Keeping Proper Books and Records: A Guide for Charities

Q: Keeping Proper Books and Records: A Guide for Charities

Learn the essentials of keeping proper books and records for charities, from legal obligations to best practices, ensuring compliance and transparency.

Maintaining accurate books and records is a fundamental responsibility for registered charities. Proper record-keeping ensures compliance with the Canada Revenue Agency (CRA) and helps organizations track their financial activities effectively. This guide breaks down the essentials of maintaining and safeguarding these records.

We must keep detailed financial records that track donations, expenses, and program outcomes. Canadian charities need to maintain receipts, donor records, financial statements, and program documentation for at least six years. These records must show how we use charitable funds and prove our tax-exempt status.

In this comprehensive guide, we'll walk through the essential bookkeeping requirements every Canadian charity must follow. We'll cover everything from donation tracking to year-end reporting, ensuring your organization stays compliant and builds donor trust.

Understanding Books and Records Requirements

Every Canadian charity must maintain comprehensive financial records to operate legally and maintain public trust. Understanding what constitutes proper books and records is the foundation of charitable compliance.

These requirements protect donors, ensure transparency, and help charities demonstrate their impact to communities and regulators.

Definition of Books and Records

Books and records include all financial documents that track your charity's money flow and activities. The Canada Revenue Agency defines these as any document that shows your organization's financial position and transactions.

Core records include:

Financial statements and accounting ledgers
Donation receipts and donor information
Bank statements and reconciliations
Expense receipts and invoices
Payroll records and employment documentation
Meeting minutes from board and committee meetings
Contracts and legal agreements

Digital records carry the same legal weight as paper documents. You can store records electronically if they remain accessible and readable.

Why Are Books and Records Important?

A charity's records must be detailed enough to allow the CRA to:

Verify income, including charitable donations received.
Ensure that funds are being used for charitable purposes.
Confirm that the organization's activities align with its charitable mission.

Overview of Legal Obligations for Charities

Canadian charities must follow federal and provincial laws governing financial record keeping. The Income Tax Act sets minimum standards for all registered charities.

You must keep records for at least six years from the end of the tax year they relate to. Some provinces require longer retention periods for specific documents.

Key legal requirements include:

Annual filing of Form T3010 Registered Charity Information Return
Issuing proper receipts for donations over $20
Maintaining donor privacy according to privacy legislation
Spending requirements: Use at least 3.5% of property value on charitable activities annually
Foreign activity reporting if operating outside Canada

Penalties for non-compliance range from monetary fines to revocation of charitable status. The CRA can suspend your ability to issue tax receipts or remove your charity from the official registry.

Provincial incorporation acts may impose additional bookkeeping requirements. Check with your provincial regulator to understand all applicable rules.

Key Documents Charities Must Retain

Canadian charities must maintain specific documents to prove their financial activities and charitable purposes. Knowing which records to keep and how long to store them prevents compliance issues and audit problems.

The type and volume of documents varies by charity size and activities, but core requirements apply to all registered organizations.

Financial Statements and General Ledgers

Financial statements provide the complete picture of your charity's financial health. These include your statement of financial position, statement of operations, and cash flow statement.

Your general ledger contains detailed transaction records that support your financial statements. This includes all debits, credits, and account balances throughout the year.

Keep these essential financial records:

Annual audited financial statements (if required by size or funders)
Monthly financial statements and budget comparisons
General ledger with all account transactions
Trial balances and adjusting entries
Bank reconciliations for all accounts
Investment records and portfolio statements

Many charities use accounting software that automatically generates these reports. Ensure your software creates backup files and maintains transaction histories.

Board-approved financial statements must be retained permanently. These documents demonstrate your charity's financial stewardship to regulators and stakeholders.

Source Documents: Invoices, Work Orders, and More

Source documents prove every financial transaction your charity makes. These original records support all entries in your accounting system and general ledger.

The CRA requires charities to keep all source documents that verify income and expenses. Missing documentation can trigger penalties during audits.

Essential source documents include:

Purchase invoices and vendor receipts
Work orders and service contracts
Payroll records and employee timesheets
Travel expense receipts and mileage logs
Utility bills and facility costs
Insurance policies and premium payments
Equipment purchase agreements and warranties

Digital copies are acceptable if they're complete and readable. Scan paper receipts to prevent fading or loss over time.

