media.¹

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Whistleblower Protections in the Nonprofit Sector,” Jason M. Zuckerman, Nonprofit Risk Management Center.

Why is it important for nonprofit and charitable organizations to hold at least two meetings with an unrestricted agenda? Board meetings are the most significant venue in which board members are made aware of and assess the activities of a charity or nonprofit.¹ This standard recognizes that in order to govern effectively, the board of directors must hold at least two meetings in addition to meetings that address specific issues such as the appointment of officers.

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.

Why is it important for the boards of nonprofits and charities to consist of at least three members that are at arm’s length to each other and to the most senior staff person? The Canada Not-for-profit Corporations Act states that any soliciting corporation must have a minimum of three directors.¹ Requiring directors to be at arm’s length from one another and to the most senior staff person and other management staff ensures that board members act in the best interests of the organization and avoid conflicts of interest. It also helps to maintain the diversity of the board, one of the board’s key responsibilities.²

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “‘Number of Directors’ in New Legislation Canada Not-for-Profit Corporations Act: The Directors,” Corporations Canada.
2. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.

Why is it important that board members of charitable and nonprofit organizations not receive financial compensation for their role as a director? This standard prohibits board members from receiving monetary compensation in return for their service as a director of the board. “In their capacity as a director” implies that board members may be paid for services they provide to the nonprofit or charitable organization in another role, for example as a consultant (although a director in this position must abide by all conflict of interest policies and procedures). In the case of charities that are registered under the Income Tax Act, certain provinces prohibit directors from receiving any remuneration in any capacity, as this is seen as an inherent conflict of interest.¹ (Also see Standard B12).

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “‘Remuneration of Directors, Officers and Members’ in New Legislation Canada Not-for-Profit Corporations Act: The Directors,” Corporations Canada.

Definition: Strategic Plan ¹
The strategic plan is a document that outlines the desired future for the organization and provides a roadmap that defines how the organization will achieve it. The roadmap contains broad directions as well as more specific ways they will be achieved. The plan usually addresses critical issues, opportunities and threats facing the organization and allocates appropriate resources to pursue the strategic directions.

What is strategic planning and why is it important? Strategic planning, the process by which the board determines how the organization will accomplish its mission, is one of the primary duties of nonprofit and charitable boards of directors. ²  Strategic planning is an opportunity to explore an organization’s potential, test ideas, question outdated practices, and develop new and innovative strategies that challenge the status quo in pursuit of greater social impact. It allows the board to set priorities for action that shape decision making throughout the organization. ³

The benefits of strategic planning include: ³

• Identifying important issues (often by conducting a SWOT analysis)
• Identifying potential resources
• Developing a framework for action
• Creating a clear plan that can be used in communications and marketing as well as in funding proposals
• Developing a tool for managing change
• Increasing creative thinking
• Allowing the board to discover shared values
• Building trust and respect among board members
• Creating a positive organizational culture

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Standards Program Definitions,” Imagine Canada, May 2011
2. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002
3. “Strategic Planning Workshop Presentation,” Cathy Brothers for Capacity Waterloo Region, Sept. 30th 2011.

Why is it important to orient new board members? Orientation of new board members is an essential component of creating an effective board of directors.¹ In order to govern a nonprofit or charitable organization, board members must be informed of the organization’s goals and activities and must also understand their role as board members, including their personal liability for the organization’s finances or actions.

Orientation of new board members might include the following:

• The organization’s letters patent
• The organization’s bylaws
• The organization’s recent annual reports
• The organization’s policies and procedures
• A document describing the role of the board of directors, such as the “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.
• The role of the board in hiring, performance evaluation, compensation management, and firing, if needed, of ED/CEO.
• The organization’s mission statement
• The organization’s strategic plan or long-term goals
• The programs and services offered by the organization
• The organization’s administrative structure
• The organization’s financial status, budget, and funding structure

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.

Why is it important to record board meetings and retain policies? Preparing and retaining proper minutes from board meetings is an essential part of a transparent and accountable governance process and serves to preserve a record of agenda items discussed, documentation reviewed, votes taken, and decisions made.¹ Minutes from board meetings record organizational history and can play an important role in risk management by demonstrating that directors have exercised a reasonable standard of care in decisions made regarding the organization. Board minutes can also be a useful tool for orientation and training of new board members, employees, or volunteers. Similarly, policies guide practice within nonprofit and charitable organizations and must therefore be recorded and retained. All board members, staff, and volunteers of an organization should be familiar with the organization’s policies.

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “‘Governance’ in Key Risks & What To Do About Them,” Imagine Canada, 2009.

Why is it important to have a succession plan for the board chair and committee chairs? The board of directors of a charity or nonprofit is responsible for board succession planning.¹ Planning for succession to the positions of board chair and committee chairs minimizes disruption as directors leave or join the board and allows the board to ensure that important skills continue to be represented among its members and committees.² Like planning for the succession of the Executive Director or other staff members, board succession planning increases the resilience of the organization and builds capacity among board members.

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.
2. “Succession Planning for the Board,” Beth Deazeley, Feb. 2010.

