A Few Good Accounting Packages Nonprofit consultants look at accounting systems to fit your needs Is tax season a time of time of stress, chaos, and panic, or a relatively trouble-free period? Can you access the information you need in your accounting software, create reports, and track restricted funds, or does just logging on make you worry about crashing your computer? The accounting software you use will make or break this time of year for you, and can mean the difference between a painful tax season and an easy one. If you're struggling to create reports, track expenses and complete the necessary tasks, it may be time for a new system. Over the last several years, we've talked to a number of nonprofit consultants and accounting specialists about the accounting packages they recommend. We published summaries of their advice in 2006, 2008, and again in 2011. But, given that the world of technology doesn't stand still, we felt it was time to revisit this topic and fill you in on what's changed. A few things to note upfront. First, the accounting firm Sage's enterprise-level nonprofit offerings, formerly consolidated under the name Sage Nonprofit, has now been rebranded under the name Abila, while its low-cost offerings — formerly called Peachtree — are now sold under the brand name Sage. Sage has also rolled out a new solution, Sage One, for the smallest of businesses. We also added a new tool to the article, FinancialForce, that works well with the popular Salesforce CRM platform. Before we dive into the available packages, let's decide whether you even need an accounting system.   Who Needs an Accounting Package? What type of organization should use an accounting package? The consultants we talked to agreed: almost every nonprofit can benefit from one. Even if you work for a small organization that makes only a few basic transactions a month — deposits, withdrawals, and invoices, for example — an application like Microsoft Excel may not be enough. Truth be told, Excel is dangerous as an accounting tool, as there are no built-in safeguards to keep you from deleting a transaction or accidentally duplicating a line on a report. The increasing popularity of self-service financial technology tools has led to improved options for the smallest nonprofits. Many banks now offer reporting tools as part of their online banking packages, or as add-on modules. Users can associate certain vendors with a specific expense type — for instance, to connect USPS charges with "Postage." These banking tools typically aren't very good at differentiating different types of revenue, but if your organization is very small and has just a few transactions per month, this kind of service might support your needs. However, a dedicated package is a better fit for most organizations. Once you've decided you need an accounting system, it's time to review your options. It's important to consider whether the package you purchase will integrate with the constituent management solution your organization uses — whether that's a donor management tool, an association management package, or a CRM. Seamless integration might save you hours summarizing and entering data. Ideally, your constituent management software should serve as your accounts receivable sub-ledger — a record of the transaction and payment history for every person or organization who gives you money or pays you for services. Your accounting system should serve as your general ledger, tracking balances as well as your accounts payable, payroll, inventory, and reports. Periodically — daily, weekly, or monthly — you should reconcile your accounts receivable sub-ledger against your general ledger to ensure accuracy in your books. Learning to use new accounting software can be daunting, but in the long run it will save you a considerable amount of time. Most accounting packages allow you to create new reports — like a cash-flow summary or information for your IRS Form 990 — at the touch of a button. And many will update your accounts automatically when you write a check or create an invoice.   Lower-End Options Happily, affordable accounting software options do exist. Starting at only a few hundred dollars, such packages are recommended for organizations of up to a couple accounting users, several programs, and annual budgets up to $1 million. But many very small nonprofits with budgets below $50,000 use them as well. An accounting package is a useful tool, but it won't make you an accountant. Think of it as a filing cabinet: You need the cabinet to hold your files, but you still have to set up a filing system. If you don't have an accounting background, you may want to hire a consultant or bookkeeper to help set up the software and define how you should use it. Expect this to cost two-to-five times the price of the accounting package. Sage One Designed for the smallest of businesses, Sage One is an all-in-one solution that's entirely cloud-based. The U.S. version of the software launched in 2012, and includes online accounting and invoicing. There's also a project and task management workspace meant to help you with estimates and deadlines. The system is designed to be easier to use and get started