Store source documents in chronological order by expense category. This organization helps during audits and simplifies monthly bookkeeping tasks.

Donation Receipts and 10-Year Gifts

Donation records require special attention because they affect your donors' tax returns. Keep detailed information about every gift your charity receives.

The CRA requires you to maintain donation records for 10 years, longer than most other documents. This extended period protects both your charity and donors during tax audits.

Maintain these donation records:

Official donation receipts with sequential numbers
Donor contact information and giving history
Gift-in-kind valuations and appraisal documents
Fundraising event records and ticket sales
Corporate sponsorship agreements and benefits provided
Bequest documentation and estate gift records

Track restricted donations separately from general contributions. Donors may specify how their gifts should be used, and you must honor these restrictions.

Create annual donor statements showing total giving for tax purposes. Many donors request these summaries for their personal records.

Minutes of Meetings

Board and committee meeting minutes document your charity's decision-making process. These records prove your organization follows proper governance procedures.

Minutes must show that directors fulfill their fiduciary duties and make informed decisions about charitable activities and finances.

Key meeting records to maintain:

Board of directors meeting minutes
Annual general meeting minutes with member votes
Committee meeting minutes (finance, governance, programs)
Special resolution documentation
Conflict of interest declarations and management
Executive session records (when applicable)

Minutes should include attendance, key discussions, motions passed, and voting results. Avoid recording detailed debate content that could create legal liability.

The board secretary typically maintains official minute books. Store both draft and approved versions, along with supporting materials distributed to directors.

Minutes provide legal protection for directors who participate in properly documented decisions. They also help new board members understand the organization's history and strategic direction.

Governing and Organizational Records

Proper governance documentation proves your charity operates according to its stated purposes and follows legal requirements. These foundational records establish your organization's structure and decision-making authority.

Strong governance records protect directors from personal liability and demonstrate accountability to regulators, donors, and the public.

Governing Documents and Bylaws

Your charity's governing documents establish its legal foundation and operational framework. These core documents must be kept permanently and updated as your organization evolves.

The Canada Revenue Agency reviews these documents during registration and compliance audits to ensure your charity operates within its approved purposes.

Essential governing documents include:

Letters patent or articles of incorporation
Corporate bylaws and any amendments
Charitable registration certificate from CRA
Mission and vision statements approved by the board
Conflict of interest policies and disclosure procedures
Investment policies and spending guidelines
Privacy policies for donor and client information

Provincial incorporation documents vary by jurisdiction but typically include articles of incorporation and initial bylaws. Federal charities receive letters patent under the Income Tax Act.

Bylaws must address membership structure, director elections, meeting procedures, and financial management authority. Many provinces require specific bylaw provisions for charitable corporations.

Update governing documents when you change your charitable purposes, operating structure, or legal name. File amendments with both your incorporating jurisdiction and the CRA within required timeframes.

Store original governing documents in a secure location with copies accessible to board members and senior staff.

Role of Directors, Trustees, and Executives

Clear documentation of leadership roles protects your charity and its leaders from legal and financial risks. Directors and trustees hold fiduciary responsibility for organizational stewardship and compliance.

Proper role documentation helps prevent governance disputes and ensures smooth leadership transitions when board members change.

Key leadership records to maintain:

Director appointment and resignation letters
Board composition lists with terms and contact information
Officer appointments (president, secretary, treasurer)
Signing authority resolutions and banking permissions
Performance evaluations for executive directors
Compensation approvals for staff and board members
Professional development records for directors and executives

Directors must act in the charity's best interests and avoid conflicts of interest. Document annual conflict declarations and any situations requiring board management.

Board committees need clear terms of reference outlining their authority and reporting relationships. Common committees include finance, governance, and program oversight.

Executive directors and senior staff require written job descriptions and performance expectations. Board-approved compensation policies ensure fair and reasonable salaries that protect charitable assets.

Trustee roles vary depending on your charity's structure. Some organizations have advisory trustees without voting rights, while others grant trustees full governance authority.