Why must the board consider development oppurtunities for potential board chairs and committee chairs?Providing developmental opportunities for board members is a valuable practice¹ that represents an investment in individual board members, the effectiveness of the board as a group, and the impact of the organization in the community.² Opportunities for development build the skills and experience of board members and help retain the right people on your organization’s board.²

Effective opportunities for board development:²

• Are pertinent for the individual director and for the board as a whole
• Meet the needs of board members and of the organization
• Advance the organization’s priorities
• Are relevant for the board member outside the board room
• Are convenient and cost-effective
• Increase understanding of the organization’s mission, structure, and/or stakeholders

Development opportunities for board members might include:²

• Information sessions during meetings
• In-house training and workshops
• Board retreats
• External workshops or conferences
• Books, articles, and other learning resources
• Distance education
• Meetings focused on reflection and dialogue

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “National Study of Board Governance Practices in the Non-profit and Voluntary Sector in Canada,” Strategic Leverage Partners Inc., 2006.
2. “Board Building - Recruiting and Developing Effective Board Members for Not-for-Profit Organizations, A Self-Guided Workbook,” The Muttart Foundation and Alberta Culture and Community Spirit, 2008.

Why does the board need to review its performance? Evaluating its own performance is a way for the board to build capacity and to demonstrate its commitment to ongoing learning and improvement. Although not a requirement for this standard, good practice suggests that time should be allocated during each board meeting to conduct a brief evaluation of the meeting in order to enhance effectiveness in the future. In addition, the board should evaluate its performance annually along with the performance of the board chair.¹ The board should engage an external facilitator if board members have difficult or contentious relationships that may hinder their ability to conduct meaningful evaluations of themselves or their peers. Annual evaluations may also contain input from members or stakeholders.¹

Benefits of evaluating the board and its individual directors include:²

• Recognizing the significance of the board’s role and of the commitment made by its directors
• Ensuring that activities are accomplished and that board members receive enough support to fulfill their roles
• Encouraging accountability by evaluating how effective the board is at its work
• Providing recognition to board members, which may help with motivation and retention
• Helping the board and individual directors to improve their performance
• Creating a record of information that can be useful when recruiting new board members
• Giving board members an opportunity to self-identify if their role on the board is not a good fit³

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.
2. “Board Building - Recruiting and Developing Effective Board Members for Not-for-Profit Organizations, A Self-Guided Workbook,” The Muttart Foundation and Alberta Culture and Community Spirit, 2008.
3. Lynn Chambers, Manager of the Standards Program at Imagine Canada, personal communication, September 2012.

Why is it important to have an anti-harassment policy? It is incumbent upon charities and nonprofits to provide an environment that is free from harassment for all parties concerned. Developing and adopting an anti-harassment policy helps to ensure that staff and volunteers understand their rights and responsibilities in relation to this issue, and clarifies procedures for prevention, response, and enforcement. Anti-harassment policies are important from a human rights perspective. The Canadian Human Rights Act protects employees from harassment based on race, national or ethnic origin, colour, religion, age, sex, sexual orientation, marital status, family status, disability or pardoned conviction. An anti-harassment policy helps organizations to ensure they are meeting their legal obligations with respect to the issue of discrimination.

According to the Canadian Human Rights Commission,¹ your organization’s anti-harassment policy should include:

• Definitions of “harassment” and “sexual harassment”
• Responsibilities and expectations of the organization, supervisors, employees, and volunteers
• Procedures for addressing a harassment complaint, including clear steps for how to file a complaint
• A statement about privacy and confidentiality in relation to harassment complaints
• Steps to take if a complainant is not satisfied with the outcome of the complaint process

Note: Your organization’s anti-harassment policy may be found within a broader conflict management policy and it will still be considered compliant as long as it includes the above elements.

1. Workplace anti-harassment policy template from the Canadian Human Rights Commission

Definitions:

Equity: Fairness, impartiality, even-handedness. A distinct process of recognizing differences within groups of individuals, and using this understanding to achieve substantive equality in all aspects of a person's life.1

An inclusive workplace is fair, equitable, supportive, welcoming and respectful. It recognizes, values and leverages differences in identities, abilities, backgrounds, cultures, skills, experiences and perspectives that support and reinforce Canada's evolving human rights framework.2

Why is it important to have an equity and inclusion policy? As organizations working towards the betterment of Canadian society, charities and nonprofits have a responsibility to demonstrate leadership in the area of human rights. This means providing discrimination-free services to clients as well as following discrimination-free engagement practices for employees, the board and non-board volunteers. Given that the sector often serves vulnerable people and communities it is especially important that charities and nonprofits lead in equitable and inclusive practices to reflect the communities we serve.

Many organizations use the term “diversity, equity and inclusion” (DEI) to name this policy. Please note that the standard is not intended to be prescriptive about how the policy is named but is looking for the elements of the standard listed below. The choice to name the standard “Equity and inclusion policy” rather than using the more common term “DEI” came about through consultation with experts in equity and anti-oppression who advised that increasing diversity in an organization is only one of many steps an organization can take to promote the values of equity and inclusion.

Your organization’s equity and inclusion policy3 should include:

• Definitions of the terms “equity” and “inclusion”
• An overarching statement of what the values of equity and inclusion mean for your organization
• Goals your organization intends to meet with respect to the values of equity and inclusion
• Practices your organization has committed to following in order to accomplish the aforementioned goals

1. Teaching human rights in Ontario - A guide for Ontario schools
2. Building a Diverse and Inclusive Public Service: Final Report of the Joint Union/Management Task Force on Diversity and Inclusion from the Treasury Board of Canada Secretariat
3. Diversity, Inclusion, and Equity Policy Template and Guide from Bloomerang

In order to operate effectively and to address confidential issues in a timely and effective manner, boards sometimes need to meet without any staff or other stakeholders present. Some board responsibilities (e.g., performance evaluation or compensation of the most senior staff person) require in camera meetings at regular times during the year. However, calling for a special in camera meeting when one was not expected can cause awkwardness, particularly between the board and the most senior staff person. According to governance experts, best practice is to hold an in camera session at every regular board meeting, first with only the most senior staff person and board members present, and then with only board members present.1 This practice helps to normalize in camera sessions, countering the notion that they are only scheduled to deal with matters concerning the CEO or an imminent crisis.2 

It is important that the board does not use the in camera meeting for topics that are typically discussed with management present. Some questions directed to the most senior staff person are best addressed when no other staff members are present. Other issues (e.g., internal board dynamics) are more effectively dealt with by the participants themselves without any other observers, including the most senior staff person. The distinction to be made is between maintaining confidentiality and engaging in secrecy.3

Note that the board chair is responsible for ensuring that any decisions or major topics covered during an in camera meeting are documented in either the board meeting minutes or separate minutes for in camera sessions.