with than the more robust Sage 50 (formerly Peachtree), and has a dashboard that gives you a quick snapshot of your organization's financials. Sage One costs $24 per month. There's also a version of the software for accountants. QuickBooks, by Intuit The market leader in entry-level accounting software, QuickBooks is specifically intended for small businesses without much accounting experience. The system is relatively easy to get up and running, which can be a draw for small nonprofits. The Pro and Premier editions have greater functionality but are somewhat more complex to use. In general, however, QuickBooks' chart of accounts and reporting functionality are more prescribed than a software package like Sage 50, so accounting-savvy folks who want to set up their books or reports in a particular way may find it limiting. You'll probably have an easier time finding bookkeepers and accountants proficient in QuickBooks than its competitors. QuickBooks starts at around $200 for the most basic version, and about $400 for a multi-user version with more features. However, QuickBooks Premier for Windows is also available to eligible nonprofits through TechSoup, ranging between $19 and $99. QuickBooks Online, by Intuit Intuit also offers QuickBooks Online, a cloud-based version of the software. Since there's no need to install or maintain anything to use the tool, which is hosted on the vendor's servers and accessed over the internet, it's rapidly gained popularity with nonprofits looking for accounting software that's easy to configure and update. With more and more systems moving to the cloud, accounting systems are increasingly the only reason many organizations continue to maintain internal servers — moving them to the cloud, too, can simplify infrastructural needs. (Worried about moving your financial data to the cloud? The internet can be a dangerous place for data, but no more so than your own servers, where your data faces many of the same threats — in fact, a good cloud storage vendor is likely to protect your data better than you'd reasonably be able to do on your own. For more information about cloud security, read Idealware's article Keeping Your Data Safe in the Cloud. Professional bookkeepers and accountants tend to prefer the desktop version of the tool to the online version, as QuickBooks Online has limited functionality and is susceptible to internet connectivity issues compared to its competitors. QuickBooks Online starts at $13 a month for the entry-level edition and rises to $79 a month for the option with the most features, including payroll. Sage 50 Sage renamed its accounting package formerly known as Peachtree to underscore the fact that it's designed for businesses with fewer than 50 employees. Sage 50 offers more flexibility than QuickBooks — it allows you to set up reports and accounting charts exactly the way you'd like, which is why those with accounting backgrounds tend to prefer it. It's not as ready to use "out of the box," however, and users are expected to have basic accounting experience. For this reason, it may not be the best choice for accounting novices. Like QuickBooks, the widely used Sage 50 comes in a variety of differently priced formats, beginning at about $70 for a basic version and running to around $1, 500 for a more sophisticated multi-user version. FUND E-Z Although it requires a bit more of an initial investment (around $2,000 for one user, including support), FUND E-Z is intended specifically for nonprofits. It allows more flexibility than QuickBooks or Sage 50 in tracking restricted funds and creating nonprofit-specific reports. Like Sage 50, FUND E-Z is designed for users who have some accounting background. However, the consultants we talked to reported that this application has a much-smaller user base than QuickBooks or Sage 50, making it more difficult to find bookkeepers or consultants experienced using the system. The basic principles are the same as any other accounting package, though, and accounting professionals should be able to pick it up quickly.   Options for Mid-Sized Nonprofits If you have more than four or five users, an annual budget greater than $1 million, conduct business internationally, or need to track multiple programs, departments, and locations, you'll likely want to look beyond entry-level solutions to a more robust accounting software package. Such packages tend to cost from thousands to tens of thousands of dollars in addition to yearly licensing fees. You'll also need to consider the costs of implementing these systems, which can be equal to or greater than the cost of the software itself. For more information on the multitude of general business accounting packages available — as well as some free assistance and tools to help you choose a package — visit the accounting information websites AccountingSoftware411.com, 2020software.com, and findaccountingsoftware.com. The consultants who have contributed to our accounting articles over the years have been divided over the benefits of using a tool specifically intended for nonprofits. Some felt the basics of accounting are the same regardless of the sector and that it was best to go with the more