Responses to questions from the Annual Meeting

Charities Services has provided below detailed responses to questions we received before and during the Annual Meeting.

Many of the questions overlapped, however the matters raised were across four general areas:

  1. Our policy and direction
  2. New reporting standards
  3. Compliance with the Act
  4. Registration and charitable purpose

Policy and direction

To continue giving time and support to charities (and other community groups), New Zealanders need to have confidence in the charitable sector. To support this, Charities Services uses a four point approach to working with you:

  • We want to understand your environment, pressures, perspectives and opportunities
  • We try to support you to be able to comply as easily as possible with your responsibilities so you can continue to do your good work
  • We clearly communicate expectations and consequences so you are clear about your responsibilities
  • We apply the law fairly and consistently.

Our focus over the next four years

We had a specific question on our focus over the next few years. Charities Services will continue to promote public trust and confidence in charities by:

  • working with charities to help them become registered and stay registered,
  • investigating charities for potential serious wrongdoing, and
  • developing information and resources to help charities to succeed.

Charities Services will continue to focus on supporting charities with the new reporting standards. As Julia mentioned at the meeting, the standards are the biggest change for the sector since the Charities Act was established in 2005, and it will take time to get them right.

We are also ensuring that the Charities Register is fit for the future, improving our open data, making it easier to access information, and providing more up-to-date tools for charities and the public in general.

The Independent Charities Registration Board

Before the Annual Meeting, we received some questions about the Charities Registration Board and how they maintain their independence.

While Board members are appointed by the Minister for the Community and Voluntary Sector, the functions of the Board are independent of Ministerial responsibility and direction.

The Board is also independent of direction from Charities Services. However, the Board and Charities Services work together to regulate registered charities, in accordance with the Charities Act 2005.

The Board meets regularly to:

  • ensure that the independent views of Board members are given due consideration and weight
  • ensure that entities are provided with an accurate, honest, balanced, impartial and politically neutral decision making process.

For example, when considering an application for registration, Charities Services collects the information required to make a decision. This often includes assessing the organisation’s rules, proposed and actual activities and analysing the information gathered. Applicants are also given an opportunity to disagree with Charities Services’ position, and providing a recommendation to the Board. The Board reviews the application, any submissions made by the applicant and Charities Services’ recommendations. It then makes a decision about whether or not the organisation meets the requirements for registration.

As the Board registers almost 1,500 applications a year, the Board has approved Charities Services to make most of these decisions by delegation. However, in unique or complex applications of the law, or where an applicant disagrees with our assessment, or where the Board has seen the applicant before, the Board makes the decisions directly.

For more information, we have published a recent blog on this subject.

Charities Services Statement of Intent and Annual Report

We also received questions about our Annual Report. Charities Services is part of the Department of Internal Affairs (the Department), and we report formally as one organisation. The Department’s Annual Report and Statement of Intent can be viewed at https://www.dia.govt.nz/Publications-and-Reports (external link) . At the Annual Meeting we provide data on the last year and we also provide information about our ongoing work through our blog, newsletter and website.

We recommend if you are interested in hearing more about our ongoing work, you sign up to our blog and newsletter on our website.

Proposed changes to the Charities Act 2005

Several questions before and after the meeting concerned a recent proposed change to the Charities Act. We provided a press release (external link) at the time, which put forward our position.

The Charities Amendment Bill has recently been considered by a Parliamentary Select Committee. The Bill contains amendments (proposed changes) to the Charities Act 2005 that were formerly contained in a Statutes Amendment Bill. To be included in this Bill, the amendments must be supported by every Member of Parliament, and must be short, technical and non-controversial.

One of the proposed amendments was to remove the words “or chief executive” from section 61 of the Charities Act, to correct a drafting error at the time when the Charities Act 2005 was amended in 2012 (when the functions of the Charities Commission moved to the Department of Internal Affairs and the Charities Registration Board). Section 61 of the Act sets out what the High Court can do when determining an appeal against a decision of the Charities Registration Board.