Document director and trustee orientation programs to ensure new leaders understand their legal duties. Include training on charitable law, fiduciary responsibilities, and organizational policies.

Maintain insurance coverage for directors and officers to protect against personal liability claims. Keep insurance policies and coverage documentation with other governance records.

Regular board evaluations help identify governance strengths and improvement areas. Document evaluation processes and follow-up actions to demonstrate continuous improvement efforts.

Retention Periods and Storage Best Practices

Knowing how long to keep records and storing them properly protects your charity from compliance issues and audit problems. Different document types have different retention requirements under Canadian law.

Poor storage practices can result in lost records, privacy breaches, and inability to respond to regulatory inquiries or legal proceedings.

How Long to Keep Each Type of Record

The Canada Revenue Agency sets minimum retention periods for charitable records, but some documents require longer storage for legal protection. Provincial laws may also impose additional requirements.

Understanding these timelines helps you manage storage costs while maintaining compliance with all applicable regulations.

Standard retention periods include:

Financial records and receipts: 6 years minimum
Donation receipts and donor records: 10 years minimum
Employee payroll records: 6 years after employment ends
Governing documents: Permanent retention required
Board and committee minutes: Permanent retention recommended
Tax returns and CRA correspondence: 6 years minimum
Insurance policies: 6 years after expiration
Contracts and agreements: 6 years after completion

Some situations require longer retention periods. Keep employment records longer if you have pension obligations or potential legal claims.

Audit records should be kept for at least 6 years after the audit completion. This includes all working papers, correspondence, and management responses.

Grant documentation must be retained according to funder requirements, which often exceed CRA minimums. Some government grants require 7-10 year retention periods.

Consider keeping key financial documents beyond minimum requirements. Historical trends help with strategic planning and demonstrate organizational stability to funders.

Where Should Records Be Stored?

All books and records must be kept at the Canadian address listed with the CRA. This rule applies even if the charity operates outside Canada. Records cannot be stored in a foreign location, though electronic access to documents from Canada is permitted.

Protect your charity's records from theft, damage, and unauthorized access through proper storage systems. Both physical and digital records need security measures appropriate to their sensitivity.

Document security protects donor privacy, prevents identity theft, and maintains your organization's reputation and legal compliance.

Physical storage best practices:

Fireproof filing cabinets for essential documents
Climate-controlled environment to prevent deterioration
Locked storage areas with restricted access
Off-site backup storage for duplicate copies
Regular inventory checks to ensure documents remain intact

Digital storage recommendations:

Cloud-based backup systems with encryption
Regular automated backups of all electronic records
Password protection for sensitive files
User access controls limiting who can view records
Version control systems to track document changes

Scan important paper documents to create digital copies. This provides backup protection and makes records more accessible for daily operations.

Test your backup systems regularly to ensure you can recover files when needed. Document your recovery procedures and train staff on emergency protocols.

Consider professional document storage services for older records. These services often cost less than maintaining physical storage space and provide better security.

Update your storage systems as technology changes. Migration to new formats prevents records from becoming inaccessible due to obsolete software or hardware.

Preparing for CRA Audits

CRA audits can happen at any time during your charity's six-year retention period. Proper preparation reduces audit stress and demonstrates your commitment to compliance.

Well-organized records speed up the audit process and help auditors focus on substantive issues rather than missing documentation.

Audit preparation essentials:

Complete record inventory showing what documents you maintain
Clear filing system that allows quick document retrieval
Staff training on audit procedures and record location
Designated audit contact who understands your record system
Summary schedules linking detailed records to financial statements
Digital search capabilities for electronic records

Create an audit readiness checklist covering all required documents. Review this list annually to identify any gaps in your record keeping.

Maintain relationships with your accountant and lawyer before audit issues arise. Professional advisors can provide guidance during the audit process.

Document retention policies should be written and followed consistently. Policies show the CRA that you have systematic approaches to record keeping.

Train multiple staff members on your filing system. This ensures continuity if key personnel are unavailable during an audit.

Keep CRA correspondence organized and easily accessible. Previous audit reports and compliance letters provide important context for future reviews.

Consider conducting internal audit reviews to identify potential issues before CRA contact. Address problems proactively rather than waiting for external scrutiny.

