About the newsletter
Become a Contributor
Terms of Use
Privacy Policy
About the Internal Control Library
Take a Trial
Help Desk
How to Subscribe
Change email Address
Contact Us


First Reference
Volume 3, Issue 8           

  1. Moving forward on the HST
  2. IT strategy – another take
  3. Canada Not-for-profit Corporations Act
  4. The strange case of American Apparel
  5. Does your human resources management system make work easier?
  6. Can business regulate itself responsibly?
  7. CRA releases its third Charities Connection
  8. Policies update


Moving forward on the HST

We last discussed British Columbia's and Ontarios transition to harmonized sales taxes in March, and now they're here. In fact, as you well know, it's been here for more than two months, and not everyone is happy about it. British Columbians in particular are angry, and have called for a referendum on the issue, which will take place next September. Ontarians have once again shown their stoic side as the government tells them what's best. While many have complained, no one has made a significant attempt to repeal the tax.

In any case, BC and Ontario have each got an HST now, at least for the time being, and most businesses have prudently taken the steps needed to charge, collect, remit and report the combined tax. The next step is to see how that process is working. A recent Knotia Commodity Tax News update offers a broad outline for reviewing your HST procedures

"Until you perform a post-implementation review, you will not really know how successful your transition has been. ... A timely implementation review of major GST/HST changes is important in order to identify errors before they result in significant tax exposures or unclaimed tax credits for your business. ... A risk-based approach is recommended, particularly where limited resources are available. Emphasis should be placed on those areas in your business that have the greatest potential for significant financial or compliance errors."

See "How did your HST implementation go?" for a look at what you can do to make sure your HST processes are functioning as they should.

We recently updated Not-for-Profit PolicyPro to cover when organizations need to collect the harmonized or goods and services taxes. See section 4.02 – Revenues for more information. Section 4.03 – Expenses covers HST and GST refunds for which not-for-profit organizations are eligible.

<< Top of Page

Another take on IT strategy

In the last issue of Inside Internal Control, I discussed a report on why small and medium-sized businesses should take information technology strategy and planning seriously. Essentially, according to the Canadian Institute of Chartered Accountants, if you don't strategize your IT, you're probably wasting time and money just keeping up, when you could be using your resources to support your strategic business plan.

Well, I hope you didn't rush away after reading that piece and create and implement an IT strategy.

In a recent Computer World column, Thornton May, IT journalist and dean of the IT Leadership Academy, agrees with the CICA's conclusions, but offers deeper insight into what's wrong with IT planning and offers further explanation of the need for valid IT strategy. "IT planning is broken", he says plainly. Many businesses today either don't bother developing an IT plan or feel that IT planning is a waste of time. And most planning that does occur doesn't look beyond the next year and a half. There's a reason for that: technology just moves too fast these days.

Still, planning is crucial, says May, and it should definitely align with an organization's overall business strategy.

"Without an effective and respected IT planning process, IT professionals are doomed to play a physically and psychologically exhausting game of whack-a-mole that they can't win because they are forever trying to catch up with ever-increasing business-unit demands.

"The ultimate objective of any IT planning process is to establish clear objectives for the IT organization that link directly back to the enterprise's strategic business goals. With this linkage, the IT organization can craft practicable execution plans and credible financial forecasts."

May offers the following outline for IT planning:

  1. Where are we?
  2. Where do we want to go?
  3. How do we get there?
  4. How do we, the IT team, convince the enterprise to make the trip?

Depending on the time frame, and given the quickly changing consumer technology landscape, a "final" plan might refer to desired outcomes or applications that don't currently exist or are not yet on the market. In other words, your IT plan should be about supporting what goals you want to accomplish five, ten or fifteen years down the road, not just what bits and pieces you want to have.

However, May believes that "traditional IT planning—the laborious, time-consuming, top-down 'mission, vision, strategy, goals' juggernaut that still appears in many MBA textbooks—is no longer viable". Moreover, he disagrees with the CICA that an organization can start its IT planning before it completes its business plan:

"The first step toward developing a respected IT planning process is to have an intimate and thorough understanding of the business strategy. This is where many organizations go off the rails, simply because they do not have a clearly articulated business strategy."

Where does that leave you? If you don't have a complete business plan, you still probably need computers and phone systems and so on, and small and medium-sized enterprises (SMEs) in particular can hardly afford to waste money. The CICA and May offer two different approaches: developing your IT and overall business strategies together, or building your IT strategy on top of your business plan.

Personally, I can see the value for SMEs in parallel strategic development, as these types of organization are often more flexible in their actions and goals than larger enterprises. But heed May's warning: without a firm business plan, it's hard to have a clear idea of what the organization will need in the coming years.