The proposed amendment to section 61 would not have impacted on charities' appeal rights under the Charities Act (set out in section 59, which provides a right of appeal only against decisions of the Charities Registration Board).

Because submitters opposed the amendment, it was not supported by every Member of Parliament, and it will not proceed. 

For more information, submissions and records of Parliamentary debate on the issue are available on the New Zealand Parliament website (external link) . Decisions of Charities Services can also be challenged. You may make a complaint to the Ombudsman (external link) or seek a judicial review (external link) of any decision in the High Court.

Providing advice on legislative change that may affect charities

We received a couple of questions about the advice and influence that Charities Services provides across government on issues that may affect the charitable sector, specifically on how we advocate for the sector.

Our functions are detailed in section 10 of the Charities Act 2005, and these haven’t really changed since the Act came into force. While advocacy for the sector isn’t listed as a specific function, we do work with other government agencies to share our knowledge and experience of the charitable sector and provide insights about the possible impact of regulatory changes on charities. We also look for opportunities to streamline processes across various government departments where this is possible.

We also work closely with other groups whose primary role is providing advocacy for the sector. An example of this work has been with HUI-E! Community Aotearoa, an umbrella organisation focused on the needs of the broad Tangata Whenua, community and voluntary sector.

A recent example of this work is the series of roadshows on the draft Incorporated Societies Bill. HUI-E coordinated the roadshow, the Ministry of Business Innovation and Employment (MBIE) provided the main presentation, and Charities Services provided some information on how we are working to ensure that for the charities also incorporated with MBIE, any regulatory requirements are streamlined and managed efficiently. HUI-E also presented its own submissions on what it considered would be appropriate changes to the Bill.

Another example of where we worked closely with HUI-E! Community Aotearoa, and a number of other organisations, is the introduction of the new reporting standards that were the subject of a number of questions during the Annual Meeting.

New Reporting Standards

We noticed during the meeting that there appeared to be some confusion over who wrote the new financial reporting standards and how they are administered. This diagram might be useful:

Flowchart Q&A

Therefore, it’s important to remember that Charities Services must work within the legislative framework when it comes to the new reporting standards. We do not have the power to write the standards nor change them. However, we can support charities to comply with them by providing training and resources. We’re also able to make submissions to the XRB and other government departments when proposals for change are made, in order to voice charities’ perspectives.

We had a few questions prior to and during the Annual Meeting on the new reporting standards which we address below:

Audit and review requirements

Under the Charities Act 2005, charities with annual expenditure of greater than $500k per year must have an audit or a review, and charities with greater than $1m of expenditure must have an audit. These are known as “statutory audits” and must be carried out by a “Qualified Auditor”. A Qualified Auditor is defined under the Financial Reporting Act 2013 and must be a member of Chartered Accountants Australia and New Zealand or CPA Australia, and be approved by those bodies to be a Qualified Auditor. Some foreign auditors may also be approved by the Registrar of Companies to be a Qualified Auditor.

Many small charities have a clause in their rules document (constitution, trust deed, governing documents, etc.) that requires an audit or a review. If there is no statutory requirement to audit, then the auditor does not have to be “Qualified” per the legal definition, but the charity’s rules document may specify the qualifications of the auditor. The professional bodies that some accountants belong to have certain rules about who is allowed to provide assurance services. Charities Services’ view is that accountants should follow the rules of their membership bodies when providing assurance services, and it is up to the charity to satisfy themselves that their auditor is appropriately qualified to do the work they have been engaged to do.

We also recommend that charities review their rules documents to see what they are required to do in terms of audit and review and consider whether the assurance service they have selected is fit for purpose. Please refer to our Blog (external link) for more information.