What Records Should a Charity Keep?

Books and records include various documents supporting financial transactions and organizational decisions. Some key records include:

Governing documents (including bylaws, incorporation papers, and trust agreements).
Financial statements, general ledgers, and bank statements.
Copies of official donation receipts and annual information returns (T3010 forms).
Meeting minutes from the board of directors and members.
Agreements, contracts, and payroll records.
Fundraising materials and promotional content.

Additionally, source documents—such as invoices, contracts, and bank deposit slips—are essential for verifying financial activities.

How Long Should Records Be Retained?

The retention period for records varies depending on the type of document:

Donation receipts (except for 10-year gifts) – Keep for at least two years from the end of the calendar year the donation was made.
Records of 10-year gifts – Keep as long as the charity remains registered and for at least two years after its registration is revoked.
Meeting minutes (board, trustees, executives, and members) – Retain as long as the charity is registered, plus two years after revocation.
Governing documents and bylaws – Keep as long as the charity remains registered, plus two years after revocation.
General ledgers and transaction records – Maintain for six years from the end of the last tax year they relate to or two years after revocation.
Financial statements, source documents, and T3010 forms – Retain for six years from the end of the tax year or two years after revocation.

Can Records Be Kept Electronically?

Yes, electronic records are allowed, but they must:

Be stored in a format that remains accessible and readable.
Retain original electronic source documents if they were initially created in digital form.
Follow proper scanning and storage practices if paper documents are converted to digital files.

Simply having paper printouts of electronic records is insufficient; the original electronic format must be preserved. Additionally, records stored outside Canada but accessible online do not fulfill the requirement of being physically kept in Canada.

Financial Management for Registered Charities

Effective financial management systems ensure your charity uses donor funds responsibly and meets all regulatory requirements. Strong financial controls protect your organization's reputation and charitable status.

Proper systems also provide the information boards need to make strategic decisions and demonstrate impact to stakeholders.

Setting Up Accounting Systems

Your accounting system forms the backbone of financial management and regulatory compliance. Choose software and procedures that match your charity's size, complexity, and reporting needs.

A well-designed system tracks restricted funds, generates required reports, and provides real-time financial information for decision-making.

Essential accounting system features:

Fund accounting capabilities to track restricted donations
Automated financial statement generation
Integration with donation management and receipting systems
Multi-user access with appropriate security controls
Backup and data recovery functions
Audit trail maintenance for all transactions
Budget comparison reporting for variance analysis

Popular accounting software for charities includes QuickBooks for Nonprofits, Sage, and specialized charity management systems. Cloud-based solutions offer better accessibility and automatic updates.

Set up your chart of accounts to match CRA reporting requirements on Form T3010. This alignment simplifies annual filing and reduces preparation time.

Establish monthly closing procedures to ensure timely and accurate financial reporting. Create checklists for staff to follow consistently each month.

Train multiple staff members on your accounting system to prevent disruptions when personnel change. Document procedures and maintain current user manuals.

Ensuring Compliance with CRA

CRA compliance requires more than just filing annual returns. Your financial systems must track specific information and meet ongoing regulatory requirements.

Non-compliance can result in penalties, loss of receipting privileges, or revocation of charitable status. Prevention costs far less than fixing compliance problems.

Key CRA compliance requirements:

Annual Form T3010 filing by the deadline
Disbursement quota calculations and tracking
Political activity limitations monitoring and reporting
Related party transactions documentation and approval
Foreign activity reporting if operating internationally
Receipting compliance for all donation acknowledgments

Track your disbursement quota throughout the year to ensure you meet minimum spending requirements. Most charities must spend at least 3.5% of their property value annually on charitable activities.

Monitor political activities to stay within the 10% limit for most charitable activities. Document how you calculate political activity percentages for CRA review.

Maintain detailed records of any transactions with directors, employees, or related organizations. These require special disclosure and approval procedures.

Create compliance calendars showing all filing deadlines and renewal dates. Missing deadlines can trigger penalties and additional scrutiny.

Review CRA guidance documents regularly as rules and interpretations change over time. Subscribe to CRA newsletters and attend sector-specific training sessions.

