A-FN-105

• Foreword (Revised 6 Oct. 08)
• Chapter 1 - Introduction
• Chapter 2 - Financial Concepts (Revised 30 Jan. 09)
• Chapter 3 - Organization and Responsibilities
• Chapter 4 - Non-Public Property Audit (Revised 23 Jul. 03)
• Chapter 5 - Principles of Internal Control (Revised 29 Sept. 03)
• Chapter 6 - Control of Accountable Documents (Revised 23 Jan. 03)
• Chapter 7 - Security of Non-Public Funds (Revised 17 Aug. 07)
• Chapter 8 - Sales Taxes (Revised 23 Jan. 03)
• Chapter 9 - Consolidated Banking System (Revised 23 Jan. 04)
• Chapter 10 - Canadian Forces Central Fund Contributions - Loans and Grants (Revised 11 Aug 08)
• Chapter 11 - Non-Public Funds Consolidated Insurance Program (Revised 23 Jan. 03)
• Chapter 12 - Non-Public Funds Credit Cards (Revised 17 Aug. 07)
• Chapter 13 - Chart of Accounts
• Chapter 14 - Financial Statements
• Chapter 15 - Financial Statement Checklist (Revised 20 Mar. 03)
• Chapter 18 - Cash and Other Receipts (Revised 12 Feb. 03)
• Chapter 19 - Accounts Payable and Disbursements (Revised 29 Jan. 03)
• Chapter 20 - Payroll (Revised 14 Feb. 03)
• Chapter 21 - Purchases (Revised 18 Oct. 06)
• Chapter 22 - Transfers (Revised 18 Oct. 06)
• Chapter 23 - Retail Price Changes (Revised 30 Sept. 03)
• Chapter 24 - Requests for Credit, Returns and Repairs (Revised 18 Mar. 03)
• Chapter 25 - Inventory Valuation
• Chapter 26 - Stocktaking
• Chapter 27 - Inventory Shrinkage, Spoilage/Breakage and Shortage/Overage
• Chapter 28 - Fixed Assets (Revised 2 May 07)
• Chapter 29 - Accounting for NPP Sponsorship and Donations (Revised 12 June 09)
• Chapter 32 - Public Grants
• Chapter 36 - Bar Operations
• Chapter 37 - Mess Charges (Revised 15 June 03)
• Chapter 38 - Function Recapitulation Voucher (Revised 14 Jan 04)
• Chapter 41 - CANEX Outlets (Revised 15 Oct. 03)
• Chapter 42 - Retail Stores (Revised 01 Oct. 03)
• Chapter 43 - Grocery Stores (Revised 06 Oct. 03)
• Chapter 44 - Combination Stores
• Chapter 45 - Gas Bars
• Chapter 46 - Food Services (Revised 29 Oct. 03)
• Chapter 47 - Vending Operations (Revised 26 Nov. 03)
• Chapter 48 - Warehouses (Revised 23 Jan. 04)
• Chapter 49 - Special Services (Revised 07 Oct. 03)
• Chapter 51 - Purchases - CANEX Retail Outlets and Central Billing
• Chapter 52 - Credit Sales
• Chapter 53 - Layaways and Special Orders
• Chapter 54 - Lottery Tickets
• Chapter 56 - Miscellaneous
• List of Abbreviations
• List of Forms
• Index

Application
Approval Authority
Definitions
Overview

 

ANNEX A
ANNEX B

 

ACCOUNTING FOR SPONSORSHIP AND DONATIONS

 

BACKGROUND

 

1.   The purpose of this 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 CF, and to create a systematic approach to soliciting, managing and reporting NPP sponsorships and donations.  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 DND/CF guidelines on sponsorship and donations, 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 level.

 

2.   The decision to pursue an active NPP sponsorship and donation program is entirely within the purview of each Base Commander.  In preparing the policy, DGPFSS has been mindful of the challenges each base faces in an environment of limited resources.  As a consequence, you will note that this NPP policy differs significantly from its public DND 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 allows for greater equity and flexibility in the allocation of sponsorship and donation revenues amongst NPP programs, services, and activities.

 

3.   The NPP Sponsorship and Donations Policy can be found on the CFPSA website and should be reviewed in conjunction with this policy.

 

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 DGPFSS 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.

 

Deferred (Unearned) Revenue

 

7. Deferred revenue is revenue received in advance of being earned (unearned) and revenue recognition must be deferred until the future period or periods in which the revenue is to be recognized/earned.    

 

Donation

 

8.   A donation is the provision by contributions, gifts or bequest by a person, group, or organization external to DGPFSS, DND and the CF of funds, goods, facilities or services without cost to DGPFSS, 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.

 

Product in Kind (PIK)

 

9.   Goods, facilities or services received/performed that DGPFSS 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 DGPFSS, usually by the contributor of the resources.  Internal restrictions are imposed in a formal manner by DGPFSS, usually by resolution of the senior authority.  Restricted sponsorship contributions are a rare occurrence whereby funds can be used solely for a specific purpose.

 

Sponsorship

 

11. A sponsorship is a collaborative arrangement between DGPFSS and persons, groups, or organizations external to DGPFSS, DND and the CF. In such an arrangement, funds goods, facilities or services are provided to support a particular DGPFSS 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. Unrestricted contributions are normally recognized as revenue in the current period.

 

OVERVIEW

 

General

 

13.  Collaborative arrangements between federal government departments and agencies and the private sector have become common.  In this culture, instances arise where DGPFSS, DND or the CF are approached with 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.

 

FINANCIAL ADMINISTRATION

 

15.  Approval of a senior authority is required prior to responding to any sponsorship proposal or donation, or pursuing any sponsorship or donation initiative.  Approval authorities for sponsorship and donations are detailed in the Chief of The Defence Staff Delegation of Authorities for Financial Administration of Non-Public Property.

 

16. 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 11; and

 

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

 

NPP Accounting Procedures

 

17. 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.

 

18. All sponsored and donated funds shall be receipted (form CF 602) and deposited with the local NPP Accounting Office (NPPAO) (or directly to the appropriate NPP bank deposit facility).  As per Chap 2 of this manual, Sponsorship and Donation activities shall be a component of Base Fund’s financial structure, operated as a separate outlet with an Operating Income Statement.  To further enhance national reporting capabilities, all sponsorship and donation activities shall be recorded by event.

 

Restricted Contributions - Cash

 

19.  Generally Accepted Accounting Principles (GAAP) dictates that revenues and related expenses shall be recognized in the same period (the matching principle).  Accordingly, restricted cash contributions received in a period prior to the activity or event, shall be deferred – initially recorded as unearned revenue upon receipt and subsequently recognized as revenue in the same future period or periods as the related expenses that they were intended to fund are recognized.   

 

Note: If restricted cash contributions are received in the same period as related expenses are recognized, revenue recognition is concurrent - there is no deferment.

 

Unrestricted Contributions - Cash

 

20.  Unrestricted contributions are normally recognized as revenue in the current period.  However, in some circumstances, although unrestricted contributions are not “restricted” per se, funds may be collected on the auspices of, or earmarked for a specific event or activity.  In this circumstance, revenues received in advance may be deferred (recorded as unearned revenue) at the written request of local management and recognized as revenue in the period the specific event or activity takes place (any unexpended funds shall also be recorded in the same period).  Example: Sponsorship cash revenue collected on the auspices of “Family Days” received in April with the event taking place in July – at the written request of the PSP manager, revenue is deferred until July when Family Days takes place and all deferred revenues are recognized at that time.

 

All other unrestricted cash contributions shall be recognized as revenue in the current period. 

 

Recording of Costs

 

21. Indirect costs of running sponsorship and donation activities will be recorded as operating expenses (wages etc).  Direct costs associated with specific events will be recorded as expenses against the specific event (cost of producing a “Family Days” calendar displaying sponsor’s logos etc.).

 

Product in Kind (PIK)

 

22.  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.

 

23.  The Authorized Agent shall ensure the following:

 

1. as a component of the written or verbal agreement, the Authorized Agent and the supplier’s representative 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.

 

24.  PIK services or goods are to be controlled and accounted for in the same manner as services or goods paid by cash (see Note).  PIK asset and/or revenue will not be recognized prior to the receipt of properly authorized source delivery documents from the Authorized Agent.  Source delivery documents such as a packing slip, provide proof of receipt and value of PIK received.  

 

Note: Considering the nature of PIK and the administrative burden of accounting for numerous small items of limited and/or questionable value, such as t-shirts, ball caps, water bottles, etc., PIK that has a value assessed lower than $1,000, may not be recorded in the books of account.  This does not negate the requirement for the authorized agent to maintain records of receipt and disbursement of PIK valued under $1,000.  The materiality threshold of $1,000, is applicable to each event rather than by sponsor.  For instance, if PIK is received from different sponsors for the same event and the aggregate total exceeds $1,000, PIK shall be recorded in the books of account.

 

Current PIK (PIK to be used in the period of receipt - the current accounting period) 

 

25.  Upon receipt of the properly authorized source documents from the authorized Agent, Current PIK revenues for goods and services used and the offsetting expenses are simultaneously recognized on the sponsorship income statement and have a nil effect on the bottom line of the Sponsorship Income Statement.

 

Deferred PIK (PIK not used in the period of receipt - the current accounting period) 

 

26.  PIK assets are reported for control and management information purposes when PIK is received in one accounting period and will not be used until a future accounting period or periods.  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.  PIK will not be amortized.  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 PIK revenue – sponsorship and donations.  All deferred product-in-kind is to be reported within the fixed asset records.  PIK is subsequently recognized as revenue in the same future period or periods as the related expenses that they were intended to fund are recognized.

 

27.  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.  For control and record purposes, PIK received for a fundraising event such as an auction, shall be recorded as PIK in the same manner as PIK for internal use as detailed in para 25 and 26 above.  Cash received for sale or auction is recorded as Sponsorship Revenue Cash (net of tax) and PIK revenues/expenses are reduced by the net amount.

 

Summary of Accounting Action

 

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

 

Year-End Procedures

 

29.  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 identify:

 

1. unserviceable items;

 

2. missing items; and

 

3. any other discrepancies.

 

30.  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 local NPPAO.

 

31.  The NPPAO 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

 

32. 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 DGPFSS website).  The appropriate approval authority as per para 15 must sign the form.  Upon receipt of the sponsorship or donation, the Authorized Agent shall forward a copy to the NPPAO.

 

Tax Implications

 

33.  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.

 

Note: Sponsorship does not meet the criteria of a charitable donation - accordingly an income tax receipt shall not be issued.

 

34.  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.  DGPFSS 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.

 

35.  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.

 

36.  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).

 

37.  The local NPPAO will complete the Official Income Tax Receipt in two copies, provide the original to the donor and forward the second copy to the National Accounts Receivable Office (NARO) who will 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.

 

Application

Approval Authority

Definitions

Overview

 

ANNEX A

ANNEX B