Control of Official Receipts in a Multi-Branch

Environment
DOUGLAS McPHIE
Clarkson Gordon. Chartered Accountants, Toronto

Introduction
Many registered charities carry on activities in a decentralized fashion.
These include religious bodies with numerous churches or parishes and
organizations with auxiliaries, local chapters and branches (collectively
referred to as branches). In these decentralized organizations, the
branches may operate with varying degrees of independence from the
central body or council. In some situations the branches will actually have
the authority to issue "official receipts" for gifts and donations received.
This article looks at the practice of administering official receipts in a
multi-branch environment and the attendant risks and outlines a frame-
work within which effective controls can be developed.

Branch Independence
By and large, the legal status of a registered charity and its branches takes
one of two forms:
Multiple Legal Entities
Multiple-legal-entity organizations have a national name and image
but are comprised of branches, each with a separate legal status. While
the organization as a whole has common objectives and missions, each
branch of the organization, as a separate legal entity, is registered
individually with Revenue Canada, and must report separately.
The controls for this form of multi-branch organization are not
addressed in this article; however these organizations should also be
concerned about the actions of individual branches as the action of
anyone branch may adversely affect the image of the organization as
a whole.
Single Legal Entity
Single-entity organizations are those in which the controlling central
council and all branches comprise one legal entity with one set of
letters patent and one Revenue Canada registration number. All
repo11ing to Revenue Canada is done on a combined basis which
includes all branch information.

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This article deals only with this second form of multi-branch organization.
The complexity of controlling official receipts within a single legal entity
can vary, depending on the degree of management independence in the
branches. At one extreme are organizations where the branches are tightly
controlled by the central body and have little or no involvement in
handling or controlling cash receipts and disbursements. These can be
considered as "dependent" branches and normally do not have separate
legal status.
At the other extreme are organizations in which the branches operate in
a semi-autonomous manner. In these situations the branches perform
many of the functions of an independent organization, sueh as maintain-
ing separate bank accounts and financial records, having a separate
elected council, and conducting their own activities and programs, with
little guidance from the main body of the organization. These can be
considered as "independent" branches.
Independent branches by their nature tend to want more, rather than less,
control over their operations, including control over the issuing of official
receipts for donations. In many organizations with branches this function
;s currently in the hands of the branches but the question is: do each of
the branches within the organization have adequate procedures in place
to control official receipts and does the central council have procedures
in place to monitor the branches' compliance with accepted procedures?
This question should be a key concern for all organizations where the
branches have traditionally enjoyed a degree of independence.
The central council of a charitable organization does not have as much
influence over a branch as a profit-oriented organization would have over
its subsidiaries so the task of imposing additional control procedures on
branches where weaknesses exist may require some negotiation and
diplomacy. In light of this, the recommended control procedures set out
below attempt to be as practical as possible. Thus, in many cases, the
recommended control procedures can be established at the central council
level only, with minimal impact on the branches. Ultimately though, there
may need to be some concessions made at both the central and branch
levels.

Legal Requirements for Official Receipts

The legal requirements under which registered charities operate include
the Regulations of the Income Tax Act and those other requirements of
governing bodies and acts that are a function of the laws of the jurisdiction
under which the organization was formed. Under subsection 92(7) of the

