Most co-operatives have to undergo an annual audit. This is a process where an independent third-party reviews the co-op’s finances to ‘enhance confidence’ members have in the organization’s financial statements. In other words, the auditor checks to ensure there’s no financial funny business going on with the board or management. Some granting agencies or lenders may also make an audit a requirement for co-ops that receive their funding.
While an audit does give members confidence in the financial management of their co-op, it may be costly and unnecessary. Depending on the size of the co-op, its revenue, expenses, and number of transactions it has in a year, an annual audit could cost between $500 and $50,000. Even smaller co-ops with not much revenue may get a big bill. Luckily, an annual audit might not be mandatory for your co-op, and it’s good to know if you can forgo this exercise.
Each province requires co-operatives undergo an annual audit before hosting an annual meeting and submitting its annual return. There are, however, circumstances when a co-op may ‘dispense with an audit’ or ‘waive the appointment of an auditor.’ In these cases, the financial report provided by the board, does not need to be reviewed by a third party (an auditor).
The following list outlines the regulations by province. Before we dive in, a quick note: many of these provisions are confusing and unnecessarily vague, but that’s legislation for ya! We’ve offered some interpretation to help simplify things, but we recommend that you consult a lawyer or accountant in your area to confirm whether your co-op needs an audit.
All jurisdictions except Saskatchewan rely on the term ‘distributing co-operative’ to determine whether a co-op needs to undergo an audit. This term refers to a co-op that has something called ‘outstanding public securities’. In most cases, this means the co-op has sold investment shares to members of the public that are not members of the co-op. So, a co-op is not considered a distributing co-op if it does not sell investment shares or only sells investment shares to its members.
Here are the rules in the four western provinces, and at the federal level, when it comes to whether your co-op needs an audit:
Section 264(1) of the Cooperatives Act states “A cooperative that is not a distributing cooperative may resolve not to appoint an auditor.” What’s a ‘distributing co-op’? In Manitoba, this is a co-op that has outstanding securities that were issued in a public offering (for example, it has sold investment shares to the public). If the co-op has no outstanding securities outside of its membership, it can dispense with the audit. To do this, the co-op’s members and shareholders will need to pass a special resolution (two-thirds majority).
Section 133 of Saskatchewan’s Cooperatives Act outlines several situations in which a co-op needs an audit. Co-ops with fewer than 20 members can resolve not to appoint an auditor, and other co-ops only need to appoint an auditor if:
Section 236 of Alberta’s Cooperatives Act states that a co-op that doesn’t have outstanding securities that were part of a public distribution (e.g. sold investment shares to the public) can resolve not to appoint an auditor by special resolution of its members and investment shareholders.
Section 109 of the Cooperatives Act in BC says an association that is not a reporting association can waive an audit with a special resolution of its members and investment shareholders. If a co-op has multiple classes of shareholders, it will need to pass separate resolutions for each class.
A “reporting association” in BC is any co-op that:
Community service co-ops may be considered reporting associations (at the discretion of the corporate registrar) depending on:
The Canada Cooperatives Act says that a co-op can resolve not to appoint an auditor if it “is not a distributing cooperative”. To waive an audit, the co-op needs to pass a special resolution of the members and all shareholders.
By “distributing co-operative”, the government means any co-op that has outstanding public securities. A co-op that is the subject of an exemption under provincial securities legislation is not considered a distributing cooperative. There are additional regulations that would make a non-reporting issuer a distributing co-op:
If you have to conduct an audit, be sure to seek out recommendations from colleagues in the co-op and non-profit space; finding an affordable auditor is important, especially for smaller co-ops. If you are able to waive appointing an auditor remember these tips: