Your charity may one day receive a letter from CRA or a call announcing that CRA would like to do a Books and Records Review of your charity.  Although the letter may state something to the effect of “Please note that this review is not an audit, but review of the records to ensure they meet the requirements of subsection 230(2) of the Income Tax Act. As we would like to examine the current books and records, we request you to make available all the books and records, minutes of meetings, and any additional information that may be needed in connection with the above charitable registration.” 

For most charities, they should treat a books and records review in a similar way to an audit.  After all if the books and records review does not turn out well you will probably have an audit.  Here is some information specifically on the books and records review process but you also may wish to review my article on CRA audits.

By way of background in 2001, the CRA also introduced a new ‘visibility outreach initiative’ known as the “Books and Records Review”. These reviews are on-site visits to review a taxpayer or charity’s books and records, to ensure that they are adequate. The visits are directed primarily at new businesses or new charities or sectors of particular industries where the adequacy of the books and records was noted as a concern in previous audits.

A books and records review is a separate non-audit activity that is part of CRA’s ‘balanced’ approach to increase compliance.

According to the CRA they visit the charity’s premises to:

  • Provide information and advice;
  • Ensure more complete and comprehensive record keeping practices by explaining why these are important;
  • Ensure adequate books and records are maintained so that an auditor can reasonably verify accuracy of income and/or expenses; and
  • Bring about behavioural change leading to long-term compliance, where a taxpayer’s history might warrant it.

An auditor from the CRA will meet with the charity to review the books and records to make sure they are adequate for Income Tax Act, Goods and Services Tax, and Harmonized Sales Tax purposes. With the aid of a questionnaire, the CRA representative will gather general business information and review some of the accounting transactions.

According to CRA the objectives of such a review are:

  • To document, analyse and report on the state of the current books and records, accounting system and control procedures in place;
  • To identify areas that require attention; and to make recommendations for corrective action; and
  • Where required, conduct a follow-up visit to ensure appropriate changes have been made.

The CRA representative performing this review will assist the charity in understanding what is required to maintain adequate books and records. Some of the benefits of this initiative are:

  • charities visited are provided an opportunity to ask questions about CRA’s requirements for books and records, about other matters related to the programs CRA administers and to correct any deficiencies that may be discovered, without facing penalties; unless CRA detect serious non-compliance;
  • The maintenance of proper books and records will keep the charity better informed about the financial position of their organization.

That being said a Books and Records Review is important in that if deficiencies are found it can lead to a further audit and other consequences. 

Charities should treat a books and record review seriously and in a similar vein to an audit.