1. In Camera Board Sessions: Careful How You Use Them, Governing Good
2. In-Camera Sessions, Miedemas Board Consulting
3. What is an in camera session? How to maintain confidentiality in the Boardroom without generating fear, Conscious Governance

Definition: Most Senior Staff Person ¹
The person who reports to the board of directors and to whom any other employee of the organization reports either directly or indirectly. Common titles for the most senior staff person include President, Chief Executive Officer and Executive Director.

Recruiting the most senior staff person: Hiring and monitoring the Executive Director or most senior staff person is one of the primary responsibilities of the Board of Directors of a nonprofit organization. ² It is important to have processes in place for recruiting a new Executive Director to ensure that the best possible candidate is selected for the job and to avoid crisis as your organization transitions between one Executive Director and the next.

Why is orienting the most senior staff person important? Effective orientation has been demonstrated to improve job performance as well as to instill a sense of commitment among new employees. ³

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Standards Program Definitions,” Imagine Canada, May 2011
2. “Hiring a Director for a Nonprofit Agency: A Step-by-Step Guide,” Kurt J. Jenne and Margaret Henderson, Popular Government, Spring 2000
3. “HR Management Standards: Second Edition,” HR Council for the Nonprofit Sector, 2011

Why is a written job description important? The board of directors is responsible for monitoring the performance of the organization’s most senior staff person in order to ensure that the organization is functioning effectively. ¹ A formal job description lists all the activities and competencies required for the most senior staff person’s position and creates a structure with which to assess individual performance. ² Written job descriptions also provide a sense of professionalism when recruiting a new ED / CEO.

Job descriptions usually include: ²

• A list of the position’s duties, tasks, and responsibilities
• A description of how the position advances the organization’s goals
• A list of required experience and competencies
• Any special requirements (for instance, a police check)
• A list of key relationships to the organization’s stakeholders

Why are annual performance objectives important? Level 2 and 3 organizations must develop annual performance objectives for their most senior staff person and conduct an annual performance review. Annual performance objectives should assess progress toward the nonprofit or charitable organization’s strategic plan ² and measure success against annual work plans and the most senior staff person’s job description. ³

Benefits of regular performance reviews of the Executive Director or most senior staff person include: ⁴

• Increased understanding among board members of the role of the Executive Director and of day-to-day operations
• Increased understanding of progress toward the organization’s mission
• Ability to respond more effectively to shifts in the external environment including changes to funding and community needs
• Enhanced communication between board members and the Executive Director
• Ability to proactively address emerging challenges
• Enhanced performance of the Executive Director

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices.” Industry Canada, 2002
2. “HR Management Standards: Second Edition,” HR Council for the Nonprofit Sector, 2011
3. “Performance Management for Executive Directors,” in HR Council for the Nonprofit Sector’s HR Toolkit. 
4. “Hiring and Performance Appraisal of the Executive Director,” The Muttart Foundation and Alberta Culture and Community Spirit, 2008

The board is responsible for determining and reviewing the compensation package of the organization’s most senior staff person. When reviewing the most senior staff person’s total compensation package once per year, it is important that the board review all related expenses.

Definition: Total Compensation Package¹
The sum total of all rewards (cash and other) that are provided to an employee, including: base salary, commission, bonus, car allowance, housing allowance, benefits, pension, etc.

The HR Council for the Nonprofit Sector identifies three forms of compensation,² all of which should be considered when reviewing the total compensation package of your organization’s most senior staff person:

• “Direct financial compensation consisting of pay received in the form of wages, salaries, bonuses and commissions provided at regular and consistent intervals
• Indirect financial compensation including all financial rewards that are not included in direct compensation and can be understood to form part of the social contract between the employer and employee such as benefits, leaves, retirement plans, education, and employee services
• Non-financial compensation referring to topics such as career development and advancement opportunities, opportunities for recognition, as well as work environment and conditions”

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Standards Program Definitions,” Imagine Canada, May 2011.
2. Definitions from “Compensation Defined,” in the HR Council for the Nonprofit Sector’s HR Toolkit.

Definition: Succession Plan¹
A succession plan sets out how potential departures of key personnel would be dealt with in the short-term and long-term through internal or external candidates. It could define key competencies, identify pools of talent and outline how current staff members are being developed to fill positions.

