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MakeWay is fiscally conservative. This means that Projects may not spend or commit more money than they have. In addition, if Projects accept funds that are restricted to a specific purpose, they must ensure that those funds are spent or committed as required by the funder.
Projects must develop an annual budget before engaging in any programmatic activities.
The annual budget describes programmatic activities in monetary terms. At the beginning of the fiscal year it helps the Project plan activities. Throughout the fiscal year it helps the Project measure its progress meeting goals and objectives, and can signal that changes to plans are needed. At the end of the fiscal year it helps Projects to evaluate results and to better plan for future activities.
Budgets are also important for risk management. Budgets can help Projects identify fundraising needs and ensure that the Project’s spending matches its plans. Additionally, budgets provide assurance that there will be enough cash on hand to complete the Project’s work.
Note: Many funders require an annual operating budget as part of proposal submissions.
A Project’s annual budget should be based on a realistic forecast of revenues and expenses. In other words, it should represent the most likely scenario for funding and the best possible guess for actual costs of proposed activities.
MakeWay recommends that Projects refer to their previous year's financial reports to begin developing the next year's budget. Projects that do not have financial reports or a budget from a previous year should consult with their Finance Specialist about how to develop their budget.
MakeWay operates on a fiscal year that begins on April 1 and ends on March 31. This means the fiscal year crosses calendar years. Project budgets must correspond to MakeWay's fiscal year and not to any other 12-month period.
Projects must submit their budgets at the beginning of the calendar year. If required, MakeWay can provide templates and training for budgeting purposes.
Projects are required to operate within their available cash resources. Project Directors must work with the Support Team and Steering Committees to manage the Project's cash efficiently and within budgetary constraints.
The best way that Projects can avoid cash shortfalls is to anticipate and plan for expenditures through the budgeting process. Projects should think through how much money they will need to support each activity and identify how they will go about fundraising for those activities.
If the Project's funding is primarily from government and foundation grants, MakeWay strongly encourages the Project to apply for funding from multiple sources for better stability. Projects should keep track of how many proposals have been submitted, to whom, the expected decision dates, the amounts requested, and the expected funding dates.
Projects must apply the following types of codes to all financial transactions to ensure accurate processing and reporting by MakeWay:
- Program area code
- Revenue code
- Chart of accounts (COA) code
The example below is provided to demonstrate how a fictional Project might define and use codes for its financial transactions.
Let's assume "Project W" works to conserve wetlands. They have activities in four regions. They have the same funders and contractors for the activities in these regions. Below is how "Project W" set up and codes its program areas (activities) and financial transactions.
- Assign each region a program area code.
- P555-01 – Vancouver Region
- P555-02 – Toronto Region
- P555-03 – Winnipeg Region
- P555-04 – Saskatoon Region
- Determine the COA codes.
- Contractor Fees (61510): A contractor doing fund development.
- Contractor Expenses (61520): A contractor providing video editing services.
- Contractor Expenses (61520): A contractor providing janitorial services.
- Determine the allowable expenses set out by each funder.
- Award P555-A0001: Supports fund development for the Winnipeg Region and janitorial services for all of the program areas.
- Award P555-A0003: Supports all contracted services except fund development.
- Donor Z (NOAWARD): Funds are not the result of an award and do not have a specified purpose.
- Code the contractor invoices.
- The invoice from the fund development contractor could be coded:
- P555-03, P555-A0001, 61510: For work performed for the Winnipeg Region, using funds specifically granted for that purpose by the funder under award A0001.
- P555-04, NOAWARD, 61510: For work performed for the Saskatoon Region, using funds from Donor Z which do not have a specified purpose.
- The invoice from the video editing contractor could be coded:
- P555-01, P555-A0003, 61520: For work performed for the Vancouver Region, using funds from award A0003 which supports all contracted services except fund development.
- P555-02, NOAWARD, 61520: For work performed for the Toronto Region, using funds from Donor Z which do not have a specified purpose.
- The invoice(s) from the janitorial services contractor, allocated across all four program areas, could be coded:
- P555-01 (25%), P555-02 (25%), P555-03 (25%), P555-04 (25%), P555-A0001, 61520: For work performed in all regions, using funds specifically granted for that purpose by the funder under award A0001.
This is an involved example but shows the level of detail that is possible, and often necessary, in tracking expenses to relevant awards.