Overseeing Financial Oversight and Reporting

Strong financial oversight protects charitable assets and ensures funds support approved programs and services. Board members hold ultimate responsibility for financial stewardship.

Regular reporting keeps stakeholders informed about financial performance and organizational sustainability.

Board financial oversight responsibilities:

Monthly financial statement review and approval
Annual budget development and monitoring
Internal control assessment and improvement
External auditor selection and oversight
Investment policy development and compliance monitoring
Executive compensation approval and benchmarking

Finance committees can provide detailed oversight between board meetings. Committee members should have financial expertise and independence from management.

Require management to explain significant budget variances and propose corrective actions. Focus on both revenue shortfalls and unexpected expenses.

Annual financial audits provide independent verification of your financial statements and internal controls. Choose auditors with charity sector experience and rotate firms periodically.

Create dashboard reports that highlight key financial indicators for board review. Include metrics like months of operating reserves, fundraising efficiency, and program expense ratios.

Establish spending authorization limits that require board approval for major expenditures. This ensures directors maintain oversight of significant financial decisions.

Develop financial policies covering investment management, expense reimbursement, and procurement procedures. Review policies annually and update as needed.

Compare your financial performance to similar organizations through sector benchmarking. This helps identify areas for improvement and demonstrates accountability to stakeholders.

Prepare annual reports that explain your financial results to donors and the public. Include both financial highlights and program impact information.

Consequences of Inadequate Record Keeping

Poor record keeping puts your charity's future at risk and can result in serious legal and financial consequences. The Canada Revenue Agency takes compliance seriously and has significant enforcement powers.

Understanding these risks helps charity leaders prioritize proper documentation and invest in adequate systems and training.

Risks to Charitable Status

The CRA can revoke your charitable status for serious or repeated record-keeping failures. Loss of charitable status means your organization can no longer issue tax receipts or operate as a registered charity.

Revocation affects your ability to receive donations, qualify for grants, and maintain public trust in your organization's mission.

Potential CRA enforcement actions include:

Suspension of receipting privileges preventing new donation receipts
Monetary penalties ranging from $500 to $10,000 per violation
Revocation of charitable status with one-year ineligibility to reapply
Director liability for unremitted taxes and penalties
Public disclosure of compliance issues on CRA website
Audit costs recovery if CRA finds significant violations

The CRA publishes charity compliance lists showing organizations with suspended or revoked status. This public exposure damages reputation and donor confidence permanently.

Revoked charities must distribute remaining assets to other qualified donees within one year. Organizations cannot simply transfer assets to related entities or restart under new names.

Appeals of CRA decisions require legal representation and can take years to resolve. During appeals, your charity operates under restrictions that limit fundraising and program activities.

Prevention through proper record keeping costs far less than fighting enforcement actions or rebuilding organizational credibility after compliance failures.

Common Record-Keeping Mistakes

Many charities make similar errors that trigger CRA scrutiny and compliance problems. Recognizing these patterns helps organizations avoid costly mistakes.

Small oversights can escalate into major compliance issues if not addressed promptly and systematically.

Frequent record-keeping errors include:

Missing source documents for expenses claimed on tax returns
Inadequate donation receipts lacking required information
Poor segregation of restricted and unrestricted funds
Incomplete board minutes missing key decisions and approvals
Outdated policies that don't reflect current operations
Insufficient backup systems leading to lost financial records
Mixing personal and organizational expenses without proper documentation

Many charities fail to document in-kind donations properly, missing required appraisals and donor information. This creates problems during audits and limits tax benefits for supporters.

Board governance documentation often lacks detail about conflict of interest management and compensation decisions. These gaps can trigger additional CRA scrutiny.

Financial record organization problems make audit responses difficult and time-consuming. Scattered documentation suggests poor internal controls to regulators.

Technology failures without adequate backup systems can result in permanent record loss. This violates retention requirements even if the loss wasn't intentional.

Staff turnover without proper knowledge transfer leaves organizations vulnerable when key personnel who understood systems leave unexpectedly.

Steps to Remediate Record Keeping Issues

Address record-keeping problems immediately when discovered to prevent escalation and demonstrate good faith efforts to CRA reviewers. Quick action often reduces penalties and compliance consequences.