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Constitution Act, 1867, the provinces have the exclusive right to regulate
charities; however the provinces have tended to leave this regulation to
the federal government acting through the Income Tax Act. (Recent moves
suggest the provinces are starting to become more involved in the
regulation process through their public trustees.)
Currently, the authority to issue official receipts is bestowed by Revenue
Canada through the registration of an organization as either a charitable
organization, a public foundation, or a private foundation. The Income
Tax Act sets out the rules and regulations that registered charities must
follow for the administration and issuing of official receipts. The signifi-
cant sections of the Act are:
Sections 230 and 231 which set out requirements to keep books and
records including duplicates of official receipts issued;
Sections 149.1(2), (3), and (4) and 168(1) which provide for the revocation
of registration of a registered charity. Just cause can include the issuing
of a receipt otherwise than in accordance with the Income Tax Act;
Section 149.1(14) which requires every registered charity to file a
Registered Charity Information Return and Public Information Re-
turn, within six months of the end of its fiscal period, which includes
details of donations received for which official receipts were issued;
Regulation 3501 which sets out the form and content required for an
official receipt, including basic information on the gift received. When
the donation is other than cash a description of the item donated, and
the name and address of the appraiser, if an appraisal is done, must
also be included. The signature of a responsible individual authorized
by the organization to acknowledge donations is also required. This
Regulation also sets out requirements for the retention of receipts and
procedures for spoiled or replacement receipts.
Revenue Canada also issues Interpretation Bulletins and Information
Circulars which expand on the meaning and interpretation of the Income
Tax Act provisions. Several of these, including IT-I lOR and 80-10R, have
sections that provide guidance for the issuing of official receipts. They
cover such matters as the definition of gifts to charitics for which receipts
may be issued for tax purposes, exceptions that are not eligible, and the
tax implications of a donation of services.

Common Problems Encountered

The rules and regulations that a registered charity must follow with respect
to official receipts can be complex and when organizations allow branches
to issue receipts the potential pitfalls increase.

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IT-llOR states that "charities are expected to guard against the unautho-
rized use of official receipts". This includes the intentional or uninten-
tional issuing of an official receipt for other than a qualified gift. All
charities are expected to meet this requirement, however identifying a gift
that is eligible for an official receipt can be a complex process for a lay
person who is providing volunteer administrative service to a charity. This
can result in receipts being issued by branches for gifts that, on the surface,
appear to qualify but which, in fact, are considered by Revenue Canada
not to qualify in part or in whole. Common problem areas include:
membership fees, the value of non-cash gifts, amounts received through
loose collections, donations of services, amounts paid for admission to
fund-raising events, and donations of used clothing and furniture.
Other common problems that can arise in branches are:
• Loss of unissued receipts or missing duplicates of issued receipts;
• Receipts that are issued with incomplete information;
• Inconsistency of practice among branches, e.g., some branches may
issue receipts for qualifying membership payments while other
branches do not;
• Insufficient backup documentation retained to support receipts
issued for unusual gifts such as gifts designated for specific
purposes or non-cash gifts that require appraisals;
• Branches that decide to print their own receipts.

Fundamental Internal Controls

Whether the branches or the central body issue receipts, the organization
must have a working system of internal controls to ensure that all official
receipts are used in accordance with the wishes of the governing body of
the organization and in accordance with the Regulations of the Income
Tax Act. Internal controls must be in place to ensure that:
• Official receipts are safeguarded against loss and unauthorized use;
• The issuing of official receipts is properly authorized and executed;
• All official receipts issued, and corresponding donations received,
have been properly recorded.
All internal controls should be instituted to achieve one of four objectives:
completeness, accuracy, authorization, and a visible management trail.
(Table I)
These internal controls can be further subdivided into those controls that
"prevent" errors or discrepancies (such as keeping receipts under lock and

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key) and those controls that "detect" errors or discrepancies (such as
reconciliations and budgets). Preventive controls can be more effective
but are based on the assumption that the control has been continuously
in place and well observed. Detective controls on the other hand do not,
in themselves, prevent errors or discrepancies, but they do identify
instances where preventive or other control procedures are not followed
properly. Ideally, an organization's system of internal controls should
consist of a balanced mix of both preventive and detective controls.

TABLE I

Objective Sub-Objective

Completeness • All receipts issued have been recorded

• All spoiled receipts have been retained and voided
• All information required has been recorded on
the receipt
• All copies of receipts issued are retained
• All unissued receipts are safeguarded and can be
accounted for.
Accuracy • The amounts and other information recorded on
the receipts are correct
• The receipt is issued for a qualifying gift or
donation
• Non-cash gifts and donations have been correctly
valued.
Authorization • All receipts issued have been properly authorized
• The amount appearing on the receipt for non-
cash donations has been properly approved.
Management Trail • Sufficient documentation is maintained to permit
management to trace from final books of account
(general ledger, cash receipts ledger, etc.) to receipt
issued, or from receipt issued to final books of
account.
(These control objectives are not limited to official receipts of course; they
apply to all aspects of the financial operations of an organization.)

