Licensed Child Care Centre Financial Audit | CCEYA Compliance Ontario

Licensed Child Care Centre Financial Audit | CCEYA Compliance Ontario

Licensed child care centres in Ontario face rigorous financial reporting requirements under the Child Care and Early Years Act, 2014 (CCEYA) and related regulations. As a specialized CPA firm serving Mississauga, Toronto, the GTA, and throughout Ontario, Insights CPA Professional Corporation provides comprehensive financial audit services tailored to licensed child care centre compliance obligations.

Child care operators receiving Ministry funding, municipal subsidies, or operating as non-profit organizations typically require annual audited financial statements. These audits must address specific CCEYA compliance requirements, funding reconciliations, and enrollment verification procedures unique to the child care sector.

Understanding CCEYA Financial Reporting Requirements

The Child Care and Early Years Act, 2014 establishes the regulatory framework for licensed child care centres in Ontario. While the CCEYA does not explicitly mandate financial audits for all child care centres, several circumstances trigger audit requirements:

Ministry Funding Recipients

Child care centres in Mississauga, Toronto, the GTA, and across Ontario receiving direct Ministry funding for programs such as Child Care Fee Subsidy, Special Needs Resourcing, or Wage Enhancement Grants typically must submit audited financial statements as a condition of funding.

The Ministry uses audited financial statements to verify that funding was used for eligible purposes, reconcile actual expenditures to budgeted amounts, and assess the financial sustainability of funded child care operators.

Municipal Funding Requirements

Consolidated Municipal Service Managers (CMSMs) and District Social Services Administration Boards (DSSABs) distribute child care funding at the local level. Toronto, Peel Region (including Mississauga), and other municipal service system managers often require audited financial statements from funded child care centres.

Municipal requirements vary by jurisdiction. Child care centres in Mississauga operating under Peel Region funding may have different audit requirements than centres in Toronto operating under Toronto Children’s Services funding. Operators should verify specific requirements with their local service system manager.

Non-Profit Child Care Centres

Non-profit child care corporations in Ontario may be required to prepare audited financial statements under the Ontario Corporations Act or Canada Not-for-profit Corporations Act, depending on their incorporating jurisdiction and bylaws.

Additionally, non-profit child care centres with board governance structures often adopt policies requiring annual audits to ensure financial accountability to board members, funders, and the community.

CWELCC Funding Participants

Child care centres in Ontario participating in the Canada-Wide Early Learning and Child Care (CWELCC) system receive substantial federal-provincial funding to enable reduced parent fees. CWELCC participation agreements typically require audited financial statements to verify funding utilization and compliance with program requirements.

Key Areas of Child Care Centre Audits

Financial audits of licensed child care centres in Mississauga, Toronto, the GTA, and throughout Ontario address several specialized areas:

Revenue Recognition and Fee Compliance

Child care centres generate revenue from multiple sources including parent fees, government subsidies, special program funding, fundraising, and donations. Proper revenue recognition requires understanding the nature and restrictions of each revenue source.

Parent fee revenue must be recognized as services are delivered (typically monthly as child care is provided). Prepaid fees received in advance are recorded as deferred revenue until the corresponding care is provided.

For child care centres in Ontario participating in CWELCC, parent fees are capped at prescribed maximum amounts. The audit verifies that charged fees comply with CWELCC fee restrictions and that any fee adjustments required by the program were properly implemented and refunded to families.

Subsidy Revenue Reconciliation

Child care centres in Mississauga, Toronto, and across the GTA serve many families receiving Child Care Fee Subsidy. Subsidy revenue is received from the municipal service system manager based on reported subsidized enrollment.

The audit verifies that subsidy revenue claimed matches actual subsidized child attendance, that subsidy rates applied are correct based on child age and subsidy authorization, and that the centre has adequate documentation supporting subsidy claims.

Discrepancies between subsidized attendance records and subsidy revenue received must be investigated and reconciled. Overpayments must be refunded to the municipality, while underpayments should be claimed.