Systematic remediation shows organizational commitment to improvement and helps prevent future violations.

Immediate remediation steps:

Conduct comprehensive record audit to identify all gaps and problems
Recreate missing documentation using available secondary sources
Implement backup procedures to prevent future record loss
Train staff and volunteers on proper record-keeping requirements
Update policies and procedures to address identified weaknesses
Establish review schedules for ongoing compliance monitoring

Work with qualified accountants or lawyers to assess the severity of problems and develop appropriate responses. Professional advice helps prioritize remediation efforts.

Consider voluntary disclosure to CRA if you discover significant compliance issues. This approach often results in reduced penalties compared to waiting for audit discovery.

Document your remediation efforts thoroughly to show CRA reviewers your commitment to compliance. Include timelines, responsible parties, and verification procedures.

Establish monthly or quarterly compliance reviews to catch problems early. Regular monitoring prevents small issues from becoming major violations.

Invest in proper record-keeping systems and staff training as organizational priorities. View compliance costs as essential investments in your charity's sustainability.

Create backup leadership for financial management to ensure continuity when staff changes occur. Cross-training reduces risks from personnel transitions.

Consider professional record management services for older documents or complex filing requirements. Outsourcing can improve compliance while reducing internal costs.

Responsibilities for Proper Record-Keeping

Charities are responsible for not only keeping records but also maintaining and safeguarding them. Key practices include:

Ensuring that records are stored in a secure and easily accessible location.
Keeping backup copies, preferably at a different site, to prevent data loss.
Making records available for CRA audits or reviews when requested.

If a third party, such as an accountant or bookkeeper, manages the records, the charity remains responsible for compliance.

What Happens If Records Are Not Maintained Properly?

Failing to keep adequate books and records can lead to serious consequences, including:

Suspension of the charity's ability to issue donation receipts.
Loss of registered status with the CRA.

Final Thoughts

Maintaining accurate books and records is not just a CRA requirement—it's essential for transparency, financial stability, and donor trust. By keeping thorough records and ensuring compliance, charities can continue to operate smoothly while fulfilling their mission.

The consequences of poor documentation can be severe, from monetary penalties to loss of charitable status. However, most record-keeping problems are preventable with proper systems, staff training, and regular compliance reviews. Taking action now to address any gaps in your documentation protects your organization's future and mission.

Professional guidance can make the difference between compliance struggles and smooth operations. At Charity Accounting Firm, we specialize in helping Canadian charities establish robust record-keeping systems and maintain regulatory compliance. Book a free call to learn how our expertise can support your organization's financial management and ensure your books and records meet all CRA requirements.

Common Questions About Record-Keeping

1. What if our treasurer refuses to return our records?

Since the charity is responsible for its records, you should notify the CRA in writing. You may also need to take legal action to recover the documents.

2. What if we lose our records due to a computer crash?

You should attempt to recover them with the help of an IT specialist. If you have backup files, they should be used to restore lost information. Keeping regular backups is essential to prevent data loss.

3. Can we keep records in a language other than English or French?

No, the CRA requires records to be maintained in either English or French. If the original records are in another language, they should be translated.

4. Can we destroy records before the retention period ends?

Only with written permission from the CRA. To request approval, charities must submit Form T137, Request for Destruction of Records.

5. Do churches need to keep envelopes from donations?

Yes. If envelopes are used as source documents, they must be kept for at least six years from the end of the tax year they relate to.

6. What additional records do corporations have to keep?

Corporations must maintain articles of incorporation, bylaws, board resolutions, shareholder records, and corporate minute books beyond standard financial records.

7. What additional records do trusts have to keep?

Trusts must keep trust deeds, trustee appointment records, beneficiary information, and documentation of trust distributions and investment decisions.

8. What additional records do registered charities and registered Canadian amateur athletic associations have to keep?

They must maintain Form T3010 returns, donation receipts, disbursement quota calculations, political activity records, and related party transaction documentation.

9. Why should you keep complete and organized records?

Organized records ensure CRA compliance, support audit responses, enable better financial decisions, and demonstrate accountability to donors and stakeholders.