It is difficult for MakeWay to correct entries after the fact, so it is important that Projects work with their Project Specialist and Finance Specialist in advance to determine appropriate coding and allocations.
Once the Project’s transactions are coded, they will appear in the financial reports generated for the Project. These financial reports are published to the Project's "Financials" folder on Box. Projects should carefully review these reports to ensure that all transactions have been coded and reported correctly.
The "Other Revenue" line in the Revenue Report identifies non-award revenues such as sponsorships, memberships, fee for service revenues, sales of goods, etc. It also includes:
- Honoraria paid to the Project or people acting on behalf of the Project
- Interest on funds in the Project’s accounts
- GST or other tax rebates
Revenue from interest or rebates is calculated after the end of the month. Revenue from interest is allocated to unrestricted funds (NOAWARD). GST rebates are allocated back to the award through which the GST was incurred.
Note: Interest earned is calculated on the basis of the total balance of all awards and unrestricted funds, rather than based on each award.
As a charity, MakeWay is eligible to receive a rebate on 50% of the federal GST that the Project has paid on purchases of goods and services. MakeWay automatically submits rebate requests to the CRA on behalf of Projects. However, these requests are based on the purchase information that Projects have entered into Concur. Projects should ensure that they accurately and consistently record GST paid on purchases so they receive the maximum eligible rebate.
Note: Some jurisdictions offer additional rebates on certain costs or taxes.
Some funders, especially government funders, may require Projects to report on the use of award funds minus the GST rebate or other eligible rebates. Projects should consult with their Finance Specialist when calculating the amount of rebates.
"Capital assets" are tangible items of value such as office furniture and equipment (e.g. telephone systems, computer/server equipment, laptops). Thankfully, it is easy to determine whether something is a capital asset: if a single item costs $5,000 or more (including taxes and shipping) and will last for over one year, it is considered a capital asset.
Projects must have sufficient funds to cover the cost of purchased or leased equipment. If the Project wants to lease equipment, MakeWay must sign all lease agreements regardless of amount.
All equipment purchased or leased with Project funds are considered assets of MakeWay.
Note: Major improvements made to the Project’s rented premises are called “leasehold improvements,” and are also considered capital assets.
In bookkeeping terms, the money spent to acquire capital assets is not considered an expense at the time of purchase. The item purchased is identified as an asset on the Project's balance sheet. The value of the asset is then drawn down, on a monthly basis, over its expected useful life. The portion that is drawn down each month is called the amortization expense and is identified as an expense item on the Project’s income statement.
Think of amortization as "wear and tear" because, over time, normal use reduces the value of the item. For example, office equipment, furniture, and computer equipment are depreciated evenly over a three-year period (specifically 36 months from the date of purchase).
Projects that want to dispose of or retire a capital asset (e.g. sell it, give it away, or throw it out), should notify their Finance Specialist so the proper accounting transactions are recorded.
In accordance with the Terms of Reference, a Project's assets, including capital assets, are typically granted to the Project if it moves from MakeWay to another charitable home. If the Project winds down, the equipment may be donated to another charitable entity (coordinated through the Support Team) or remain the property of MakeWay.
MakeWay is audited every year by an independent national chartered accountancy firm. MakeWay undertakes an annual audit to:
- Assure Board of Directors and members of the general public that the financial statements are fairly presented in accordance with Canadian generally accepted accounting principles.
- Assure potential funders that the organization has the capacity to account for its funds, and that charitable funds are being used appropriately.
- Ensure that there are no problems with the accounting systems, from inadequate internal controls to actual fraud or theft.
MakeWay's fiscal year end is March 31, so the audit report is generally available by early fall.
MakeWay is required to file Form T3010, the Registered Charity Information Return, with the CRA. Form T3010 must be filed within six months of an organization's fiscal year end which, for MakeWay, is by September 30. Information from all Projects is combined into one report for MakeWay overall.
Much of the information contained in these returns and the associated financial statements can be viewed by the public under ‘Charity Listings’ on the CRA’s website. This is one means of ensuring public accountability for the use of charitable funds.
Projects are required to submit Reports on Political Activities and Reports on Fundraising Activities twice a year through the Project Portal to their Project Specialist. MakeWay uses the information from this report for its T3010 filing.
It is important that Projects keep track of all political and fundraising activities, including time and resource, so they are able to prepare a complete and accurate report. Projects can consult with their Project Specialist for tips on how to track activities relative to these reports.