In the last article, we discussed when the need arises for drawing up an agency agreement and the purpose it served. This month, we will be taking a deeper look into this document in understanding the technical requirements in signing such an agreement with another agent or intermediary that is not a qualified donee and not registered with the Charities Directorate of Canada.
To recap, an agency agreement should entail the following:
- the obligations of the agent to the charity;
- a funding schedule and the reporting obligations of the agent;
- the conditions of the charity’s involvement;
- the funds that will be made available; and
- the activities the agent is to carry out on behalf of the charity.
Obligations of the agent to the charity
Because charities must be able to demonstrate appropriate direction and control over their resources, the agent is bound by an agreement that spells out in written form all activities the agent will engage in, and how it will report back to the charity with details of the activities.
Funding schedule and reporting obligations of the agent
A detailed funding budget needs to be submitted by the agent to the charity on a yearly basis. Where possible, monthly or quarterly accounting details on the bookkeeping activities should be reported as well. The financial submissions should include a segregated report on the usage of funds given by the charity, whereby verification can be done if required. The intermediary takes special steps to separate the funds donated by the charity from other funding sources, so as to account for it when required. The charity should release funds periodically and gradually to ensure the agent complies with the terms and performance expected of the working relationship.
Conditions of the charity’s involvement
Any special conditions of the charity’s involvement should be highlighted in the agency agreement. Such conditions should be reviewed periodically to ensure full compliance. The charity reserves the right to withdraw funding support if there is a breach of the agreed to conditions at any given time during the review process.
Funds that will be made available
Funding arrangements should be discussed as part of the agreement before signing off. A list of funds required should be detailed in writing, with appropriate budget line items, to ensure clarity and transparency. This will help avoid unpleasant miscommunications and misunderstandings that can arise, especially when overseas projects are involved.
Activities of the agent, on behalf of the charity
The agent’s activities must comply with Canadian laws and laws of the country where the projects are being implemented. This is to ensure full compliance by the charity which must abide by the laws of Canada in carrying out only legal activities, whether it is approved in Canada or in another foreign country.
Questions & Answers
Q: Do you have a sample agency agreement for review?
A: Yes, a sample agency agreement can be downloaded from this link, with permission from the CCCC: https://cbwc.ca/wp-content/uploads/2018/06/Agency-Agreement-Sample-Document.pdf
Q: Why must the charity be concerned over the details of the agency agreement?
A: The agency agreement serves to protect both parties, which have different expectations and needs. The charity’s chief concern is to have direction and control when such an agreement is signed. Hence, the agreement needs to explicitly detail the list of activities and financial reporting requirements. The agreement provides a way to monitor, through proper bookkeeping, all financial transactions from the charity that support the work of the agent.
Q: Is the agency agreement considered a legal document?
A: Yes, the agency agreement is legally binding between the two parties. If the charity loses direction and control over the conditions stated in the agreement, the working relationship/arrangements can be made invalid and the agreement will be null and void thereafter. Secondly, the agreement is the legal document that will show proof that the charity is in direct control of the partnership with the nonqualified donee, in case an audit is conducted on the charity by the Charities Directorate. Failure to have the agency agreement in place while working with a non-qualified donee will compromise the charity in a non-compliance position with the operating rules of running a registered charity in Canada.
This article was published in the June 2018 edition of Treasurer’s Corner. To subscribe, click here.