<< Top of Page

The Canada Not-for-profit Corporations Act is finally here

The federal government has passed the Canada Not-for-profit Corporations Act. The new law received royal assent in June 2009, days after we last wrote about it. Not only that, but the government has set a final date for the Act to come into force: September 17, 2010. In other words, as you read this, federally incorporated not-for-profit organizations operate under a new legislative regime. What does this mean for you? According to the member of Parliament responsible for the bill, Diane Ablonczy:

"This new Act will bring the legislative framework governing not-for-profit organizations into the 21st century. It will promote modern standards of accountability, transparency and good corporate governance that will benefit the voluntary sector as it works to build a stronger Canada," and "allow organizations to spend less time on paper burden and more time on what they do best which is delivering important services to Canadians."

The new Act applies specifically to not-for-profit organizations incorporated under section II of the Canada Corporations Act, but provincially incorporated organizations may want to consider updating their status with Corporations Canada, as well.

The first step not-for-profits have to take is to officially confirm their incorporation to the federal government. This means filing "articles of continuance" with Corporations Canada within three years after the Act comes into force (in other words, now). This is because the new Act replaces section II of the Canada Corporations Act (which dealt with incorporating a not-for profit organization) and sets out new rules for the process. Existing organizations that wish to update their incorporation status will face no charge for doing so. If a corporation does not apply for a certificate of continuance within the time frame, the government may dissolve the organization.

Not-for-profit organizations that wish to incorporate must now do so under the new articles of incorporation rules rather than the previous letters patent system. This means that organizations don't need to include with their applications draft bylaws, the powers of the organization or its purposes (although in the case of charities, it will remain a good idea to do so).

The new Act also means that, like their for-profit counterparts, not-for-profit corporations will now have the "capacity and, subject to this Act, the rights, powers and privileges of a natural person". However, members of the organization may choose to limit its powers and activities via the articles of incorporation.

The Canada Not-for-profit Corporations Act contains far too many changes to outline here, but you can find numerous analyses online. You can read about the Regulations amending the Canada Corporations Act in the Canada Gazette.

<< Top of Page

Bad news for American Apparel?

You've probably heard of American Apparel, the Los Angeles-based clothing manufacturer and retailer that's so popular with the kids these days, they of the semi-controversial billboard advertisements and almost-certainly-controversial CEO Dov Charney. Well, maybe you haven't heard just how much many commentators dislike the company.

If it's not their ads, which may or may not exploit their young female employees, then it's their practice of hiring only a certain type of person (viz. young, attractive, fit, hip and female) to work and manage their stores. Of course we mustn't forget the allegations that their "Made in downtown L.A." image might be supported by cheap and possibly illegal Mexican immigrant labour, and the company's ambitious expansion, which sees several stores open in close proximity and proceed to cannibalize sales from one another.

The latter charge is why Jezebel.com, an online magazine that seems to have a particularly strong distaste for the company, recently claimed "American Apparel's bankruptcy is inevitable". The article cites AA's sales reports, finding that despite overall sales growth, "same-store" sales declined every month in 2009. In other words, while the company's retail expansion has led to higher sales overall, sales at individual stores are steadily declining. Add in the costs of expansion—building, hiring, marketing, etc.—and Jezebel thinks AA is on a course for ruin.

The company's former external auditors Deloitte & Touche seem to feel the same way. The auditing firm quit AA after finding "material weaknesses in internal control over financial reporting" and that the company "hadn't maintained effective internal control over financial reporting" as of the end of 2009.

For the time being, American Apparel is still kicking; I doubt customers have noticed much of this in stores. We'll just have to wait to see the result of these questionable management practices.

Still, I think companies can learn a number of valuable lessons about running a business from the case of American Apparel:

  • Avoiding lawsuits may be as easy as keeping your pants on
  • Accounting and financial reporting are best left to professionals
  • Sometimes it's best for executives to stay out of the spotlight
  • Can you say "discriminatory hiring"?
  • Don't let frivolous initiatives get in the way of meaningful foundational principles (in this case, for example, rapid expansion vs. "Made in USA")
  • Controversy can work to draw attention to a brand or company, but it's only an overarching business strategy like poutine is a meal (hint: it's a side)

Maybe if Mr. Charney had looked through Finance & Accounting PolicyPro (FAPP) from First Reference, he would have made some different decisions along the way. FAPP offers advice and sample policies on everything from General accounting procedures to Internal controls and Reporting. But he might have gotten the most out of the Governance volume which covers Ethics and business conduct, the Role, rights and responsibilities of executive officers, General management, Public relations, Risk management, and much more.

<< Top of Page

Does using a human resources management system make work easier?

In July, we opened up a discussion on HRinfodesk.com on human resources management systems, with a poll asking, Does your company use an HRMS? Two-thirds of the respondents said they do not use an integrated HR management system. I followed up the poll with an article describing what HRMS are and what they do, and outlining some of their many benefits (along with a couple of pitfalls).