Annual Return v Performance Report

This is a question that comes up quite often. The Annual Return is an online (or paper) form that charities must submit to Charities Services each year under the Charities Act 2005. It is a summary of high level information about your charity including financial information. The purpose of this is for Charities Services to collect data across registered charities as a group. This information is used to make decisions at a government level.

The Performance Report is a report that is prepared by Tier 3 and Tier 4 charities in accordance with the new reporting standards and contains financial and non-financial information. It is attached to the Annual Return and is required as part of a registered charities obligations under the Act. The Performance Report replaces any previous type of financial information that you may have submitted to us such as receipts, bank statements, financial statements or annual reports. Note that your Annual Return is not complete until the completed Performance Report is attached to it.

This year the Annual Return form has been updated to align with the minimum financial categories required under the new reporting standards. We have done this to make it more straight-forward to complete. Please note however, that although the Annual Return and Performance Report appear similar, they are two distinct documents, and both must be completed to fulfill your obligations as a registered charity. Please refer to our newsletter article (external link) for further information.

As part of our ongoing work to ensure our processes make it as easy as possible to comply, we are currently developing an online performance report aimed at alleviating any perceived duplication. This is a substantial piece or work and we look forward to telling you when it is available to use.

Coordination across government agencies

Charities Services is continuously communicating with other Ministries and Departments to combine efforts to implement the new reporting standards and give feedback on proposals that may affect charities.

For example, we work closely with IRD and meet regularly with them to discuss upcoming proposals. We have also worked with the Ministry of Education as many early childhood centres are registered charities. We regularly meet with the XRB to discuss how the implementation of the new reporting standards is going, and have built a strong network amongst funders and accountants.

We are always interested to hear your experiences, comments and concerns with regards to the new reporting standards as that will help us to tailor materials and resources to help meet your needs. We have recently published two new guides to help Tier 3 (external link) and Tier 4 charities with their annual reporting.

If you have any questions, we have a specific email address for new reporting standards matters: NRS.charities@dia.govt.nz

The new reporting standards are only one part of our efforts to ensure compliance with the Act; we also look into serious wrongdoing and charitable purpose.

Compliance matters

Charities Services has a number of functions relating to promoting compliance and best practice in the charitable sector. These functions include educating and assisting charities with good governance and management practices, monitoring and inquiring into charities to ensure that they continue to qualify for registration, and, where appropriate, taking compliance and prosecution action for breaches of the Charities Act 2005.

Complaints process

When we receive complaints about charities from members of the public, we firstly review the allegations. These complaints usually allege serious wrongdoing or identify a charity that is not operating for exclusively charitable purposes.

We review the complaints to determine whether they fall under our jurisdiction, and if so, whether there is sufficient evidence to support the allegations. We do not investigate all complaints, for example, we cannot investigate if a complaint is regarding an internal dispute amongst committee members of a charity.

However, where the issues relate to serious wrongdoing, we may open an investigation. While serious wrongdoing in the sector often involves dishonesty (e.g. theft, fraud etc.), our investigations also look into charities with excessive private benefit or governance issues that are of such a level that the reputation of the charity or the charitable sector are at risk. During an investigation, we will often liaise with the complainant to gather further evidence, but due to the ongoing investigation, we are unable to give frequent updates to the complainant.

Outcomes of investigations can range from us not finding any indications of serious wrongdoing, to the Charities Registration Board deregistering a charity. At all stages of an investigation, we work with charities to help them remain registered and work through the processes required to help the charities run more efficiently.

The process for reviewing charities that allegedly are not operating exclusively for charitable purposes is slightly different than for investigations into serious wrongdoing (although in many cases, both issues are relevant). These reviews are carried out by the Registration team and involve undertaking in depth reviews of the charity’s rules along with information regarding the activities of the charity. If we determine that either a charity is not carrying out charitable purposes or is carrying out non-charitable purposes, the charity will be given the opportunity to amend their purposes and activities. If the entity is unable to amend their purposes/activities (or chooses not to), we will recommend to the Charities Registration Board that the entity be removed from the Charities Register as it no longer qualifies for registration.