widely used general accounting packages. Others felt there is a substantial benefit in using one of the packages specifically designed for 501(c)(3)s, particularly when dealing with a number of different funds with different restrictions — for instance, unrestricted, temporarily restricted and permanently restricted classifications. As with any other software choice, you’ll need to assess your own needs and determine what’s important to you. Abila MIP Fund Accounting (Formerly Sage MIP/Sage 100 Fund Accounting) A solid option, Abila MIP Accounting was formerly branded within the Sage Nonprofit suite of products. At around $3,000 to $10,000, it's priced lower than others in this category. Abila provides strong support for tracking restricted funds and offers a good report writer. The software is available as an installed option, and includes modules to help manage accounts payable and receivable, allocations, budgeting, employee self-service transactions, and more. Those conversant with QuickBooks or Sage 50 might be put off by the less-polished user interface. Unlike those packages, which strive to offer an attractive and simplified user experience, Abila is designed to be a more-robust accounting system for professional accountants and sophisticated organizations. A hosted version of the software is bundled with fundraising and grants management tools under the brand name Abila Nonprofit Online, and starts at around $349 per month. The Financial Edge, by Blackbaud A complex, more expensive package for those with sophisticated needs, this system offers the ability to integrate with The Raiser's Edge (also by Blackbaud). But it requires expensive customization, and several consultants felt that integration was not worth the effort.   General Business Accounting Packages General accounting packages tend to be much more widely used than those targeted specifically to nonprofits, which often makes it easier to find people to help with setup, support and bookkeeping. If you need to track inventory, billable hours, or similar things, these business systems can also offer support not provided by most nonprofit-specific packages. FinancialForce Accounting As its name suggests, FinancialForce is designed to integrate with the Salesforce CRM platform to manage financial processes, and was mentioned during our interviews as a potential option for nonprofits using the platform. It's a fully functioning, cloud-based general ledger, invoicing, and accounts receivable and payable system, but it's not clear how many nonprofits are using the tool yet. Unless the vendor's discount for nonprofits is significant, it's also a fairly expensive product. FinancialForce Accounting starts at $9,000 per year. The vendor advertises a discount for nonprofits, but does not publish the details. Dynamics, by Microsoft Microsoft's familiar lineup of accounting packages — Solomon, Great Plains, and Navision — are now known as Dynamics SL, Dynamics GP, and Dynamics NAV. They’re widely used among midsized to large nonprofits and within the businesses world. Dynamics SL (formerly Solomon) is geared toward project- and service-based organizations and allows a substantial amount of flexibility. Dynamics SL falls within the $15,000 to $30,000 price range. Dynamics GP (formerly Great Plains) is a strong and widely used standard accounting package geared toward medium-to-large-sized businesses. Pricing for this package comes in around $50,000 to $250,000, not including configuration or additional consultation. Dynamics NAV (formerly Navision) is designed to be highly customizable for those with complex needs and who want to start with a blank slate. Licensing costs are comparable to Dynamics GP, but if you require extensive customization, this software solution can be considerably more costly to implement ($100,000+). NAV’s functionality is enhanced by Serenic Navigator, a Dynamics NAV extension designed specifically for nonprofits. It supports both fund and financial accounting and provides support for grants, donors, and investments. The price starts around $50,000 and can reach upwards of $100,000 to $200,000 as modules, users, and functionality are added. Sage 100 ERP (Formerly Sage ERP MAS 90 and 200) Sage 100 ERP is targeted primarily toward manufacturers — if your organization requires sales order entries or goods tracking, it might be a good bet. It is comparable in price to Dynamics SL at about $10,000 to $30,000 in licensing fees. The online version starts at about $200 per user, per month   Options for Large and International Nonprofits The tools listed above will support the needs of the vast majority of nonprofits — unless you have hundreds of millions of dollars to manage, more than a hundred accounting users, or a complex, multi-unit national or international structure. If that's the case, you'll need an enterprise package tailored to your specific needs, such as Oracle’s JD Edwards World Financial Management, Microsoft Dynamics AX, or Lawson Software. The prices of these packages tend to start in the six figures. If you are ready to make this kind of investment, you should certainly look beyond this article for expert advice.   