Enrollment Verification

Licensed child care centres in Ontario must maintain accurate enrollment records showing each enrolled child, their age group, enrollment dates, attendance patterns, and fee/subsidy status. The audit includes enrollment verification procedures to confirm:

  • Reported enrollment counts match source enrollment records
  • Children are classified in the correct age groups (infant, toddler, preschool, school-age)
  • Enrollment does not exceed the centre’s licensed capacity
  • Attendance records support reported utilization rates
  • Subsidy authorizations exist for all children claimed as subsidized

Enrollment verification is particularly important for centres in Toronto, Mississauga, and the GTA because enrollment directly impacts both revenue (fees and subsidy) and regulatory compliance (licensed capacity).

Ministry Funding Reconciliations

Child care centres receiving specialized Ministry funding such as Special Needs Resourcing (SNR), Wage Enhancement Grants, or program expansion funding must reconcile funding received to eligible expenditures.

For example, Wage Enhancement Grant funding must be spent on eligible wage increases for qualifying child care staff. The audit verifies that wage enhancement funding received was fully expended on qualifying wage increases, that recipients met eligibility criteria, and that required documentation is maintained.

Any funding received but not expended on eligible purposes must be returned to the Ministry or municipality. Conversely, if eligible expenditures exceeded funding received, the centre may be able to claim additional funding (subject to program rules and available funding).

Restricted Fund Accounting

Many child care centres in Ontario, particularly non-profit operators, receive grants and donations restricted for specific purposes. Accounting standards require these restricted funds to be tracked separately and reported in a manner that demonstrates compliance with donor or funder restrictions.

The audit verifies that restricted funds were expended only for restricted purposes, that unexpended restricted funds are properly deferred, and that financial statement presentation clearly distinguishes restricted from unrestricted resources.

Compensation and Staffing Costs

Salaries and benefits typically represent 70-80% of total child care centre operating expenses. The audit examines compensation to verify compliance with applicable requirements including:

  • Registered Early Childhood Educators (RECEs) receive wages meeting or exceeding minimum requirements
  • Wage Enhancement Grant recipients meet eligibility criteria and received proper amounts
  • Payroll costs reconcile to payroll remittances and T4 reporting
  • Employment standards compliance (vacation pay, overtime, termination pay)
  • Staffing ratios and qualifications meet CCEYA requirements (educational verification)

For child care centres in Mississauga, Toronto, and the GTA, auditors often test a sample of staff files to verify qualifications, wage rates, and compliance with funding program requirements.

Program Expenditure Verification

Child care centres must demonstrate that expenditures are reasonable, necessary for program delivery, and comply with any restrictions imposed by funding agreements. The audit examines significant expenditure categories including:

  • Occupancy costs (rent, utilities, property taxes, facility maintenance)
  • Program supplies (toys, educational materials, consumables)
  • Food costs (where meals and snacks are provided)
  • Professional development and training for staff
  • Insurance (liability, property, other required coverage)
  • Administrative expenses (office supplies, communications, professional fees)

Ontario child care centres receiving funding must ensure expenditures are allocable to child care operations and not used for unrelated purposes. For example, a non-profit child care centre operating within a community centre must allocate shared costs between child care and other programs appropriately.

Common Child Care Audit Findings

Through our work with child care centres throughout Ontario, Toronto, Mississauga, and the GTA, we’ve identified common audit issues:

Insufficient Subsidy Documentation

Child care centres sometimes lack adequate documentation supporting subsidy revenue claims. Missing subsidy authorization forms, incomplete attendance records, or discrepancies between attendance and claimed subsidy create audit findings and potential repayment obligations.

Licensed child care centres in Ontario should maintain organized subsidy files including authorization letters, attendance sheets signed by parents, and monthly reconciliations of attendance to subsidy claims.

Fee Collection Weaknesses

Parent fee accounts receivable can accumulate to material amounts if collection procedures are inadequate. Child care centres in Mississauga, Toronto, and across the GTA should have clear fee policies, regular invoicing, follow-up on overdue accounts, and defined procedures for addressing persistent non-payment.

