Read a text only version of Charities Update.

Kia ora koutou, talofa lava and warm greetings,

This newsletter is all about compliance, which may sound a little off-putting – but please keep reading! 

We understand that most charities aim to do the right thing, to have only charitable purposes, and to use and account for their resources so the public can see they are being used wisely. 

However, as in all sectors, there are a small number who are either negligent or who deliberately misuse their charitable status, and who can affect the good reputation of the wider sector. 

We’ve recently been following public debate in the UK about the high-profile misuse of charity funds and aggressive fundraising tactics, which have resulted in a drop in confidence in charities overall, and calls for greater regulation of fundraising and charities.

We are always keen to work with charities, and to help you to understand what the law requires, and what you need to do to maintain your charitable status. Our team are always happy to provide guidance and information, and to share their knowledge.  

Although charities law can be complex, we try to make it as easy as possible for charities. Ultimately though, we are accountable to the public, who provide considerable support to charities through the tax exemptions they fund, their donations, and through volunteering.

So next time you hear we have declined to register a charity, or are looking into possible serious wrongdoing by a charity, please take a little time to read the information and decisions that we publish on our website, or to read our newsletters.   

A number of us will be at the Annual Meeting in Auckland on 21 October – it looks like a full house! – and we are happy to talk with you then too.

Everything that Charities Services does – registering charities, keeping the Charities Register up to date, and looking into possible wrongdoing – is so the public can be confident that their donations are being used to make a positive difference, and that New Zealand charities really are “charitable”.

One of the ways that we give confidence to the public is by following up on complaints, media reports and information about charities.  

What would prompt us to open an investigation?

We don’t open an investigation in every case.

We have a team of investigators who are experienced in charities law and in investigation techniques, who “triage” the initial evidence, and decide whether further enquiry is needed. 

The team generally looks into charities where there is significant wrongdoing that could potentially cause the most harm to the sector and the public. “Wrongdoing” includes fraud, misappropriation of funds, using a charity for private benefit, gross mismanagement, financial negligence, and oppressive or discriminatory behaviour.

When the team decides to open an investigation, it gathers all the information it needs to assess whether the charity might be in breach of the Charities Act. All our investigations are necessarily thorough, and may involve a wide range of people and organisations.

What happens after an investigation?

An investigation can result in a number of different outcomes. In some cases, charities ask to be deregistered while they are still being investigated.

In some cases, the team finds that it needs to direct the charity to fix governance or financial management issues that are causing problems. In this type of case, the charity generally continues to operate, but we may continue to monitor it for a period of time.

Sometimes, the team finds evidence of problems that are so serious they need to consider deregistering the charity, banning its officers from being an officer of a registered charity, and/or involving other government agencies such as Inland Revenue, the Serious Fraud Office, or the Police. Deregistration can have significant flow-on effects for the charity’s tax liability and ability to attract funding. 

We can also issue a statutory warning notice.

Hammond Rees, Charities Services’ investigations manager, says that “Charities in New Zealand generally have a good reputation, but those that do engage in wrongdoing can cause significant harm and damage the public’s trust. That’s why we treat seriously any complaint about a charity.”

Here are two examples of recent investigations, and their outcomes:

Ranui Boys Incorporated - CC31289

Year registered:

2008

Charitable purpose:

To provide early childhood education in the Auckland area

Why did we open an investigation?

Charities Services became concerned after we received information from another government agency that led us to believe that serious wrongdoing might be involved.

What did our investigation find?

Our investigation found that the charity had been taken over by an individual who had dishonesty convictions, which is a breach of the Charities Act. Charities Services allege that the person had misappropriated tens of thousands of dollars from the charity by making cash withdrawals from the charity’s bank account and transferring the funds to their own personal bank account. The charity’s funds were found to have been used at casinos, for a personal business venture, and for other non-charitable purposes.

The charity was also significantly mismanaged by its officers and had poor record keeping, sub-standard financial oversight, and didn’t hold sufficient board meetings. It also allowed charity funds to be used to provide personal benefits to its officers and their families.

What was the outcome of our investigation?

The charity has been deregistered for serious wrongdoing, and Charities Services is liaising with the NZ Police.

Southern Cross Charitable Trust - CC24144

Year registered:

2008

Charitable purpose:

To provide support, training and education to young people in New Zealand.

Why did we open an investigation?

Charities Services became concerned after we received information from another government agency that led us to believe that serious wrongdoing might be involved. We were told there had been a large number of claims from related entities, for donor tax credits relating to the Trust.

