We're calling to set up a time to do an audit.

• Author: Hunter, Laird

The Charities Directorate of Canada Customs and Revenue Agency (CCRA) has many responsibilities toward charities. One that creates a chilly wind for most charities is the telephone call saying that CCRA wants to do an audit. While concern might be reflexive, it isn't often warranted. The Income Tax Act (Act) requires every registered charity (and every registered Canadian amateur athletic association) to keep certain records and books of account at a Canadian address. These books need to contain and present information so CCRA can satisfy itself that the charity is operating within the requirements of the Act. One specific requirement is for a set of duplicate receipts, with related detail allowing CCRA to verify donations, which might result in a possible deduction or tax credit.

This column reviews some of the issues relating to audits of charities by CCRA. The vast majority of audits result in a confirmation of compliance from CCRA or direction from it to the charity about some minor record transgression. Knowing what an audit involves and why it might happen can be helpful both in lessening anxiety and being sure that if it does happen, the proper materials are available.

What is an Audit?

An audit is an examination of records or financial accounts to check their accuracy. The word comes from the Latin auditus, which has its origins in the concept of hearing, because originally accounts were read aloud. Looking at a charity's financial and other records allows CCRA to make an assessment about whether the charity is following its charitable purposes in accordance with the requirements of the Act.

Why Do Audits Occur?

CCRA indicates that there are a number of possible reasons a charity is identified for audit:

* by random selection;

* to review specific legal obligations under the Act;

* to follow-up on possible non-compliance or complaints;

* to confirm assets have been distributed after revocation; and

* to help CCRA understand the purposes and activities of an organization that is applying for registered status.

This last point is little known. An applicant for charitable registration can be audited before that status is granted to help the Directorate determine if it meets the Act's requirements as a charity. The CCRA is required to ensure that all charities comply with the Act. In the audit context, CCRA carries out it mandate by reviewing information provided to it by the charity in its application and otherwise, including making...