Background

Application

Approval Authority

Definitions

Overview

Approval of sponsorship and donations

ANNEX A

ANNEX B

 

 

CHAPTER 29

 

ACCOUNTING FOR NPP SPONSORSHIP AND DONATIONS

 

BACKGROUND

 

1.    The purpose of the new accounting policy is to allow the NPP Sponsorship and Donation (S&D) program to grow in a controlled manner, to ensure consistent practice across the country, and to create a systematic approach to soliciting, managing and reporting the NPP sponsorships.  It honours and reflects the overriding principles of ethics, public scrutiny, accountability, and the recognition of the potential for conflicts of interest.  While maintaining the basic principles of DAOD 7021-4, this policy takes into consideration the unique nature of sponsorship and donations within the NPP environment and how these activities manifest themselves at the base/wing/station or unit level.

 

2.    The decision to pursue an active NPP sponsorship and donation program is entirely within the purview of each Base/Wing Commander.  In preparing the policy, CFPSA has been mindful of the challenges each base/wing faces in an environment of limited resources.  As a consequence, you will note that this NPP policy differs significantly from its public DAOD counterpart in one area: the policy allows for “unrestricted” funds to be spent on any base-fund approved NPP Morale and Welfare expenditure vice being restricted to a specific program or event.  This will allow greater equity and flexibility in the allocation of sponsorship revenues amongst NPP programs, services, and activities.

 

3.    The NPP Sponsorship and Donations Policy can be found on the CFPSA website.

 

APPLICATION

 

4.    This policy applies to members of the Canadian Forces (CF), Staff of the Non-Public Funds, Canadian Forces and any other persons soliciting or accepting sponsorship or donations on behalf of non-public organizations, events or activities.

 

APPROVAL AUTHORITY

 

5.    The NPP Sponsorship and Donations policy is issued under the authority of the Chief of the Defence Staff (CDS).

 

DEFINITIONS

 

Conflict of Interest (COI)

 

6.    COI means a conflict that arises from an entity or situation that places a CF member, or a member of the Staff of the Non-Public Funds, Canadian Forces or other persons, in a real, potential or apparent conflict between their private interests and their official duties and responsibilities.

 

Donation

 

7.    A donation is the provision by contributions, gifts or bequest by a person, group, or organization external to NPP, DND and the CF of funds, goods, facilities or services without cost to a NPP, DND or the CF and without expectation of any benefit in return (other than public acknowledgement, if agreed to by both parties) which may or may not support a particular event or activity.

 

Non-Public Property (NPP)

 

8.    NPP means a Non-Public Property organization or activity including, without limiting the generality of the foregoing, CFPSA, SISIP FS, CANEX, and PSP activities.

 

Product in Kind (PIK)

 

9.    Goods, facilities or services received/performed that CFPSA uses in the normal course of operations and would have otherwise been purchased and goods facilities or services received/performed that the organization does not use in the normal course of operations and would not have normally purchased but is considered to have some value.

 

Restricted Contributions

 

10.  Restrictions are stipulations imposed that specify how resources must be used.  External restrictions are imposed outside CFPSA, usually by the contributor of the resources.  Internal restrictions are imposed in a formal manner by CFPSA, usually by resolution of the senior authority.  Restricted sponsorship contributions are a rare occurrence with funds ear marked solely for a specific purpose.

 

Sponsorship

 

11.  A sponsorship is a collaborative arrangement between NPP and persons, groups, or organizations external to NPP, DND and the CF. In such an arrangement, funds goods, facilities or services are provided to support a particular NPP event or activity, in exchange for some appropriate non-monetary benefit of approximately equal value.

 

Unrestricted Contributions

 

12.  Contributions are neither restricted externally nor internally.

 

OVERVIEW

 

General

 

13.  Collaborative arrangements between federal government departments and agencies and the private sector have become common.  In this culture, instances arise where NPP, DND or the CF are approached within sponsorship proposals or donations, or act to secure sponsorships or donations.

 

Purpose

 

14.  The purpose of the NPP sponsorship and donation accounting policy is to ensure that ethical, financial, legal and public affairs matters are respected in the financial records of NPP.

 

APPROVAL OF SPONSORSHIP AND DONATIONS

 

15.  Approval of a senior authority is required prior to the responding to any sponsorship proposal or donation, or pursuing any sponsorship or donation initiative.  The important factors in identifying the level of approving authorities are:

 

1. the authority should be superior to the organization receiving, requesting and dealing with the sponsorship or donation;

2. the authority must be a minimum a CO or Director level as appropriate;

3. the national dimension of local initiatives, linkage to broader federal government policies and programs;

4. the political or sensitive nature of the event and the sponsorship or donation.  (The appropriate senior authority as well as ADM(PA) through Command Public Affairs should be aware of any such consideration in the early stages of planning;); and

5. the monetary value of the sponsorship or donations involved and the spending limits of the approving authority.