Why are there no standards requiring charities to spend money?

The issue of charities “accumulating” funds is something that we are often asked about. A number of charities do not spend a lot of money, but do invest and report significant increases in their overall assets. The starting point is that Charities Services considers that it would not be prudent for a charity to operate without some level of reserves. What constitutes a good level of reserves depends on the individual charity, so we can’t provide detailed advice on how much is too much or too little.

Some charities also spend a number of years building up funds to carry out large projects in the future, or build a pool of money from which grants will be made in the future. In saying that, Charities Services does expect that charities at least attempt to carry out activities to advance their charitable purposes.

Where a charity runs a business, it will need to demonstrate that business is a reasonable way of fundraising for its charitable purpose. This may mean providing business plans, or independent advice to Charities Services. This can be a particular issue if trustees have business interests they wish to invest in. During 2016, we published a number of blogs on conflicts of interest, including an explanation of what happens when conflicts lead to private benefits, and how we can remove charities from the Register in those circumstances.

Increased compliance

A number of charities raised the issue of increased burden on the voluntary sector.

Our movement towards online filing is intended to streamline compliance for charities and to reduce overall costs to the sector. However, we realise that one size doesn’t fit all and while we are a small team based in Wellington, we work closely with a number of capability builders around the country to help charities comply with their obligations. These include regional groups, the Department’s own network of community advisors, and community law centres.

Charities Services is aware that a number of new compliance regimes have been introduced in the past two years including new Health and Safety requirements and the new reporting standards. These regimes are intended by Parliament to reduce harm and safeguard our volunteers and charities’ money. New Zealand is also a member of a number of international bodies that require non-profits to provide a certain level of information to protect against the abuse of charities. We work and consult regularly with a number of sector advocacy and representative bodies to make transitions into regimes as smooth as possible within the legislative requirements.

Registration matters

One of Charities Services key functions under the Charities Act is processing the registration of charities, and ensuring existing charities meet the requirements of registration. To qualify as a charity, a group must fill out a form, submit rules that meet certain requirements, and certify that all their officers meet the criteria and are not disqualified. A team of analysts checks these applications, and determines whether they meet technical requirements, and advance charitable purposes under the law.

Assessing charitable purpose requires a consideration of both the stated purposes of the organisation in its rules document, and the activities it carries out. Analysts will consider activities information provided with the application, and information in the public domain.

As discussed above, when adding new charities to the register, Charities Services must follow a process in the Charities Act, including making a recommendation to the independent Charities Registration Board. More information on this process is available in a recent blog published on the Charities Services website.

In the case of deregistrations, the Registration team (and the Investigations team) follows a different process. This will also be the subject of an upcoming blog.

How many charities have you registered, declined and deregistered?

One question regarded the total number of registrations, declines and deregistrations. Since Charities Services took over the administration of the Charities Act in 2012, we have made over 9,000 decisions on registration and deregistration. The following charts explain the breakdown.

Most registration decisions are made under delegation from the Board. Decisions are elevated to the Board if they are complex or relate to novel areas of the law, or in the case of a decline, the applicant disagrees with Charities Services’ position.

 Diagram 1

Most deregistration decisions are also made under delegation from the Board. These are made where (1) the charity has voluntarily sought deregistration, (2) the charity has failed to file Annual Returns for two consecutive years, and (3) the charity has failed to respond to a notice that may lead to removal in relation to eligibility matters or serious wrongdoing.

 Diagram 2

Where the charity objects to removal from the Register (and the charity has filed all its Annual Returns), decisions to deregister are made by the Board. The two deregistration decisions on serious wrongdoing made by the Board were also made on the basis of the organisations not advancing exclusively charitable purposes.

Please refer to our blog for more information on deregistration data.

How can we be sure we are applying the right test?