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Applying Internal Controls to Branches
These are the basic objectives of internal controls but what are the
problems which arise in applying these controls to branches?
There are a number of factors that can stand in the way of internal controls
at the branch level:
• lack of full or part-time staff at branches;
• use of volunteers with little or no accounting experience;
• frequent turnover of volunteers and/or staff;
• little or no documentation of procedures and guidelines;
• having several authorized signatories at each branch, a situation
which, when multiplied by the number of branches, results in too
many individuals being able to issue receipts;
• poor internal controls over cash receipts and disbursements within
a branch;
• complex donations being received by branches;
• independent branch fund-raising activities, such as lotteries, that
may not qualify for official receipts.
How, then, is a decentralized registered charity to control the issuing of
receipts and to gather the information and documentation necessary to
file the required reports with Revenue Canada?
One very effective solution is to move the responsibility for issuing official
receipts from the branch level to the central council level. Where it is
politically and procedurally feasible, this should be done; however in most
cases it will not be feasible. In the latter case, the following guidelines and
suggestions may offer a less ideal but more practical solution.
Completeness
The control objective of completeness can be managed almost exclusively
by the central body of the organization through a simple arrangement
whereby it maintains overall control of receipts. Under such a system the
central body would order all supplies of blank receipts and would keep
such supplies under lock and key. Supplies of unissued receipts would go
to each branch to replenish the branch supply only as needed and
duplicates of all receipts issued would be received back from the branches.
By keeping continuity records of the serial numbers of the unissued
receipts forwarded to the branches and of the serial numbers of duplicate
issued receipts received back, the organization will be able to account for
all official receipts. Then, reviewing the duplicate receipts returned from

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the branches, the central body can also ensure that all relevant information
is recorded on the face of each receipt.
The branches themselves must also have a system that enables them to
account for the supply of receipts in their possession, both issued and
unissued. Branch procedures should be similar to the central body's:
unissued receipts should be kept under lock and key and a log of receipt
numbers received and issued should be maintained. Within a branch the
responsibility for receiving and safekeeping blank receipts and reporting
back to the central body on issued receipts should be assigned to a specific
individual.
One issue that also relates to "completeness" is the "timeliness" of the
information received from branches. If branches are permitted to obtain
a large supply of receipts they may not be motivated to send information
on issued receipts to the central body as frequently as council desires. One
obvious solution is for council to provide only a short-term supply of
receipts which will not be replenished until the previous supply has been
accounted for.
Responsibility for achieving the other three objectives of accuracy, author-
ization, and management trail rests principally with the branches although
the central body must have a system in place to ensure that the branches
are complying with each of these objectives.
Accuracy
Accuracy may be considered the most difficult objective to meet since it
requires resolution of issues such as whether a gift or donation qualifies
for a receipt and the valuation of non-cash gifts. Achieving this objective
requires a continuing educational process for those at the branch level
who are authorized to issue receipts. At a minimum, written guidelines
describing the various types of gifts and donations that may be contentious
should be provided. (The organization's auditors can assist in preparing
such guidelines.) Depending on the degree of sophistication at the branch
level, the organization should also consider adopting a policy that decrees
that receipts for all non-cash gifts and donations, i.e., potentially conten-
tious gifts, must be issued by the central body of the organization. A system
must be in place to ensure that all newly authorized branch signatories
are identified by the central body as quickly as possible, and that these
individuals are properly "educated" before they begin to issue receipts.
The central body of the organization should also review duplicates of
issued receipts to ensure that the information on the face of the receipt is
correct. Another requirement to achieve the objective of accuracy is to
ensure the amount recorded on the receipt for cash donations is accurate.