Moving Forward Where do you go from here? As with any software package, start by understanding your needs — including the accounting procedures you will follow. If no one at your organization has accounting expertise, you may need to ask an outside expert to help with this. If you're looking at larger packages, consider issuing a request for proposal (RFP). For more on RFPs, see TechSoup’s RFP library. Before making any decisions, talk to vendors and look at the tools, download trial versions if available, and talk to other organizations that use them to understand how well the applications can support your needs. And don't forget to factor in the costs of setting up and training users in your new system. With some diligence, you can make the tax season a pleasure… or at least a little easier. Canada: The Cost Of Bad Bookkeeping You're looking at your trade accounts receivable listing and you note amounts that are a couple of years old, amounts with strange names, large credit balances or balances that aren't consistent with the your type of business. These could be signs that you have a problem. Bookkeeping impacts every business. Good bookkeeping can give your business an edge over your competition and poor bookkeeping can cost you money and hold your business back. What kind of bookkeeping are you getting? Why should you care? A good bookkeeper provides support to keep your business healthy. Poor bookkeeping can hide signs of a business in distress. Paying for bad bookkeeping services has two costs, the price of the bad bookkeeping and the cost of the CPA firm to fix the errors. In addition, there is the hidden cost of bad decisions made from poor financial information. What is bad bookkeeping? As accountant we have seen the good, the bad and the ugly of bookkeeping. At an extreme, ugly bookkeeping provides information that is worse than no information at all. You should question the quality of your bookkeeping if it isn't consistent with your own knowledge of the business's operational results. In working with one client, the information provided by the bookkeeping was so inconsistent with the operations of the business it was clearly unreliable. Instead of using the bookkeeping, we had to redo most of the work. During the year, the company used unreliable information this lead to excessive use of its line of credit and unnecessary interest expense. In the end, we filed the tax return, and made a recommendation to replace the bookkeeper. Four signs of bad bookkeeping 1. CRA interest & penalties.The bookkeeper is unsure how to perform the bookkeeping or is trying to clean up incorrect bookkeeping which results in the filing of late reports and incurring interest and penalties from Canada Revenue Agency. CRA assessments should be monitored for significant interest and penalties. 2. Old or unusual items on common reports. These are more technical errors that occur when a bookkeeper records a transaction to a sub ledger and then does not correctly close out the transaction resulting in numbers that should have removed from reports remaining forever. This makes the reports less reliable for business decisions. 3. Inability to answer questions about their work. The bookkeeper cannot answer questions about their bookkeeping, or the answers given are inconsistent with the operations of the business. A business should be able to rely on their bookkeeper for financial information. 4. Inconsistent treatment of similar transactions & lack of understanding of trend analysis. Inconsistent treatment of similar transactions indicates a lack of understanding of basic accounting principles and makes accounting data less useful for trend analysis and monitoring for mistakes. An example of this is when the bookkeeper records waste removal to a utilities account one month then to repairs and maintenance the next. Utility type expenses should have twelve items expensed in a year (one per month). Trend analysis can be used to watch for errors, both in accounting or operations. A missed month could indicate a missed payment. Unexpected costs of bad bookkeeping (or the fraud discussion) Sometimes bad bookkeeping is not a sign of incompetence in the bookkeeper, instead bad bookkeeping hides signs of fraud. Most examples of fraud go hand in hand with bad bookkeeping. When someone chooses to commit fraud they must figure out a way to hide it and it is much easier to hide in a mess then in clean bookkeeping. Good bookkeeping can improve your bottom line! Good bookkeeping should provide information to manage your business. Strong management of accounts receivable can show your customers you are well organized. A work in progress listing can enable faster billing. An accurate accounts receivable listing will identify a need to phone customers with amounts older than thirty days. An accounts receivable listing will also pin point customer trends. If a certain customer normally orders $10,000 in product every week and this week they haven't, someone can phone the customer to find out what happened. An aged inventory listing can be used to manage stock. For example, a wine shop can track old and slower moving inventory and put any inventory older than a year on sale, then