What Sports Associations Need to be Financially Compliant

Financial compliance is a necessary element of running a successful sports association. It ensures that the organization operates within legal parameters, maintains transparency, and secures the trust of its members, sponsorships, and regulatory bodies. This article will walk through the essential elements of financial compliance for sports associations in Ontario, Canada, helping you to understand the current requirements and how to effectively meet them.

Sports Associations and Compliance

What Defines a Sports Association?

In Ontario, a sports association is typically a not-for-profit organization dedicated to promoting and facilitating sports activities within a community. These organizations can range from local clubs focused on a single sport (i.e. Skating or Swimming Clubs) to larger associations that oversee multiple sports disciplines. Their primary goal is to support athletes, provide training and competition opportunities, and encourage community participation in sports.

Sports associations in Ontario often rely on membership fees, sponsorships, and grants to fund their activities. They are governed by a board of directors and operate under bylaws that outline their purpose, membership structure, and governance practices. These associations must also comply with various legal and regulatory requirements to maintain their status and continue operating effectively.

What Does It Mean To Be Compliant?

Sports associations play a critical role in enhancing community engagement, promoting physical activity, and supporting athletes of all levels. However, to maintain their operations, these organizations must adhere to the financial compliance requirements. This means adhering to all applicable laws, regulations, and standards that govern the operations of sports associations.

Many sports associations operate on tight budgets and while this financial pressure can make compliance seem daunting, it is essential to avoid legal repercussions and maintain eligibility for funding.

Financial compliance for sports associations involves several key practices:

• Accurate Financial Reporting: Maintaining detailed and accurate financial records, preparing annual financial statements, and filing necessary reports. Organizations may be required to produce Compilation, Review Engagement or Audit level financial statements, depending on the organization's size and revenue to ensure the integrity of financial statements.
• Adherence to Funding Requirements: Meeting the specific terms and conditions of grants and sponsorships, including proper use and reporting of funds.
• Tax Compliance: Understanding and fulfilling tax obligations, including filing returns and making necessary payments.

What is the Not-For-Profit Corporations Act (NFP Act)?

The Ontario Not-for-Profit Corporations Act, 2010 (ONCA), which officially came into effect on October 19, 2021, introduced a modernized legal framework for not-for-profit organizations, including sports associations. This Act replaces the older Ontario Corporations Act and sets out new governance and compliance standards.

Key changes include updated requirements for:

• Financial Reporting: New thresholds determine when compilations, reviews or audits are required based on organizations revenue and source of income. ?Smaller organizations may now only need a review or compilation engagement instead of a full audit, simplifying the process.
• Governance Practices: The Act introduces clearer rules for director duties, conflict of interest management, and member rights. This includes ensuring that bylaws are updated to reflect these new governance standards.
• Bylaw Amendments: Associations must review and amend their bylaws to align with the NFP Act, including provisions for member voting, board composition, and financial oversight.

These updates are designed to enhance transparency, accountability, and efficiency within not-for-profit organizations. Sports associations needed to ensure that their financial and governance practices are fully compliant with these new regulations by October 19, 2024 deadline.

For more information about the key features of the new act: ?https://www.ontario.ca/page/guide-not-profit-corporations-act-2010#section-1

What Do We Need to Do to Be Compliant?

What are the Requirements for Financial Statements?

Sports associations must prepare annual financial statements that provide a clear and accurate picture of their financial health. These statements should include a balance sheet, income statement, and cash flow statement. The level of detail and scrutiny required depends on the organization’s revenue and whether or not they meet the definition of a public benefit corporation. ?A public benefit corporation means it is a charitable corporation or a non-charitable corporation that receives more than $10,000 in the form of donations, gifts, grants or other government assistance.

Compilations, Reviews and Audits

The ONCA requires different levels of financial review based on the organization's revenue, source of income and membership decisions:

• Compilations: The least intensive level of financial review, where an accountant helps prepare financial statements without providing any assurance. This is often sufficient for smaller organizations with lower revenues.
• Reviews: A more intensive examination than Compilation, suitable for mid-sized organizations. A review provides limited assurance that the financial statements are free of material misstatements.
• Audits: Required for larger organizations or those with significant public funding. An independent auditor must examine the financial statements to ensure accuracy and compliance.

What Steps Should We Take to Ensure Compliance?

1. Maintain Accurate Records: Keep detailed records of all financial transactions, including receipts, invoices, and bank statements. This ensures that you can provide a clear audit trail and demonstrate the proper use of funds.

2. Prepare Regular Financial Reports: Produce monthly or quarterly financial reports to monitor your financial health and identify any issues early. This also simplifies the preparation of annual financial statements.

3. Conduct Internal Reviews: Regularly review your financial practices and controls to ensure they meet compliance requirements. This can help identify areas for improvement and prevent issues from escalating.

4. Engage Professional Services: Consider hiring accountants who specialize in not-for-profit organizations to assist with financial reporting and compliance. Their expertise can help you navigate complex regulations and ensure accuracy.

Conclusion

Financial compliance is essential for the sustainability and success of sports associations. By understanding and adhering to the requirements set out by the ONCA, maintaining accurate records, and conducting regular financial reviews, your organization can ensure it remains transparent, accountable, and in good standing. Consulting with professional services and staying informed about regulatory changes will further support your efforts to achieve compliance and focus on your mission of promoting sports and community engagement.

Stay tuned for the next article in our series, where we will delve into the tax filing requirements for sports associations, along with guidance on what will be required from you if your organization requires a Compilation, Review or Audit.

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This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.

GBA LLP is a full-service accounting firm in the Greater Toronto Area, but we primarily service all of Ontario as well as the rest of Canada virtually, except Quebec. Our team of over 30 provides audits and reviews of financial statements, compilations of financial information, and corporate tax returns. ?We provide specialized corporate tax and succession planning for small and medium businesses, in addition to general advisory services.

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