What is succession planning and why is it important? A succession plan describes how an organization will respond to the expected or unexpected departure of their most senior staff person. Organizations may find it helpful to create two succession plans: one that reflects long-term planning and one for emergencies. Having an effective succession plan in place for the most senior staff person improves organizational resilience by:² 

• Avoiding disaster should an Executive Director leave unexpectedly
• Strengthening operations and building capacity within the organization by training staff, board members, and volunteers to perform aspects of the most senior staff person’s role
• Building leadership competencies within staff and volunteers throughout the organization, strengthening the nonprofit sector as a whole and enabling organizations to achieve greater positive impact in the communities they serve

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Standards Program Definitions,” Imagine Canada, May 2011.
2. “Building Leaderful Organizations: Succession Planning for Nonprofits,” Tim Wolfred, 2008. Baltimore, Maryland: The Annie E. Casey Foundation

What is risk? Risk is anything that could prevent a nonprofit from achieving its mission.¹ An organization’s risks can be considered in terms of its four primary assets:¹

1. People (board members, volunteers, staff, clients/participants, donors, etc.)
2. Property (buildings, facilities, equipment, contents, important papers)
3. Income (grants, contributions, contracts, investment earnings)
4. Goodwill (reputation, ability to raise funds, stature in the community, appeal to prospective volunteers / board members / staff)

Definition: Operational Risks²
Operational risks are risks arising from the organization’s people, systems, strategies and processes or from external events which have a negative impact on its assets, including physical, financial and human resources, programmatic content and material and its integrity and reputation. It also includes other categories such as fraud risks, legal risks, and physical or environmental risks.

Definition: Strategic Risks²
Strategic risks are associated with the strategic direction of an organization. Strategic risks are often a function of uncertainties that may be driven by government policy, competition, court decisions or a change in stakeholder requirements.

Why is identifying and planning to minimize risk important? Assessing and mitigating the risks facing a nonprofit or charitable organization is one of the primary responsibilities of the board of directors.³ Every nonprofit faces risks, and risks can never be completely removed.⁴  What is most important is that your organization is aware of the risks involved in its programs and activities and that it takes reasonable action to avoid harm to its board members, volunteers, staff, clients, property, or reputation in the course of its operations.

Effectively managing risk will help your organization to:

1. Prevent or reduce harm to your people or damage to their property
2. Prevent or reduce damage to your nonprofit’s reputation and public image
3. Help you attract and maintain the confidence of your stakeholders
4. Increase peace of mind
5. Keep regulators happy
6. Reduce the chance of a lawsuit
7. Help obtain (or keep) strong insurance coverage at a competitive price
8. Assist in clearly defining insurance needs, particularly as needs and activities change
9. Save nonprofit resources by preventing loss of time, assets, income, property, or people
10. Lessen the chance of disruptive investigation
11. Inform decision-making
12. Reduce uncertainty by knowing what could happen
13. Risk management can be a valid defense in a lawsuit
14. Risk management can be a valid defense in a lawsuit even if an employee or volunteer did not follow your policy (by demonstrating that your organization took reasonable steps to mitigate risks)

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Key Risks & What To Do About Them,” Imagine Canada, 2009.
2. “Standards Program Definitions,” Imagine Canada, May 2011.
3. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.
4. “Developing a Risk Management Strategy: Five Steps to Risk Management in Nonprofit and Charitable Organizations,” Karen Six and Eric Kowalski, Imagine Canada, 2005.

Why is it important to review insurance coverages? Insurance protects your organization’s people and property from injury, loss, or damage incurred in the course of your organization’s operations. This standard seeks to ensure that nonprofit and charitable organizations possess adequate insurance coverages based on their programs, services, and other activities. Board members need to be familiar with their organization’s insurance policies in order to protect their organization and themselves from risk.

What kind of insurance does my organization need? The amount and kind of insurance an organization needs to purchase depends on the programs and / or services the organization offers as well as the kind of activities it conducts.¹ Boards should consider whether their insurance policies are sufficient given their organization’s mission and operations, and should be familiar with any limitations of their policies.² Limitations can include exclusion of coverage for sexual or physical abuse, limitations related to the geographic area covered by the policy or limitations regarding who is covered by the policy.² Most general liability insurance policies only cover claims made in the context of an organization’s operations. Nonprofit and charitable organizations should also consider obtaining additional directors’ and officers’ liability insurance to protect against claims involving board decisions or actions.² Board members need to understand their organization’s insurance policies as they could be held personally liable if the organization is unable to meet its financial obligations.

1. “Insurance for Voluntary Organizations: Things to Consider,” Insurance Bureau of Canada, 2007.
2. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada.

What governing documents does my organization need to comply with? The operations of nonprofit and charitable organizations in Canada are governed by documents including:¹

• The statute under which the organization is incorporated
• The organization’s letters patent
• The organization’s bylaws
• The organization’s governance or policy manuals, if applicable

Why is it important to be in compliance with these governing documents? By law, the letters patent and bylaws constitute a contract between a nonprofit or charitable organization and its members.¹ Board members can be held personally liable if their organization fails to act in accordance with its governing documents.¹ Establishing and following a process at the board level to ensure that the organization acts in accordance with its governing documents mitigates this risk and protects the organization from liability. If the organization wishes to undertake activities that are beyond the scope of its letters patent, it must create supplementary letters patent that include these amendments.¹

From "Accreditation Preparation Workbook Section A: Board Governance,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.

Definition: Financial Statements¹
The statements of the financial activities of the organizations, normally including:

• a balance sheet, which shows assets, liabilities and equity at year-end;
• a statement of income, which shows the results of operations for the year;
• a statement of retained earnings, which summarizes changes in retained earnings during the year;
• a statement of cash flows, which shows operating, investing, and financing activities, and how these activities affect the cash position; and,
• notes to financial statements, which are an integral part of financial statements, and which provide additional explanations and details concerning financial statement items.