While child care operators understandably hesitate to discharge children for non-payment, allowing accounts receivable to grow indefinitely creates financial risk. Written payment plans, coordination with subsidy programs for families experiencing financial hardship, and clear communication about fee obligations help manage receivables.

Payroll and Wage Enhancement Compliance Issues

Wage Enhancement Grant requirements specify eligible recipients, qualifying wage levels, and documentation requirements. Child care centres sometimes distribute wage enhancement funding to staff who don’t meet eligibility criteria or fail to maintain required documentation of qualification verification.

Ontario child care centres should maintain staff files documenting RECE registration, program assistant qualifications, employment dates, and wage rates. This documentation supports wage enhancement claims and facilitates audit verification.

Capital Asset and Depreciation Errors

Child care centres sometimes expense furniture, equipment, and playground improvements that should be capitalized as fixed assets. Conversely, some centres capitalize minor purchases that should be expensed.

Child care centres in Toronto, Mississauga, and the GTA should establish capitalization policies (typically capitalizing purchases over $1,000-$5,000 with useful lives exceeding one year) and apply them consistently.

Allocation of Shared Costs

Child care centres operating within larger organizations (community centres, schools, churches) often share facilities and administrative services. Proper cost allocation ensures the child care financial statements reflect the full cost of operations.

Allocation methodologies should be reasonable, documented, and consistently applied. Common allocation bases include square footage (for occupancy costs), headcount (for administrative support), and direct usage (for specific shared expenses).

Preparing for Your Child Care Centre Audit

Licensed child care centres in Mississauga, Toronto, the GTA, and throughout Ontario can facilitate efficient audits through proper preparation:

Organize Enrollment and Attendance Records

Ensure enrollment records are complete and reconciled to attendance sheets. Prepare enrollment summaries by age group, fee status (full fee vs. subsidized), and monthly enrollment counts. This allows the auditor to efficiently verify enrollment data underlying revenue.

Reconcile Subsidy Revenue

Before the audit, reconcile subsidy revenue claimed to attendance records and municipal payment confirmations. Investigate and resolve discrepancies. Document any known issues and corrective actions taken.

Prepare Funding Reconciliations

For all restricted funding sources (Wage Enhancement, Special Needs Resourcing, capital grants, etc.), prepare reconciliations showing funding received, eligible expenditures, unexpended balances, and any required repayments or additional claims.

Update Staff Files

Ensure all staff files contain current RECE registration confirmations, qualification documents, and wage rate authorizations. This documentation is frequently tested during child care audits and missing documents delay audit completion.

Complete Bank Reconciliations

Reconcile all bank accounts to accounting records as of year-end. Investigate and clear outstanding reconciling items. Old outstanding cheques and unidentified deposits create audit issues that delay completion.

Review Accounts Receivable

Review parent fee accounts receivable for collectibility. Identify accounts that are unlikely to be collected and establish appropriate allowances for doubtful accounts. Document collection efforts for aged receivables.

Frequently Asked Questions

Do all licensed child care centres in Ontario need audited financial statements?

Not all licensed child care centres are required to have audited financial statements. The requirement typically depends on: whether the centre receives Ministry or municipal funding (most funding agreements require audits), the centre’s corporate structure (non-profit corporations often require audits under corporate legislation or bylaws), and whether the centre participates in CWELCC (participation agreements typically require audits). For-profit child care centres in Mississauga, Toronto, or the GTA operating without government funding and structured as sole proprietorships or small private corporations may not require audits. However, many centres choose to obtain audits voluntarily for financial management purposes, lending requirements, or to demonstrate transparency to families. Contact Insights CPA at (905) 270-1873 to determine whether your specific centre requires an audit.

How much does a child care centre audit cost in Ontario?

Child care centre audit fees typically range from $5,000 to $15,000 depending on the size of the centre, number of locations, complexity of funding sources, and quality of internal records. Larger centres with multiple locations, complex funding portfolios, or weak accounting systems will be at the higher end. Single-location centres with clean records and good preparation can minimize costs. Factors that increase audit costs include missing or disorganized records, significant accounts receivable aging, multiple restricted funding sources requiring separate reconciliations, and first-year audits (which require more extensive procedures). Child care centres in Toronto, Mississauga, and the GTA can obtain customized quotes by contacting our office with information about their operations, funding sources, and accounting systems.