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This can be a problem when inadequate bookkeeping fails to maintain
an accurate record of accumulating individual donations as, for example,
in church collections or other situations where receipts are not issued
immediately. Clearly, the first step to achieving accuracy must be an
adequate set of books. A further control would compare the total of
receipts issued to individuals to the total cash deposited from individuals.
The receipts should obviously not exceed the cash received. This method
can be used initially by the central body in a rough format and can later
be refined to account for non-qualifying cash receipts such as partial
proceeds from fund-raising events, grants, and interest on deposits.
Authorization
To meet the control objective of authorization the organization must ensure
that the individuals approved to sign receipts arc of a responsible nature and
that the actual signatures appealing on the receipts arc those of the authorized
individuals. If the branches have good procedures in place to achieve the
completeness objective, then the authOlization objective is more easily
managed. For example, if receipts are kept under lock and key by a
responsible individual, then access to the receipts should only be possible
for persons authorized to sign. The central body should have an up-ta-date
list of those at the branch level who arc authorized to sign, and should have
a sample signature on file. As duplicate receipts arc received from the
branches, the central body should sample the receipts randomly to ensure
that the signature is always that of an authorized person and matches the
sample signature.
Some branches which issue a large number of receipts may automate the
receipt-signing process by using a machine to imprint facsimile signatures.
In these situations procedures should be in place to control access to, and
use of, the signature plates, preferably by keeping the plates under lock
and key when they are not in usc. When the plates are in the machine the
use of the machine should be controlled and supervised.
Management Trail
An adequate management trail is required to ensure that information on
all receipts issued has been collected and properly summarized for
reporting to Revenue Canada and to give management the ability to trace
from summaries back to individual receipts and from individual receipts
to summaries and also to trace donations to bank deposits and account
books.
Documents required for an adequate management trail include duplicates
of official receipts and banking records such as deposit slips and cash
disbursement details. The central body can argue that it should keep the

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significant branch records and documents for effective control. The
branches can argue that they should retain these records and documents
in order to carry out their activities effectively. Much more important than
the physical location is ensuring that management at both central and
branch levels has easy access to the information in these records.

Reporting to Revenue Canada

As a registered charity must submit a Registered Charity Information
Return and a Public Information Return to Revenue Canada annually, it
must have an effective system for gathering and verifying the financial
information for the entire legal organization, including branches. This is
in addition to a system for administering and controlling official receipts.
Issues related to the gathering and verifying of financial information from
branches are not within the scope of this article. However, most organiza-
tions should already have some system in place in order to meet the
requirement of producing annual audited financial statements and the
same system should be suitable for collecting the information required for
Revenue Canada.
A review of the gathering and verifying system may be appropriate, and
the controls objectives discussed above could provide a framework for
such a review.

Conclusions
Adequate control of official receipts issued by branches can be achieved
but it requires an awareness at the branch level of the rules and regulations
governing official receipts and a degree ofco-operation between the central
body and the branches. The central body, specifically the treasurer, must
take the initiative to bring the controls and awareness at the branches up
to an acceptable level and to maintain this level on a continuing basis
during the rapid turnover that typifies branch organizations. A controls
checklist such as the one set out in Appendix B (page 39) may be a useful
start for the treasurer who wishes to determine what control objectives are
currently being met, which objectives are not being met, and the proce-
dures and techniques that can be used to meet control objectives.
Many of the issues that have been examined in this article are equally
applicable to a more general concern of decentralized registered charities:
how to ensure that the branches carry out their activities in accordance
with the stated objectives of the central organization and within the
various rules and regulations of its applicable governing bodies. Part of
the solution to this problem may also be found in the controls checklist.

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Readers may also find it instructive to study Appendix A, an example of
a system that meets the basic control objectives discussed in this article.
(The example is based on the procedures of an actual organization, with
some modifications.)