Why is it important to complete annual financial statements? Overseeing the financial affairs of a nonprofit or charitable organization is one of the most important roles of the board of directors, and financial statements are the main avenue of communication about the organization’s financial status.² For the board, financial statements present information that is essential when making strategic decisions about the future of the organization.³ They typically consist of the four basic financial reports outlined above, accompanied by year-end comments from the auditor, including any notes. Financial statements can also serve as important communication tools which the organization can use to share pertinent financial information with its stakeholders.

Tip: Because the quality of your organization’s financial statements depends on the quality of the information collected regularly throughout the year, it may be helpful to engage an accountant to set up statements to make sure the format is correct and that staff know what information needs to be tracked.

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Standards Program Definitions,” Imagine Canada, May 2011.
2. “A Guide to Financial Statements of Not-for-Profit Organizations: Questions for Directors to Ask,” The Canadian Institute of Chartered Accountants, 2012.
3. “Financial Responsibilities of Not-for-Profit Boards: A Self-Guided Workbook,” The Muttart Foundation and Alberta Culture and Community Spirit, 2008.

Definition: Annual Report¹
An annual report is a comprehensive report on the organization’s activities throughout the preceding year. The annual report should give stakeholders information about the organization’s activities and financial performance. The annual report usually includes the financial statements of the preceding year, comments on the activities of the past year and outlook for the future.

Why is it important to make your organization’s annual report publicly available? Annual reports can be an important component of a charity or nonprofit’s communication to its stakeholders and can help develop an organization’s reputation for accountability and transparency both financially and in its operations.²

The Canadian Institute of Chartered Accountants suggests that effective annual reports should answer the following questions:²

1. What are the organization’s mission and vision?
2. What strategies do the organization employ to achieve the mission and vision?
3. What were the organization’s annual goals and how did actual performance compare to these goals?
4. What risks and opportunities face the organization?
5. What were the organization’s financial and nonfinancial highlights for the year?
6. What fundraising methods did the organization use and what were the outcomes?
7. What does the organization seek to accomplish in the coming year?
8. What is the governance structure of the organization?

Why is it important to make your organization’s financial statements publicly available? Increasingly, community members, donors, funders, and other stakeholders are taking an active interest in the financial practices of charitable and nonprofit organizations.² Making financial statements publicly available demonstrates financial accountability and transparency to stakeholders. Level two and three organizations that are required to have an independent audit or review engagement (see Standard B2.) must make any notes by a licensed public accountant available along with their financial statements.

Why is it important for organizations to make a list of their board members publicly available? Members of a nonprofit or charity’s board of directors are responsible for overseeing all activities of the corporation. Stakeholders and members of the community therefore have a right to know the names and contact information of all board members.³ Nonprofits and charities are obliged to report any changes to the board of directors, including the election or appointment of a new director, the resignation or removal of a director, or a change in the residential address of a board member within 15 days of the change by submitting Form 4006 – Changes Regarding Directors to Corporations Canada.³ Standard B10 ensures that nonprofits and charities also make this information publicly available so that stakeholders are able to contact board members.

Why is it important for charities to make their registration number (BN) assigned by the Canada Revenue Agency (CRA) available on their website? Every registered charity in Canada is assigned a unique registration number which includes a business number, program identifier, and reference number. This number is an important component of a charity’s legal identification.

Why is it important for charities to make the public portion of their most recent Registered Charity Information Return (form T3010) as submitted to CRA available on their website? The public portions of the T3010 provide essential information about a charity’s financial activities including revenues, expenses, and compensation levels of its 10 highest paid employees. Providing easy access to this information by including it on your organization’s website demonstrates financial transparency and accountability to stakeholders and the broader community. The Canada Revenue Agency publicizes portions of the T3010s submitted by all Canadian charities online in their Charities Listing. Organizations can provide a link to this information on their websites in order to comply with this standard.

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Standards Program Definitions,” Imagine Canada, May 2011.
2. “Improved Annual Reporting by Not-For-Profit Organizations,” The Canadian Institute of Chartered Accountants, 2011.
3. “Report Changes Regarding Directors,” Your Reporting Obligations Under the Canada Not-for-profit Corporations Act, Industry Canada.

What information on compensation is required by CRA in the T3010? The T3010 asks registered charities in Canada to disclose the salary ranges for its 10 highest compensated, permanent full-time employees. Charities are asked to disclose the number of employees whose salaries fall within the following range: $1-$39,999, $40,000-$79,999, $80,000-$119,999 and so on to $350,000 and over. This standard asks that all nonprofits accredited through Imagine Canada make this information publicly accessible even though they do not submit a T3010 to CRA. All Canadian charities must submit a T3010, which can be publicly accessed on CRA’s Charities Listing.

Why should organizations make information on compensation levels accessible to its stakeholders? Individual donors, corporations, foundations and governments increasingly want to understand the operating costs and expenses of charitable and nonprofit organizations. Similarly, the media has become increasingly interested in compensation levels for charities and nonprofits in Canada.¹ Disclosing information on compensation levels is an important component of an organization’s financial accountability and transparency.

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Statement on Employee Compensation in the Charitable and Nonprofit Sector,” Imagine Canada, February 2012.

Why is it important for organizations to disclose details of the purpose and amount of payments made to board members or companies in which board members have an interest? Standard A19 of Section A: Board Governance states that no member of the board is entitled to receive, either directly or indirectly, any salary, wages, fees, commissions or other amount for services rendered to the organization in their capacity as a director. “In their capacity as a director” means that board members may be paid for services they provide to the nonprofit or charitable organization in another role, for example as a consultant. However, disclosing the amount and purpose of these payments is an essential component of financial transparency for nonprofits and charities.