Can our bookkeeper prepare the financial statements or does the auditor do that?

Child care centres can either prepare their own financial statements for the auditor to examine, or engage the audit firm to prepare the statements as part of the engagement. Centres with qualified accounting staff who prepare monthly financial statements throughout the year can often prepare year-end statements themselves, reducing audit fees. Centres without this capability can engage the auditor to prepare statements, though this increases the overall engagement cost. Some audit standards impose restrictions on auditors providing both preparation and audit services, so discuss this with your auditor early in the engagement. Many Ontario child care centres use a hybrid approach where centre staff prepare draft statements and the auditor makes necessary adjustments during the audit.

What happens if the audit finds we received more subsidy than we were entitled to?

If the audit identifies subsidy overpayments, the child care centre must report the overpayment to the municipality and arrange repayment. Most municipal service system managers in the GTA, Toronto, and Mississauga will work with centres to establish reasonable repayment plans rather than demanding immediate full repayment. The key is prompt disclosure and good faith efforts to correct the issue. Intentional subsidy fraud is treated very seriously and can result in funding termination, license revocation, and criminal charges. However, honest errors discovered through the audit process and promptly corrected are typically resolved through repayment without severe penalties. Child care centres should also review their attendance and subsidy claiming processes to prevent recurrence.

Do we need a separate audit for CWELCC funding?

CWELCC participation agreements typically require annual audited financial statements, but a separate CWELCC-specific audit is not usually required. The annual financial statement audit for your child care centre should include verification of CWELCC funding utilization and fee compliance. However, the auditor may need to perform additional specific procedures related to CWELCC such as verifying parent fees comply with CWELCC maximums, confirming fee reduction amounts were properly calculated and credited to parents, and reconciling CWELCC funding received to eligible cost categories. Child care centres in Mississauga, Toronto, and Ontario participating in CWELCC should provide their auditor with the CWELCC participation agreement and any reporting templates required by the Ministry to ensure the audit addresses all necessary requirements. See our dedicated CWELCC Funding Audit page for more details.

How long does a child care centre audit take?

The audit timeline depends on centre size and preparation quality. For well-prepared single-location centres, fieldwork typically requires 2-3 days on-site or remotely reviewing records. Including planning, fieldwork, report preparation, and review, the complete audit process usually spans 4-6 weeks from engagement to final report delivery. Larger centres with multiple locations or complex funding may require longer. Delays often occur when requested documentation is missing, enrollment records are incomplete, or funding reconciliations haven’t been prepared. Toronto and Mississauga child care centres planning for fiscal year-end audits should engage their auditor early, ideally before year-end, and begin organizing records immediately after year-end to facilitate timely completion.

Additional Child Care Audit Services

Beyond annual financial statement audits, child care centres in Mississauga, Toronto, the GTA, and Ontario may require additional specialized audit and assurance services:

Contact Insights CPA for Licensed Child Care Centre Audits

If your licensed child care centre in Mississauga, Toronto, the GTA, or anywhere in Ontario requires financial audit services, contact Insights CPA Professional Corporation today. Our team, led by Bader A. Chowdry, CPA, CA, LPA, has extensive experience with CCEYA compliance, Ministry funding requirements, and child care sector financial reporting.

Call us at (905) 270-1873 to schedule a consultation and discuss your child care centre audit needs. We provide efficient, cost-effective audit services with clear communication and practical recommendations for improving financial management.

Our child care audit services help Ontario centres meet funding requirements, demonstrate accountability to families and funders, and maintain strong financial controls supporting high-quality programming for children.

Contact us today to get started with professional child care centre audit services, or visit our audit services page to learn more about our comprehensive assurance services for Ontario organizations.

Article prepared by Bader A. Chowdry, CPA, CA, LPA – Chartered Professional Accountant serving licensed child care centres throughout Mississauga, Toronto, the GTA, and Ontario.