CHAPTER 29 A-FN-105-001/AG-001 29-1 ACCOUNTING FOR ...

CHAPTER 29
A-FN-105-001/AG-001
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.
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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.
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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:
a. registration and entry fees;
b. licensing fees and royalties;
c. concession fees and revenues;
d. fees for booth or exhibit space;
e. advertising revenues;
f. any fee where the payee receives goods or services of approximate equal
value, with the exception of sponsorship as defined in para 11; and
g. 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.
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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.).
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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:
a. as a component of the written or verbal agreement, the Authorized Agent
and the supplier’s representative shall agree to conditions of delivery;
b. 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;
c. the Authorized Agent shall verify the quantities and condition of the
merchandise received;
d. the Authorized Agent shall record the value of the merchandise received
on the delivery document and acknowledge receipt; and
e. 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.
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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:
a. unserviceable items;
b. missing items; and
c. any other discrepancies.
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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:
a. voluntary;
b. given without consideration; and
c. 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:
a. a statement that is an official receipt for income tax purposes;
b. 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
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capacity as provided in Sections 38 to 41 of the National Defence Act
through “name of the NPP activity”)’
c. the place or locality where the receipt was issued;
d. 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;
e. the day on which the receipt was issued when it differs from the date of
the donation;
f. the amount of the donation; and
g. 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.
Annex A - Matrix for Sponsorship, Donations, and Product-In-Kind (PIK)
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