To steal a quote from Superman’s father Jor-El – “with great power comes great responsibility.”
There is a moral and financial accountability that falls on the Board of Directors. As a Board member, just like Superman to Metropolis, you have a duty of loyalty and care to the organization.
Unfortunately, that is where the similarities to Superman end.
The director’s responsibilities include participating in meetings, avoiding and declaring any conflicts of interest, and maintaining a focus on the best interest of the organization.
It is important to accept and understand your responsibilities as a director. You cannot delegate them and think they’re out of your hands. The auditor’s work and report does not mean your job of safeguarding the organization’s assets is complete. The internal control procedures needed to protect the organization’s assets must be in place throughout the year.
Being a director of a registered charity comes with an even higher standard of care because you are being entrusted with public money in the form of donations.
Under the federal and provincial corporation acts, a director can be held personally liable for unpaid amounts due to employees, such as vacation pay and salaries. When you join a Board, inquire about how the source deductions are being calculated. Is the organization using a payroll service, or are they calculating them in-house?
If a corporation does not deduct, remit, or pay the appropriate source deductions (CPP/EI and income tax), the directors are jointly and severally liable, along with the corporation, to pay the amount due. The same exposure exists for the organization’s other government taxes, including HST remittances.
Another thing to look for is a calculation of accrued vacation pay, which is not always reflected in an organization’s books and records. At a minimum, you should regularly ask management if payroll and other remittances are up-to-date.
A common best practice is to request some general director’s liability guidance as part of the Board orientation process. This ensures that you, as a director, have a clear understanding of what is expected, and of your responsibilities.
Taking on a director’s role can be very fulfilling, but does come with responsibilities. You can mitigate the risk by preparing, and actively participating in, Board meetings; asking thoughtful, prudent questions; considering the organization’s risks; and determining steps to minimize them.
If in doubt, consult the organization’s lawyer, as they are the ultimate resource on this topic.
Leslie Milton, CPA, CA, LPA, CFP is an associate partner at GGFL, Chartered Accountants, in Ottawa. Leslie has over 30 years of experience dedicated to finding practical solutions to not-for-profit clients. She has an expertise in audit issues and governance matters both as a past Board member, and as a current auditor. Contact her at lm@ggfl.ca, visit the firm at www.GGFL.ca and follow on Twitter @GGFLCA for the latest accounting news and information.