replace it with more popular vintages. Or, the listing can be used to monitor popular vintages, and larger orders can be placed for any new product that sells out within a week. Strong cash flow management can cut down on borrowing costs. As an example, accounts receivable is generally a business's largest current asset and management of it can cut down on your business' use of a line of credit which charges interest. For example, if the average collection period for an invoice can be moved from 45 days to 25 days the faster payment can be used to reduce the use of a line of credit. If you borrow $1,000 from your bank for 20 days at a borrowing rate of 6% per year, the interest would be $3.29 ($1,000 X 6% X 20/365). If this occurs 12 times in a year, the annual cost is $39.45 ($3.29 X 12 times) on every $1,000. For $100,000 of accounts receivable the savings is $3,945. In addition, the faster accounts receivable is collected the less likely the amount will become doubtful. A competent bookkeeper is essential to a healthy business. If you don't have one – either get your bookkeeper some training or replace your bookkeeper. How to Find the Right Canadian Bookkeeper for Your Business 10 Key Interview Questions Introduction Over my 30 years in public practice as a Chartered Accountant I have been asked, numerous times by my clients, “how do I find a bookkeeper”.  So over the years I have developed a checklist of questions to ask a prospective bookkeeper. What Bookkeeping/Accounting Certifications Do They Have? There are three types of certifications that you should look for in a bookkeeper in Canada: Each of the following organizations provides technical bookkeeping certification: The Institute of Professional Bookkeepers of Canada (CPB – Certified Professional Bookkeeper) The Canadian Institute of Bookkeeping (CB -Certified Bookkeeper) The Canadian Bookkeepers Association (RPB – Registered Professional Bookkeeper) Alternatively, bookkeepers may have taken an accounting or bookkeeping certificate program through a private or public college.  It is probably worth a phone call to any organization that they say they have been certified by to confirm their certification status. Certification on Accounting/Bookkeeping Software: There are two main accounting/bookkeeping programs in Canada: QuickBooks by Intuit and Simply Accounting by Sage.  Each company has their own certification program: For QuickBooks, you can be a Certified QuickBooks Pro Advisor For Simply Accounting, you can be a Simply Accounting Certified Consultant Any bookkeeper who has been certified on accounting software is likely to be much more efficient than those who have not. Payroll Certification: If you want your bookkeeper to have payroll responsibilities, you will want a bookkeeper who has at least a minimum certification level with the Canadian Payroll Association.  They have two levels of certification: PCP – Payroll Compliance Practitioner CPM – Certified Payroll Manager For most small businesses, PCP is all they need.  CPM is primarily focused on payroll for larger companies. What Kind of Bookkeeping Experience Do They Have? You should be looking for a minimum of three years of full-time experience providing full-cycle bookkeeping to small businesses.  The issues that come up for small business are different than those that a bookkeeper would encounter doing bookkeeping for larger companies. You should also make sure that they have relevant bookkeeping experience with small businesses in your industry.  The most relevant experience will be in businesses just like yours.  Ask how many clients they have in your industry.  Make sure to obtain references. Will They Provide References from Professional Accountants? Many small business owners may not understand enough about technical bookkeeping in order to be able to judge how good their bookkeeper is with respect to bookkeeping, accounting, GST, PST and payroll.  They may be able to vouch for a bookkeeper’s timeliness, their client service skills and their personality.  However, if you really want to know whether or not they are technically proficient, you should ask one or more professional accountants that they have worked with in the past.  The accountants will know how much or how little time they had to spend cleaning up the bookkeepers work at year end.  It always pays to check these references. Which Accounting/Bookkeeping Programs Do You Support And Recommend? There are two main accounting/bookkeeping programs in Canada: QuickBooks by Intuit Simply Accounting by Sage You want to make sure that they use one of these two programs for three reasons: Both of these programs are significantly more efficient than trying to do bookkeeping manually or using a spreadsheet program like Microsoft Excel. Most professional accountants support both of these programs and can import the bookkeeping data from either directly into the program they use to prepare your financial statements and income tax returns.  