APPENDIX A

Workable Arrangements: A Typical System

Background:
• A province-wide incorporated organization with six branches;
• Each branch maintains its own bank accounts and performs its
own fund-raising activities;
• Each branch has authorized two or three people to sign official
receipts.
Completeness:
• Pre-numbered blank receipts arc maintained by the organization's
executive secretary operating out of the central council offices.
Several branches issue receipts using a microcomputer and there-
fore need printer-adaptable receipts. These are ordered from the
supplier who also supplies regular receipts and a specific block of
receipt numbers is assigned to the computerized receipts;
• Supplies of unissued receipts are kept in a locked filing cabinet. A
block of blank receipts is forwarded to each branch as required.
This is recorded by the executive secretary in a logbook noting: the
serial numbers of the unissued receipts, the date, and the branch
the receipts were sent to. Branches maintain a similar logbook to
record the receipts received and issued;
• Every one to two months the branches return duplicates of issued
receipts and all copies of spoiled receipts to the executive secretary,
together with a worksheet detailing the receipt numbers and the
total dollar amount of the receipts issued;
• The executive secretary records the returned receipts in the same
logbook used to record unissued receipts forwarded to branches,
noting the serial numbers received and matching them to those sent
out and the date;
• The worksheet and the duplicate receipts are filed numerically by
branch by the executive secretary;

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 • Breaks in the continuity of receipts are identified by the executive
secretary and are followed up with the branch representative until
the problem is resolved.
Accuracy:
• Guideline material is provided to each branch for each person who
is authorized to sign receipts. This material is in the form of a
"branch manual" and is designed to be understandable to lay
people;
• The branch manual sets out guidelines for issuing receipts, includ-
ing items speeific to the particular organization such as the nature
of membership fees and their eligibility for official receipts, as well
as other grey areas sueh as fund-raising events and non-cash
donations. Branches are encouraged to seek guidance on unusual
donations from the central council;
• Non-cash donations, identified by the description on the receipts,
are brought to the attention of the council treasurer for review.
Authorization:
• Periodically, lists of authorized signatories and their sample signa-
tures are sent by the branches to the central council. These are used
for random comparisons by the executive secretary when the
duplicates of issued receipts received back from the branches are
reviewed;
• Unissued receipts under control of the executive secretary and the
authorized branch people are kept under restricted access, i.e., lock
and key.
Management Trail:
• A logbook is maintained by the executive secretary as noted above;
• Duplicate copies of receipts issued are returned by branches to the
central council and are filed numerically by branch;
• A second copy of all receipts issued is retained by the branches for
their own records;
• All financial records of the branches are sent to the central body
each year end to allow the external audit to be performed and to
provide information for the Revenue Canada information returns.
At this time the treasurer effects reconciliations between the total
of receipts issued by each branch and the cash deposit records.

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APPENDIXB

Official Receipt Controls Checklist

CONTROL OBJECTIVES ANSWER REFERENCE

Completeness
Are there controls to prevent/detect
incomplete recording and process-
ing of receipts?
Check:
• All receipts issued are recorded
• All spoiled receipts are re-
tained and voided
• All information required to be
recorded on the receipt has
been noted
• All copies of receipts issued
have been received and are re-
tained by the main body of the
organization

Accuracy
• Are there controls to pre-
vent/detect errors in the com-
pletion and on issuing of
receipts?
Check:
• Amounts and other informa-
tion recorded on the receipts
are correct
• Non-cash donations are iden-
tified and correctly valued
• Branch personnel are aware of
the special rules for certain
amounts received such as
those from fund-raising events

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CONTROL OBJECTIVES ANSWER REFERENCE

Authorization
Are there controls to prevent/detect
unauthorized use of receipts?
Check:
• All receipts issued are properly
authorized
• Amounts appearing on re-
ceipts for non-cash donations
are properly approved
Management Trail
Are there sufficient controls to en-
sure an adequate management trail?
Check:
• Sufficient documentation is
maintained to trace from final
books of account to original
receipt, or from original receipt
to final books of account

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