What did our investigation find?

Our investigation found that the charity was at the centre of a large number of circular transactions (loans and donations) that provided benefit to related entities, and that only a very small proportion of the charity’s funds had ever been used for any genuinely charitable purposes.

The loans were made at below market rates to entities linked to the officer of the charity. It appears that around $6.5m of charitable funds were wrongly used for non-charitable purposes, and the potential benefit of this money has been lost from the charitable sector.

Evidence showed that the financial management of the charity was grossly negligent and exhibited gross mismanagement. We also found that the charity had an independent, non-charitable purpose of providing private pecuniary profit to its officers.

What was the outcome of our investigation?

The charity has been deregistered for serious wrongdoing.

The Charities team does our best to encourage and help charities to file Annual Returns on time, but if we find that a charity hasn’t responded to our reminder to file or an overdue Annual Return notice, we post out a second formal Notice (called a “Notice of intention to remove”), which is the first step in removing the charity from the Charities Register. Deregistered charities are no longer eligible for charitable tax exemption, or any of the other benefits of registration.

Sometimes, we find that the Notice “bounces back” – showing that the contact details provided by the charity are out of date. (Remember, if your charity’s contact details change, you must update them by logging into your account).

If the contact details are incorrect, we do our best to locate the charity through an internet search, and send a second Notice to any address we find.

We recognise that charities might not file their Return for a number of reasons, but charities who receive a Notice generally respond to us by:

• filing the overdue Annual Return/s (so we don’t need to take any further action)
   
• contacting us to provide an explanation, and possibly asking for an extension (which we can grant, on a case by case basis)
   
• ignoring the formal Notice (which leads to deregistration, and publication of a note on the Charities Register explaining that the charity was removed for failing to file its Annual Returns).

Occasionally, a charity that hasn’t responded to us is deregistered and then contacts us to ask to be reinstated. We can re-register a charity, but the missing Annual Returns must be supplied, and the charity may also be liable for income tax for the period that it was unregistered.

Annual Returns are important – and filing them on time is important too. They give charities an opportunity to explain how you are using your funds and achieving your charitable goals. For news media, philanthropists, funders, volunteers and donors, they are a “key indicator” that the charity is operating well, has good governance and management, is in a healthy state, and deserving of their trust and confidence.

This year our annual meeting will be held in Auckland on Wednesday 21 October.

The meeting is now full, with 275 charity representatives registered. If you wish though, you can go on the waiting list (which is quite short at the time of writing) by registering through our website. In past years we have received apologies close to the date, so it is worthwhile registering.

At the annual meeting, charities will hear about our work over the last year and what’s on the horizon, and it’s an opportunity for you to ask us questions.

In response to your feedback, we’re inviting charities to submit questions in advance to education@dia.govt.nz. You can send your questions now, and you can ask a question even if you are not attending, as we’ll publish the questions and answers afterwards. We’ll still take questions from the floor, and provide opportunities for more individual questions and discussion during afternoon tea.

So please, ask away!

You’ve read above about how important is it for charities to file annual returns – and please keep reading, because this is important – the financial statements you attach to the annual return will now have to meet new standards.

Up until now, there have been no minimum standards for the content or quality of those financial statements. On 1 April 2015 new reporting standards came into effect and registered charities now need to prepare financial statements in line with these new standards.

To find out more, including when this applies for your charity, see our website.

Please take the time to follow the links; you’ll find helpful resources, FAQs and a series of short videos explaining the changes (highly recommended). If you have a specific question about applying the standards you can also contact us directly on nrs.charities@dia.govt.nz.

You may have seen or heard comments in the media recently about new accounting standards for charities. The comments were about the requirement for large charities (with operating expenses of more than $2million) to record donated goods when the goods are received.

There is some good news on the horizon. The New Zealand Accounting Standards Board (the Board), which sets the standards, was made aware of cost concerns if charity shops had to record donated goods when received. As a result, the Board is in the process of changing the requirements.

The proposed changes would allow charities that receive a lot of donated goods intended for sale to record revenue only at the time when the goods are sold, not when received.

Everyone has an opportunity to have their say on the proposed changes. For more information see the 'Invitation to comment' (PDF, 404KB) document on the XRB website. If this matter affects you, please comment by 30 October 2015.

The New Zealand Accounting Standards Board expects to finalise the changes before the end of this year.

This matter does not affect charities with annual operating expenses less than $2million, as the new standards for those charities do not contain the same requirement to record donated goods when received.