If you do not use one of the programs, the year end processes will take your accountant longer and he or she will have to charge you more. In case you have to move to another bookkeeper some day you will want to be using software that most bookkeepers support. If you do not yet use one of these two programs you should note the following: The program versions available in Canada are different from the program versions available in the US.  In the US, QuickBooks has over 85% of the US market.   In Canada, it is difficult to confirm numbers.  QuickBooks appears likely to still be ahead, but both organizations claim to sell more copies of their software in Canada than any other program. It used to be that Simply Accounting was the favourite for accountants because of its built-in audit trail and robust inventory module.  Today, it seems that QuickBooks offers the same functionality and is significantly more user-friendly and intuitive. How Do Bookkeepers Charge For Their Services? With bookkeeping, as with most other services, you generally get what you pay for.  Inexpensive hourly rates can turn out to be more expensive if the bookkeeper takes more hours than someone at higher hourly rates. Bookkeepers usually charge by the hour.  In Canada, rates range anywhere from $15 per hour to $125 per hour depending on skill level and experience.  Most people who know what they are doing would not charge less than $40 per hour.  Most very experienced bookkeepers charge more than $50 per hour.  Note that people who charge more per hour are generally more efficient than those who charge less, with the result that some of the most experienced bookkeepers who charge the most per hour turn out to be the least expensive because of their efficiency. Some bookkeepers charge a fixed amount per transaction.  This can work well for very simple businesses. Bookkeepers usually charge for payroll services either based on their hourly rates, or provide fixed fees per month, per employee.  Fixed fees for payroll with 5 employees can run anywhere from $40 per month to $120 per month. Set-up Fees Setting up new bookkeeping clients is a very time-consuming process.  First, the bookkeeper has to learn enough about the client that they can know how best to set them up in the accounting program.  If it is a new business and the client has not used an accounting program before, set up requires setting up a new charge of accounts, and setting up initial preferences including vendors and clients.  If the business is established and the client has used an accounting program before, the process can be even more time consuming. Retainers Many bookkeepers charge in arrears for their services.  They do the work and then send out their bills.  Unfortunately, some clients take advantage of this and refuse to pay when the work is complete.  As a result, many bookkeepers are now requesting retainers.  Retainers work like this: Prior to accepting you as a client, the bookkeeper will request a payment from you equal to one or more months of your estimated bookkeeping charges.  Sometimes, the bookkeeper will just hold this retainer until such time as you cease to be a client of theirs, at which point they return your initial payment to you. In the meantime, they invoice you regularly for work that they do and expect payment.  If you refuse to pay their bill, they will use the retainer to cover work that they have already done. In other circumstances, the bookkeeper may take an up-front retainer, but instead of billing you on a regular basis and waiting for you to send in your payment, they just take the full amount of their invoice out of your initial payment and then request that you top-up your retainer. Miscellaneous Charges Many bookkeepers charge extra for photocopying, printing, files, binders, courier, faxes, etc.  Be sure to ask about all the additional charges that the bookkeeper may charge you for.  They can add up quickly. Do They Provide A 100% Client Satisfaction Guarantee? Most bookkeepers want their clients to be satisfied with their work, but few put their money where their mouth is.  Make sure any bookkeeper you are thinking of working with will stand behind their work and give you a 100% satisfaction guarantee. Do They Work On-Site Or Off-Site? With technology today, there is not much that requires a bookkeeper to actually go to a client’s office.  In most circumstances, it is more efficient and less costly for the bookkeeper to work from their own home or office.  This also saves you the hassle of having to set up appointments to meet with your bookkeeper and you don’t have to provide them with a desk and computer.  It also means you don’t have to purchase and maintain your own copy of accounting/bookkeeping software. Having said that, there are certain circumstances where you might want to consider having the bookkeeper come to your office: You require more than 10 hours per week of bookkeeping Your company has a complicated inventory system You need extensive job costing You want your bookkeeper to take on additional administrative tasks or you want them to make bank deposits Do They Prepare Tax Returns? Many bookkeepers and non-licensed accountants prepare income tax returns.  They argue that they can do them less expensively than accountants.  We do not. At Joseph A. Truscott, Chartered Accountant, A Professional Corporation, we believe that income tax planning and income tax return preparation are complex tasks that are better left to the professionals.  