Paying a board member or an organization in which a board member is an important stakeholder, for instance an owner, partner, or senior manager, can appear to be a significant conflict of interest. Perceived or actual conflicts of interest can damage your organization’s reputation and impact perceptions of the nonprofit sector as a whole. Your organization’s conflict of interest policy (see Standard A12.) will set out the process to follow for directors who have an interest in one of the organization’s contracts. Disclosing the details of payments for products or services made to board members or companies in which board members have an interest demonstrates to stakeholders that your organization is following its conflict of interest policy and will help to build your organization’s reputation for ethical financial practices.

Note for provincially incorporated charities: Certain provinces prohibit directors from receiving any remuneration in any capacity, as this is seen as an inherent conflict of interest.¹

What does the Canada Not-for-profit Corporations Act say about the compensation of board members? The Canada Not-for-profit Corporations Act allows directors to receive reasonable remuneration for their expenses or services to the corporation.

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “‘Remuneration of Directors, Officers and Members’ in New Legislation Canada Not-for-Profit Corporations Act: The Directors,” Corporations Canada.

What are considered fundraising activities? The CRA considers any activity that involves asking for support to be fundraising, unless it satisfies The Substantially All Test.¹

The Substantially All Test: If substantially all (90% or more) of an activity is not asking for support, the CRA recognizes that this activity would have occurred regardless of asking for support. Costs for these activities do not need to be considered fundraising costs.

Example: The Substantially All Test is Met:² The executive director of a charity gives a speech about a charity's research findings to a group of stakeholders with an interest in the research. The speech concludes with contact information and a brief invitation to learn more about the charity's work, or if audience members choose, make a donation. In this case, the substantially all test has been met and none of the costs of the speech (for example, the executive director's time and travel) have to be treated as fundraising expenditures.

Example: The Substantially All Test is Not Met: A charity’s initial or home page on its Web site is used extensively to solicit donations or provide information on giving opportunities. Program and other information about the charity only appear after this material. The prominence of the fundraising materials relative to the other content means it will be considered to represent more than 10% of the activity. In this situation the “substantially all test” is not met.²

Pro-rated allocation of costs to fundraising and other expenditures: The CRA recognizes that some activities represent both fundraising and other costs, for instance management/administration expenses. In order for expenses to be pro-rated, the charity must be able to demonstrate that less that 90% of the activity in question advances the organization’s fundraising goals.² To decide whether it is possible to pro-rate expenses, CRA advises charities to separate fundraising from other content and consider:²

• the proportion of charitable, fundraising, management/administrative, or political content within the activity;
• the resources devoted to charitable, fundraising, management/administrative, or political content (employee and volunteer time, financial, and property); and 
• the prominence of the fundraising content in the activity.

Why do costs associated with fundraising activities need to be disclosed? By law, all registered charities must report all costs related to fundraising on their T3010. The Canada Revenue Agency states that charities must be transparent regarding their fundraising costs, revenues, and practices, warning that failure to accurately disclose this information may indicate that fundraising activities have been illegal or deceptive.²

What types of expenses need to be disclosed? The following table³ from Imagine Canada indicates the kinds of activities that must be recorded as fundraising costs. This is a useful tool for helping you to know what sorts of fundraising costs need to be disclosed.

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “What activities are fundraising?” Imagine Canada’s Charity Tax Tools.
2. “Fundraising by Registered Charities,” Canada Revenue Agency, April 20th 2012.
3. “Recording fundraising costs,” Imagine Canada’s Charity Tax Tools.

Definition: Audit¹
An audit is the highest level of assurance that can be provided on financial statements. An audit provides reasonable assurance that the entity’s financial statements present fairly its financial position, financial performance and cash flows in accordance with the applicable financial reporting framework.

Definition: Review Engagement¹
A review engagement consists primarily of enquiry, analytical procedures and discussion. This type of engagement is useful when an organization does not need audited financial statements, but management or third parties (e.g., banks, granting agencies, etc.) want some assurance that the financial statements are plausible.

Audit vs. a Review Engagement¹
The chartered accountant’s objective in an audit is to express an opinion on the financial statements; in a review engagement, the objective is to determine whether the financial statements are plausible in the circumstances. ‘Plausible’ is used in the sense of being worthy of belief, which is a moderate level of assurance.

Why is it important to have financial statements audited? An audit provides an opportunity to demonstrate financial accountability and transparency by allowing an external auditor to review the organization’s books and records to ensure that the information reported in the financial statements is accurate.²

Note: Provincial legislation may require nonprofit and charitable organizations with revenues under $1 million to have their financial statements audited by an independent licensed public accountant. Nonprofits and charities must ensure that they comply with all applicable legislation.

When reviewing the audited statements, boards of directors may wish to ask the following questions:

• Did the auditor require any significant changes to management’s year-end financial information before approving the financial statements and issuing their report?
• Did the auditor uncover any weaknesses in internal controls or accounting policies?
• Did the auditor have any concerns about the organization’s financial activities based on the financial statements?
• Did management make significant estimates in the financial statements that the auditor was concerned about?
• Did the auditor uncover any issues that would cause him or her to issue a qualified report?

1. “Standards Program Definitions,” Imagine Canada, May 2011.
2. “A Guide to Financial Statements of Not-for-Profit Organizations: Questions for Directors to Ask,” The Canadian Institute of Chartered Accountants, 2012.

