Is a New Board of Directors Responsible for Missing Money?

In many communities, religious centers serve as hubs for community support and engagement. When a group of concerned local residents takes the initiative to revive a struggling community religious centre, it is a commendable endeavor. However, unforeseen financial issues can pose significant challenges. In one such scenario, a new board faced a disheartening situation when the previous board's financial actions raised concerns.

The Transition of Control

The story begins with a group of local residents who were tasked with revitalizing a community church. The previous board, comprised of three older women, had managed to keep the charity operational by occasionally renting out the organization's facility. At the time of the transition, the charity's bank account held approximately $20,000. The previous board, due to personal reasons, reluctantly decided to hand over the legal control of the charity to the new board. This was done through a special board/member meeting in which the new board was appointed, and subsequently, the older board members resigned. However, the situation took an unexpected turn when one of the departing board members withdrew approximately $10,000 a few days before the transition and the rest immediately afterward.

Legal Implications

The new board faced a conundrum: should they involve the local police, contact the bank, or report the situation to the Canada Revenue Agency (CRA)? The answer is not straightforward.

CRA: In most cases, the CRA is unlikely to intervene in such financial matters. They primarily deal with taxation and charitable status issues.

Bank: The bank may argue that the director who withdrew the funds had signature authority over the account. However, it's crucial to confirm this.

Local Police, Office of the Public Guardian, or Attorney General: These authorities may become interested if the new board can reasonably assert that the money was stolen.

Resolving the Issue

‍Before making accusations, it is advisable to have a conversation with the board member in question. Seek any documentation or justification for the withdrawal. If no acceptable explanation is provided, consider the following steps:

Recovery Efforts: Attempt to recover the funds through negotiation. You might want to involve other former directors for assistance. If negotiation fails, legal action could be an option, although the amount involved might make litigation less economical.

Public Disclosure: Reporting the situation to the church members is a possibility. However, be cautious about defamation and maintain a respectful approach.

T3010 Filing: Ensure that the financial consequences of the incident are accurately recorded in the T3010 filing.

Ultimately, the responsibility of the new board is to make a reasonable effort to recover the funds, especially if they believe the money was misappropriated. If full recovery is not feasible, the board is not obligated to expend excessive time and money in pursuit. Their duty is fulfilled by taking reasonable actions to reclaim what they can.

Reviving a community church is a noble task, and financial challenges are not uncommon. Facing such challenges with a measured and prudent approach is key to maintaining the integrity and vitality of the institution.

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