Chartered Accountants take many, many hours of courses and write complex exams in order to get their designation.  They participate in tax study groups and they take ongoing professional development courses year after year.  Many take a two year “In-depth Tax Course” offered by the Canadian Institute of Chartered Accountants. Some bookkeepers have taken introductory courses on bookkeeping, but few (if any) have the knowledge and experience to ensure that your returns are prepared correctly and that you are getting the benefit of all of the tax savings that you are entitled to.  There is a reason that having your bookkeeper prepare your tax returns is cheaper – they do not have the same knowledge and experience as professional accountants and their tax knowledge is not worth as much.  We strongly suggest that bookkeepers should leave taxes to the experts – professional accountants. How Secure is Your Confidential Financial Information? Many bookkeepers still use e-mail to exchange confidential financial information or store confidential client information on laptops that they travel around with.  This is the last thing that you want. How Can I Get My Monthly Information To Them? If you are planning to work with an off-site bookkeeper, make sure they have set up an easy way for you to get documents to them.  Also, find out whether they charge separately for courier service. Conclusion At Joseph A. Truscott, Chartered Accountant, A Professional Corporation, you can provide us with your monthly source documents in any of the four following ways and there is never any extra charge regardless of the method you choose. By Courier By Fax By emailing electronic copies of documents Delivery of documents to our office Canada: 15 Stages Of A Canada Revenue Agency GST/HST Audit If you have never been audited before, you probably have no idea what to expect. Most audits follow the same 15 stages (more or less). On the taxpayer's side of things, each stage is stressful. CRA Selection Process: The taxpayer usually has no involvement in this process. It all happens behind the scenes and the taxpayer can only guess why their name was selected. Sometimes the taxpayer is randomly selected. Sometimes the taxpayer is selected as a result of the industry segment in which they operate. Sometimes the taxpayer is selected because of something in a filing with the CRA. Sometimes the taxpayer is selected because of a tip made to the CRA. The Audit Letter: The taxpayer receives a letter from the CRA notifying them that they are to be audited. Normally, the taxpayer is asked to contact the CRA auditor. However, sometimes the auditor just shows up at the business premises. The CRA letter requesting certain documents: Usually the CRA auditor will send to the taxpayer a letter indicating what documents need to be provided before the initial meeting at the taxpayer's premises or what documents must be available for the first day of the audit. Initial Meeting: If the audit occurs at the taxpayer's premises, the auditor will have a meeting at the start of the audit. The auditor explains what is expected during the audit. The taxpayer should also communicate to the auditor what is expected. The taxpayer may indicate that the auditor must deal with a specific person so that the entire organization does not end up working for the auditor. Fieldwork: The on-site audit is the fieldwork stage. The fieldwork can take place over a few days or over a lengthy period of time. Office work: Usually the auditor will take information back to the CRA offices and work on the audit from the CRA premises. Follow-up questions: It is common for the CRA auditor to contact the taxpayer after the fieldwork stage of the audit. Sometimes additional documents are requested. Sometimes additional questions are asked. Preliminary Report: The CRA auditor will prepare a proposal and send it to the taxpayer for comment. Usually a proposed assessment number is provided to the taxpayer. Response Letter: The taxpayer has an opportunity to change the minds of the CRA. This is the best opportunity to stop an incorrect assessment from being issued. Notice of Re-assessment: The CRA auditor sends to the taxpayer the Notice of Reassessment setting out how much is being assessed. CRA Collections: As of the date of the Notice of Re-assessment, a debt is due to Her Majesty. CRA Collections may start collection activities immediately after the Notice of Re-Assessment is issued. Notice of Objection: If a taxpayer disagrees with a Notice of Re-Assessment, the taxpayer can file a Notice of Objection. Objection: The taxpayer will communicate with a CRA Appeals Officer and the re-assessment will either be confirmed, amended to reversed. Notice of Appeal: Assuming that not all the issues are addressed in the objection stage, a taxpayer may file an appeal with the Tax Court of Canada. Day in Tax Court: A taxpayer will have their day(s) in the Tax Court of Canada if the appeal is not settled. A Tax Court judge will listen to the parties and render a judgement.
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