Why is it important for financial statements to be received and approved by the board within 6 months of year end? Nonprofit and charitable boards of directors are responsible for overseeing their organization’s financial affairs. While directors do not need to have a lot of expertise related to finance, they do need to know how to read and understand the financial information presented to them by staff.¹ This standard ensures that boards of directors will receive, review and approve the organization’s financial statements before they must be submitted to CRA within six months of year-end (see Standard B4).

1. “A Guide to Financial Statements of Not-for-Profit Organizations: Questions for Directors to Ask,” The Canadian Institute of Chartered Accountants.

Definition: Registered Charity Information Return (T3010)¹
The annual information form required by Canadian Revenue Agency (CRA) annually by all charities.

Why is it important to file the T3010 on time? Filing the T3010 is required by law for all Canadian charities. The board of directors must make certain that their organization complies with all relevant legislation, and are responsible for ensuring that the T3010 is filed accurately and on time.² The T3010 contains financial information as well as information about your organization’s governance, programs, and political or business activities.³ If you do not file your Registered Charity Information Return (T3010), CRA will revoke your organization’s charitable status. As CRA makes pubic a list of all organizations that have had their charitable status revoked,³ this will negatively impact your organization’s reputation and may discourage funders and donors from supporting your organization in the future. CRA also makes the information available on the T3010 public, so failing to provide this information is a missed opportunity to communicate with your organization’s stakeholders. Increasingly, granting agencies, corporations, and individual donors are considering this information as they decide which organizations to fund.³

See also : Ten Questions Directors of Charities Should Ask About the T3010

How do I file the T3010? See “Reporting and Receipting,” for detailed instructions on how to file the T3010 form.

Information for nonprofits: Nonprofit organizations are required by law to file “Corporation Income Tax (T2) Return,” within six months of year-end. Please visit the Canada Revenue Agency for details on how to submit the T2.

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Standards Program Definitions,” Imagine Canada, May 2011.
2. “10 Questions Directors of Charities Should ask About the T3010,” blog by Lisa Hartford for Imagine Canada, September 4th 2012.
3. “The In’s and Out’s of Reporting to CRA,” William Harper, CA for William Harper Associates, December 2009.

What is an annual budget and why does the board need to review it regularly? A budget is a financial plan that reflects an organization’s broader strategic and operational plans.¹ Essentially, an organization’s budget is a tool to help it accomplish its mission. The annual budget is the board’s most important tool to ensure that their organization is handling funds and assets responsibly and effectively.² By approving and monitoring the annual budget, nonprofit boards ensure responsible stewardship of the organization’s financial resources.¹ Remember that each board member, not only the Treasurer, shares a responsibility to effectively manage the organization’s financial resources and could, in some circumstances, be held personally liable for the organization’s debts.²

An annual budget can be an effective tool for monitoring your organization’s financial activities if the following 5 criteria are met:²

• The budget is be prepared thoughtfully
• The budget is prepared and / or approved by the board
• The time periods covered by the budget correspond to the time periods of the organization’s financial statements
• The financial statements are prepared in a timely fashion and are compared to the budget (preferably right on the statements)
• The board discusses and is prepared to take action in cases where a comparison of financial statements to budgets shows a significant discrepancy

Board members may wish to ask some of the following questions during the budget review and approval process:

• What assumptions guide the budget’s estimates of revenues and expenditures for the coming year?
• Are there significant differences between this year and last year’s budget? What accounts for these differences?
• What are the plans for staff compensation for the coming year?
• What changes to programs and services are reflected in the budget?
• Does the budget align with the strategic plan?
• What different scenarios have been considered when preparing the budget?
• Do we have a cushion to guard us against unanticipated or adverse events?

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “A Guide to Financial Statements of Not-for-Profit Organizations: Questions for Directors to Ask,” The Canadian Institute of Chartered Accountants, 2012.
2. “Financial Responsibilities of Not-for-Profit Boards: A Self-Guided Workbook,” The Muttart Foundation and Alberta Culture and Community Spirit, 2008.

Definition: Statutory Remittances¹
Legally required payments to government (e.g., tax, EI, CPP).

What kinds of statutory remittances could my organization be required to pay? Statutory remittances could include tax deductions from staff salaries, employment insurance premiums, and Canada Pension Plan contributions.² They may also include workers’ compensation, EHT (Employer’s Health Tax), and any other legally required payments to government.

Why is it important for the board to be assured that all statutory remittances have been paid? Failure to submit statutory remittances is one of the most frequent reasons for lawsuits against charities and nonprofits in Canada. Directors of nonprofit and charitable organizations who fail to submit all legally required payments to government can be held personally liable for these amounts plus the interest accrued.² However, if a director can demonstrate that they took reasonable precautions to ensure that all statutory remittances were made, they may not be held liable.² Applying this standard ensures that your organization will remain in good standing with government authorities and protects your board members from personal liability.

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Standards Program Definitions,” Imagine Canada, May 2011.
2. “Chapter 3: Liability of Directors” in the “Primer for Directors of Not-for-profit Corporations: Rights, Duties and Practices,” Industry Canada, 2002.