 

16.  The following provides the limits for the approval authorities in reference to the financial aspects of sponsorship and donations.  Each position as authority to approve a sponsorship or donations having a total value for a planned activity or event for any amount (as follows):

 

1. CDS over $250,000

2. CEO CFPSA up to $250,000

3. Exec VP PSP, CFPSA up to $100,000

4. Base and Wing Commanders up to $100,000

5. Commanding Officers up to $50,000

 

Financial Administration

 

17.  The following items received by NPP do not qualify as a sponsorship or donation and shall be treated as NPP operating revenue:

 

1. registration and entry fees;

2. licensing fees and royalties;

3. concession fees and revenues;

4. fees for booth or exhibit space;

5. advertising revenues;

6. any fee where the payee receives goods or services of approximate equal value, with the exception of sponsorship as defined in para 10; and

7. anything received that does not qualify as a gift to the Crown.

 

NPP Accounting Procedures

 

18.  The accounting procedures pertain to the receipt and disbursement of funds received through sponsorship and donations, and the custody and administration of sponsorship or donated material that becomes NPP.

 

19.  All sponsored and donated funds shall be receipted (form CF 602) and deposited with NPF Accounts (or directly to the appropriate NPF bank deposit facility).  All money and property shall be recorded in the appropriate NPP accounts under a unique UIEOS (XX265).  Each Base/Wing/Station will have their own Balance Sheet and Income Statement for Sponsorship and Donations.  To properly record sponsorship and donations, each event will have its own Special Function (SF) record.  All SF records for donations are linked to a specific donation revenue account and donation expense account.  All SF records for sponsorship are linked to a specific sponsorship revenue account and sponsorship expense account.

 

20.  There are two types of sponsorship and donation cash contributions.  These cash contributions can be a restricted contribution (as defined in paragraph 10) or unrestricted contribution (as defined in paragraph 12).  Cash contributions that are recorded as revenue in the current period will be recorded using Sales Revenue (SR) code 2298 for sponsorship or SR code 2299 for donations.  All sponsorship and donations that are deferred (restricted) will be recorded using SR code 2450 for donations and SR code 2452 for sponsorship when the revenue is recognized.

 

Restricted Contributions

 

21.  When sponsored and donated funds are restricted cash contributions, unearned revenue – sponsorship and donations account will be used.  The unearned revenue – sponsorship and donations account allows restricted cash contributions related to expenses of future periods to be deferred and recognized as revenue in the period in which the related expenses are incurred.

 

Unrestricted Contributions

 

22.  When sponsored and donated funds are unrestricted cash contributions, such contributions shall be recorded as revenue of the current period.

 

Recording of Costs

 

23.  Indirect costs of running sponsorship and donation activities will be recorded in the operating expenses using the SF record and the appropriate Cost and Expense (CE) code.  Direct costs associated with restricted contributions providing benefits to the sponsors will be recorded as an expense.

 

Product in Kind (PIK)

 

24.  When a donation is in the form of real property or goods (versus cash), its value must be determined by the Authorized Agent in accordance with fair market value evaluations.  Generally, an acceptable fair market value would be that which a willing buyer would pay to a willing seller in an “arms length” transaction at the time the donation is made.  However, due to potential liability and other legal issues, the Authorized Agent should consult with their legal advisors before recommending the acceptance of donations of real property and other items of significant value.

 

25.  The Authorized Agent will:

 

1. upon signing the Memorandum of Understanding (MOU), the Authorized Agent and the supplier’s representing shall agree to conditions of delivery;
2. the supplier’s representative will, at the time of delivery, provide an itemized delivery document reporting the product description, quantities shipped, and, in some instances, the prices with full extensions;
3. the Authorized Agent shall verify the quantities and condition of the merchandise received;
4. the Authorized Agent shall record the value of the merchandise received on the delivery document and acknowledge receipt; and
5.   upon transfer of goods from the Authorized Agent to the entity manager, the entity manager shall sign for and accept responsibility for the control and issue of goods received.

 

26.  PIK services or goods are to be controlled and accounted for in the same manner as services or goods paid by cash.  PIK asset and/or revenue will not be recognized prior to the receipt of properly authorized source documents from the Authorized Agent.  Source documents provide proof of receipt of PIK such as packing slip included with receipt of PIK.  PIK will be reported using SR code 2451 for donations and SR code 2453 for sponsorship.