But the discussion didn't stop there. In August, we asked the follow-up question, Does using an HRMS make your job easier, more difficult or the same as not using it?

Since I've already discussed the benefits of using a human resources management system, I guess the remaining question is, How can users make their HRMS experience more effective?

Read more on HRinfodesk.com.

<< Top of Page

Can business regulate itself responsibly?

There is a growing movement that seeks to increase transparency and accountability in corporate activities and to encourage business to improve the lives of employees, consumers and society in general, while stewarding our remaining resources and maintaining the environment for future generations. It's called corporate social responsibility (CSR), and proponents believe that, not only will it do all of these great things, but it will also increase profits, improve employee engagement and productivity, provide a competitive advantage at home and around the world, and have numerous other benefits besides. Sounds pretty great, right?

Read more on HRinfodesk.com.

<< Top of Page

CRA releases its third Charities Connection

by Terrance S. Carter, Editor Charity Law Update

On June 30, 2010, the Canada Revenue Agency released its third Charities Connection: CRA News, Information, and Events Specific to Registered Charities. This new publication is intended to be published up to 10 times a year to replace the CRA's bi-annual Registered Charities Newsletter. The following is a summary of the contents of this third issue.

The CRA reminds charities that service club and fraternal society type organizations, which include social societies, lodges, orders, etc., do not qualify for charitable registration because they typically carry out a mix of charitable and non-charitable activities. Some of these organizations create a separate corporation or trust to carry out its activities that are exclusively charitable.

Recently, audits have been showing that many common issues of non-compliance have occurred, including: the finances of the charity remaining devoted to the non-charitable activities of the related club, the financial transactions of the club and charity are combined in the T3010, official donation receipts are issued for transactions that are not gifts, official donation receipts are missing, and the registered charity makes gifts to non-donees. The CRA suggests, in order to avoid these issues of non-compliance, the charity should: keep separate bank accounts, keep separate books and records, conduct separate board meetings, use a separate name to identify the charity, establish receipting guidelines for the charity, make gifts to only qualified donees and review the difference between charitable and non-charitable activities.

The CRA indicated that it has now posted answers to popular questions for public service bodies about the harmonized sales tax. The following publication is available, Harmonized Sales Tax for Ontario and British Columbia – Questions and Answers for Public Service Bodies.

See the July/August Charity Law Update for more details on HST for charities.

<< Top of Page

Policies update

The previous and upcoming releases of Finance & Accounting PolicyPro include replacements to most of Chapter 4 – Payroll and Chapter 5 – Banking and Treasury in the Finance volume. We've updated the material and added a Cheque Requisition Form.

The latest release of Not-for-Profit PolicyPro includes updated material to policy 1.02 – Incorporation and Bylaws and to various parts of Chapter 4 — Financial Management. Among other things, the discussion of the new Canada Not-for-Profit Corporations Act and the proposed Ontario Not-for-Profit Corporations Act has been revised, and reference to collecting HST/GST has been added to the overview of policy 4.02 – Revenues.

In the latest release of Information Technology PolicyPro we added a new section. Look in Chapter 9 — Data Security for information and a sample policy on data encryption. We also updated several other policies with cross-references to the new policy.

For more information on any of these products, visit www.firstreference.com.

<< Top of Page

About Inside Internal Control

Editor: Adam Gorley

Please do not reply to this email.

Inside Internal Control is a complimentary service published by First Reference Inc. and is sent to you monthly. Each issue provides headlines and summaries of news that affects internal controls and policies in Canada.

Please forward Inside Internal Control to your colleagues.

Please send any comments or suggestions about Inside Internal Control to the editor. For information about the Internal Control Library, click here. For more information about First Reference, including our terms of use, disclaimer, privacy policy and other legal matters, visit www.firstreference.com.

This publication is written for informational purposes only and should NOT be relied upon as legal advice or opinions. The reader should always obtain legal advice from a qualified lawyer or other qualified professional, which will be responsive to the case or circumstance of the individual. Please note that the content provided in this Bulletin or any content contained in or made available through any third party website linked to from this newsletter, is provided "as is" without representations or warranties of any kind. All representations and warranties in respect of Content or Third Party Content, express or implied, including, without limitation any representations to warranties or conditions regarding accuracy, timeliness, completeness, non-infringement, merchantability or fitness for any particular purpose are hereby disclaimed.

Copyright ©2010, First Reference Inc. All Rights Reserved.


Finance & Accounting Policy Pro
Finance & Accounting

Information Technology PolicyPro
Not-for-Profit PolicyPro

  Check us out on Facebook  
www.policypro.ca Take a Trial www.firstreference.com Take a Trial