Additional resources:

• Directors and officers liability in the employment context (2010, Lang Michener LLP). 
• Avoiding director's liability in troubled economic times (2009, Carters Professional Corporation)

What are fundraising activities? The CRA defines fundraising as “any activity that includes a solicitation of present or future donations of cash or gifts in kind, whether the solicitation is explicit or implied.”¹

Why do nonprofit and charitable organizations need to ensure that their fundraising activities are cost-effective? Donors want to know that most of the money they donate to nonprofits and charities is going to the cause they care deeply about. When fundraising costs are perceived to be too high, public confidence in the organization and in the charitable sector as a whole are at stake.²

What is considered cost-effective fundraising? CRA uses the ratio of fundraising costs to fundraising revenues to assess the cost-effectiveness of a charity’s fundraising activities. The higher the ration, the more likely CRA is to require additional justification for fundraising expenses.³ The fundraising ratio is a global calculation for the entire fiscal year. For charities, this can be calculated by dividing fundraising expenses by fundraising revenue using the charity’s T3010 as follows:³

1. add the revenue amounts from lines 4500 (receipted donations) and 4630 (fundraising revenue not reported in 4500); and,
2. divide the total expenditure amount on line 5020 (fundraising expenses) by the sum of lines 4500 and 4630.

The following table summarizes CRA’s approach to the fundraising ratio:

CRA recognizes that because the charitable sector is so diverse, organizations may have legitimate reasons for higher fundraising ratios for particular events or fiscal periods. Assuming that they are not engaging in illegal or deceptive fundraising practices, the CRA recognizes that the following may impact an organization’s fundraising ratio:

• Small charities may have higher fundraising ratios if they have smaller constituencies
• Causes with limited appeal, for example, a little-known disease or the rehabilitation of violent offenders
• Donor development programs where revenues may not be realized until years later
• Gaming activities

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Cost of Fundraising Questions and Answers,” The Association of Fundraising Professionals and Imagine Canada, February 17th 2012.
2. “Charitable Fundraising: Tips for Directors and Trustees,” Ministry of the Attorney General, Queen’s Printer for Ontario, 2008-2010.
3. “Fundraising by Registered Charities,” Canada Revenue Agency, April 20th 2012.

Definition: Investable Assets¹
Sums of money owned by the organization that are available for investing for terms likely extending beyond one year.

Definition: Investment Policy¹
A policy that provides guidelines on where and how investable assets can be invested.  The investment policy usually includes statements on level of risk to be taken, who is delegated to take what decisions on sale or purchase of assets, use of investment managers, amount of equity or fixed income, etc.

Why is it important to have an investment policy? Directors of nonprofit and charitable organizations can face serious liability risks resulting from improper investment of an organization’s funds.² Having an investment policy will ensure that funds are invested appropriately in order to advance your organization’s strategic objectives and protect the board of directors from liability.

Directors may be liable if they fail to:²

• determine and comply with the investment power in the letters patent or special act creating the charitable corporation;
• determine and comply with specific investment powers contained in agreements accompanying a gift, such as a last will and testament of a donor in making a testamentary gift or a gift agreement by a donor in giving a perpetual endowment;
• determine and comply with the applicable statutory investment power that applies in a particular province in relation to investments made in that province, typically found in provincial trust legislation;
• invest in accordance with the standards of a prudent investor where the provisions of the trust legislation apply, including any mandatory investment criteria required by the Act;
• develop and implement an investment plan as required by applicable trust legislation; and,
• undertake investment decision making them-selves, or in provinces that permit delegation of investment decision making, such as Ontario, to ensure that an appropriate agency agreement is in place appointing a qualified investment manager and that there is careful selection and monitoring of the investment manager chosen.

The investment policies of nonprofit and charitable organizations should:

• be developed with the advice of a financial professional or be reviewed by legal counsel
• define general objectives (preserve and protect the assets; achieve aggressive growth)
• delegate day-to-day asset management to an independent finance committee or a professional manager
• set asset allocation parameters (include diversification)
• describe asset quality (itemize quality ratings for stocks, bonds, or short-term reserves based on your risk tolerance)
• define the investment manager's accountability (include risk in transactions, social responsibility, reporting requirements, and coverage of cash flow needs)
• establish a system for regular review of the policies

From "Accreditation Preparation Workbook Section B: Financial Accountability & Transparency,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. “Standards Program Definitions,” Imagine Canada, May 2011.
2. “Chapter 3: Liability of Directors” in the “Primer for Directors of Not-for-profit Corporations: Rights, Duties and Practices,” Industry Canada, 2002.

Why is it important to honour donors’ and prospective donors’ requests to limit the frequency or means of contact or to discontinue contact if requested? Alberta’s Charitable Fundraising Act (Section 50) states that if a person requests to not receive further solicitations or to be removed from donor lists, charitable organizations and fundraising businesses are obliged to comply with the individual’s requests.¹ In spite of this, the 2012 Cygnus Donor Survey found that only a quarter of Canadian donors were fully satisfied with how organizations complied with their requests for reduced solicitations. This has serious implications; 58% of all surveyed donors and two thirds of those over the age of 65 said that they drastically reduced their giving or stopped giving altogether to organizations who they felt asked for support too often.² Relationships are the foundation of an organization’s ability to fundraise effectively, and if requests regarding when, how, and how often donors wish to be contacted are not respected, this will negatively impact relationships and affect future fundraising efforts.

Why do organizations need a policy on donor requests? Developing a policy on donor requests will help your organization’s staff and volunteers to understand how and how often to contact established and potential donors. Setting expectations for staff, volunteer, and third-party fundraisers will ensure that donors are treated with respect and that your organization’s values are evident in its fundraising practices. For instance, your policy on donor requests could include the process the charity uses to ensure that someone who requests to be removed from a list is actually removed.

From "Accreditation Preparation Workbook Section C: Fundraising,"  Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.

1. Charitable Fundraising Act, Province of Alberta, Alberta Queen’s Printer, November 1st 2010.
2. “Thousands of Canadian Donors Share Actions, Opinions,” Janet Gadeski, Charity Info, July 13th 2012.