 

27.  PIK assets are reported for control and management information purposes when PIK is received in one accounting month and will not be used until a future accounting month (deferred PIK).  Upon receipt of the properly authorized source documents (proof of receipt of PIK, such as packing slip), then the deferred PIK will be set up as a fixed asset Class 20.  No amortization will be done to this PIK.  It is reported as a fixed asset only to record the value of the PIK on the balance sheet.  The offsetting accounting action is to unearned revenue – sponsorship and donations (GL 2451).  All deferred product-in-kind is to be reported within the fixed asset records.

 

28.  Upon receipt of the properly authorized source documents from the Authorized Agent, the PIK revenues for goods and services used and the offsetting PIK expenses are simultaneously recognized on the sponsorship income statement and have a nil effect on the bottom line of the sponsorship Income Statement.  Revenue and expenses are recorded to the appropriate SF record using both CE and SR codes.  PIK revenues and expenses are recorded in the revenue-earning period. 

 

29.  For deferred PIK, when the revenue occurs, the unearned revenue – sponsorship and donations account will be reduced and reported as revenue to the appropriate SF record.  In addition, the same amount reported as revenue will also be reported as an expense using the CE code with the offsetting entry to the fixed asset record.

 

30.  PIK received for an event (i.e. case of soft drinks) that is surplus upon completion of the event, may be sold for fair market value as determined by the Authorized Agent rather than disposed of or earmarked for another event.  Funds received are recorded as Sponsorship Revenue Cash (net of tax) and PIK revenues/expenses are reduced by the net amount.

 

Summary of Accounting Action

 

31.   Annex A  provides a summary matrix of the accounting action for Sponsorship, Donations, and Product-in-Kind.

 

Year-End Procedures

 

32.  Each year, during the month of March, the BComd shall appoint a Board to verify the disbursement register and current inventory of PIK.  The Board will identity:

 

1. unserviceable items;

2. missing items; and

3. any other discrepancies.

 

33.  The completed Board report will be forwarded to the Base Fund/Mess Committee for appropriate approval of action as per the CDS Delegation of Authority.  Once the report is approved by the Base Fund/Mess Committee, the Board shall witness the disposal of any unserviceable items, complete a certificate of disposal and forward a copy to the NPF accounting office.

 

34.  The NPF accounting office will retain the certificate of disposal and minute authority for record purposes.  The fixed asset record will be adjusted based on the approved certificate of disposal.

 

Identifying and Approving Sponsorships and Donations

 

35.  To ensure proper treatment of sponsorships and donations, and to control the issue of official receipts (form CF 602), the Authorized Agent shall complete the NPP Sponsorship and Donation Summary and Approval Form (attached as Annex B  to NPP Sponsorship and Donation Policy on the CFPSA website).  The appropriate approval authority as per para 16 must sign the form.  Upon receipt of the sponsorship or donation, the Authorized Agent should forward a copy to the NPF accounting office.

 

Tax Implications

 

36.  To qualify as a charitable donation under the Income Tax Act, the transfer of funds or property must be:

 

1. voluntary;

2. given without consideration; and

3. without expected return or refund beyond acknowledgement, as agreed upon by all parties.

 

37.  Donations of money or other property to an NPP activity (Her Majesty in right of Canada as represented by the Chief of the Defence Staff acting in his Non-Public capacity as provided in Sections 38 to 41 of the National Defence Act through “name of the NPP activity”) by a donor corporation, that corporation will usually qualify for a deduction; an individual donor will be entitled to a tax credit.  CFPSA must provide Canada Revenue Agency with an official receipt (CF 602) containing the information required by subsection 3501 (1.1) of the Income Tax Regulations, specifically:

 

1. a statement that is an official receipt for income tax purposes;

2. the donation is to the Crown (Her Majesty in right of Canada as represented by the Chief of the Defence Staff acting in his Non-Public capacity as provided in Sections 38 to 41 of the National Defence Act through “name of the NPP activity”)’

3. the place or locality where the receipt was issued;

4. the day on which, or the year during which the donation was received, or where the property other than cash is received, the actual date of receipt;

5. the day on which the receipt was issued when it differs from the date of the donation;

6. the amount of the donation; and

7. the name and address of the donor.

 

38.  When a donation is indirect (i.e, “to friends of… “), then the organization, and not the NPP activity, is responsible for issuing the tax receipt if it is a registered charity in its own right.

 

39.  NPP activities shall not act as conduit for funds, real property or goods intended for a third party (i.e real property or goods given to a department on condition that it be turned over to, or used by, someone else.

 

40.  The local NPF accounting office will complete the Official Income Tax Receipt and provide the original to the donor.  The local NPF accounting office will also forward two copies to the National Accounts Receivable Office (NARO) who will submit one copy to Canada Revenue Agency, and maintain a copy for their files.  An example of the Official Income Tax Receipt (CF 602) is attached as Annex B.  An Official Income Tax Receipt will be issued for an amount greater than $10.00.