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25 July 2002
uwRyan.com This website is meant to provide value to UW student by delivering information. It will also supplement the column that I write for Imprint by providing extra information on some of the topics about which I will write in addition to the text of each column. Please provide feedback on what I write as well as give me suggestions of topics to cover. You can send e-mail to me to ryan[at]uwryan[dot]com. |
Feds financial malfeasanceBudgeting problems need to be corrected
Over the past few years Feds has accumulated significant funds. On 30 April 2002 the Feds Board of Directors resolved to invest about $700,000 of liquid assets with TD Evergreen Trust. Aside from conservative budgeting, that is overestimating costs and underestimating income, further improper budgeting contributed to this accumulation of money. The Federation of Students has been hiding money in its budget for at least the past two years. This has contributed to an excess which puts Feds in a situation where Canada Customs and Revenue Agency would likely consider it to have been operating for profit. This judgement by CCRA would mean that the organisation would not be exempt from paying income tax for those particular years. The 2002-2003 Feds Budget is recorded in an Excel workbook that consists of 35 spreadsheets. The first spreadsheet is the front page, which summarises the income from student fees and net income from the businesses, and the expenses of the front office and the different offices and areas of the Feds. The Feds sells GRT transit passes and Fed Bus tickets through its office both which it make profit. The actuals for the first 11 months of last year show the sales of Fed bus tickets at $110,800 and cost of those sales at $90,580. The same figures for transit passes are $49,100 and $48,363.50. These resulted in $20,956.50 profit. This year's budget projects a profit of $29,086.50 for the two. The projected sales and the costs associated with them are recorded in the general office budget but none of the revenue, cost nor the profit associated with them are represented on the front page budget summary. This effectively: represents the profit from these sales as zero, makes the funds unavailable for allocation, and keeps the money out of budget totals. That is this profit is not included in the budget total, meaning that the front page budget total should not show a surplus of $668 but one of $29,736.50. The Income Tax Act is the federal statute under which corporations without share capital are normally exempt from paying income tax. Section 149(1)(l), which gives the condition by which certain organisations would be exempt from tax reads,"was organized and operated exclusively [...] for any other purpose except profit[...]" CCRA is the government agency that implements tax laws and collects taxes. This means it has to interpret sections of the Income Tax Act including the above section. Paragraph 8 of CCRA's most recent interpretation of Section 149(1)(l) says, "However, if a material part of the excess is accumulated each year and the balance of accumulated excess at any time is greater than the association's reasonable needs to carry on its non-profit activities, profit will be considered to be one of the purposes for which the association was operated." This essentially says that an organisation cannot take in more money than it needs. The question then, answered in Paragraph 9 is, "How much is too much." Paragraph 9 says, "[...]it is conceivable that there would be situations where an accumulation equal to one year's reasonably anticipated expenditures on its non-profit activities may not be considered excessive, while in another situation, an accumulation equal to the reasonably anticipated expenditures for a much shorter period would be considered more than adequate." The judgement of what period is reasonable is based on the pattern of receipts from various sources, id est how and when the organization collects revenue. If the accumulated excess is greater than the need, the bulletin says that profit will be considered another aim of the organisation. This would mean that the condition for tax exemption would not be met. Feds collects non-refundable students fees each term to fund its not-profit activities. This year fees are projected to be $893,091. This revenue is reliable and stable which would suggest that a full year would be excessive. Since student fees are collected termly one term should be reasonable. The minutes from the April 30 Feds Board of Directors meeting records Feds General Manager Suzanne Burdett saying, "We are allowed to have one term's expenses in the bank." The Feds corporate objects do not cover its business operations so one need only look at the expenses on the service side, which are budgeted at $857,622. The projected student fees for the fall term are $399,481 and the expenses even for the most expensive term should not exceed this. The allowable excess over expenditure for the Feds, then, should certainly be no more than $400,000, which is much less than the $700,000 Feds has invested. Last year Imprint was in a similar situation to Feds having about $300,000 in excess over expenditure, about equal to one year's expenditures. Imprint was under scrutiny because of CCRA's interpretation but Feds has not incurred similar scrutiny. On 21 July, Students' Council approved the draft budget with some amendments and these problems were not discussed. I have told Feds Vice-President Administration and Finance Chris Di Lullo about the situation and he is working to correct the problems. He is investigating the situation with the excess over expenditure, he is correcting the front page budget and has committed to working with Feds Budget Committee to present Students' Council with options for what is now a significantly larger projected surplus. |