The test for charitable purpose can be complex – in 2014, the Supreme Court decided by majority decision, 3 judges to 2, to overturn the Court of Appeal’s decision on the application of the law to Greenpeace of New Zealand Incorporated. This shows how top legal minds can disagree on the tests for charitable purpose.

So how can we be sure that the independent Charities Registration Board applies the right test? We had a number of questions on this issue. In contentious areas, we often seek legal advice to support the registration team’s recommendations to the independent Board.

Also, every year, Charities Services has been reviewed by one of the leading academics in charities law in New Zealand, Juliet Chevalier-Watts from Waikato University. We choose academics to ensure independence in the assessment – and invite academics from all the Universities of New Zealand to submit a tender. Last year, we received a very positive review, with Ms Chevalier-Watts complimenting Charities Services on both our accuracy in applying the law, and our helpful and positive attitude to working with groups to help them achieve registration as a charity.

Decisions of the Charities Registration Board (and its predecessor the Charities Commission) have been challenged in the High Court 20 times. The court has:

  • dismissed seven cases (and confirmed the approach of the regulator),
  • substituted its own decision in five cases,
  • sent back two cases to the Board for further consideration, and
  • made four orders with the consent of both parties without a full hearing (two concerned charities who had been deregistered for failure to file annual returns, one involved a charitable purpose decision (external link) , and one, before 1 July 2012, involved a Commission decision to decline a withholding request).

Two appeals are on-going. All of the decisions of the court are available on our website (external link) .

Every case is useful in clarifying how the law applies, and allows the Board to change its approach to adapt to the current law on charities. The most recent decision, Foundation for Anti-Aging Research and Foundation for Reversal of Solid State Hypothermia, involved two Foundations who research in the field of cryonics (and other related fields). The High Court commented on the approach of the Board in relying on external activities information. In response, we made changes to our processes to ensure that applicants are given ample opportunity to make submissions on what information the Board relies on in making its decisions. More information on that case and the decision is available on our website (external link) .

We also had a query about whether the Attorney General should be encouraged to be involved in charity cases. As the “defender of charities”, the Attorney General is able to be involved, and this was recently confirmed by the Court of Appeal in the earlier procedural decision of the Foundation for Anti-Aging Research and Foundation for Reversal of Solid State Hypothermia (also available on our website (external link) ). The Board is open to the Attorney General being named as part of an appeal, but as confirmed in the Court of Appeal, it is ultimately up to the Attorney General.

Finally, relating to our decisions, we had a query on whether the Charities Act removed the right of a prospective charity to have a full oral hearing of evidence before a court. The Court of Appeal in Foundation for Anti-Aging Research and Foundation for Reversal of Solid State Hypothermia confirmed Parliament did intend this in the Charities Act, although noted if charities consider that any relevant evidence had not been considered, the charity can make a submission to the Court.

We encourage any charity to submit a fresh application if it considers that any particular piece of information in a decision hasn’t been considered. We will then consider it fully before making a decision.

Why did you review social housing providers?

We received a number of questions on the impact of a significant decision of the courts, Re Queenstown Lakes Community Housing Trust and on the review of home ownership providers that was recently completed.

In 2012, after Charities Services removed the Queenstown Lakes Community Housing Trust from the Charities Register, the High Court in Re Queenstown Lakes Community Housing Trust confirmed that housing is a basic right and need, but home ownership is not. This didn’t mean that any charity that sought to advance charitable purposes through providing home ownership would be removed from the register, but if there were other reasonable ways of relieving housing need (e.g. renting or commuting), then providing home ownership might not qualify. The decision is available on our website (external link) .

As we continued to receive applications in this space, and aim to be fair in our application of the law, we wanted to ensure that existing charities still qualified for registration. First, we spent a long time looking at the Register, and seeing if currently registered charities met the test in the case. Before we took any substantive action, we wanted to make sure that we were applying this test correctly, so we sought independent legal advice confirming our approach.

We completed reviews of 163 organisations. We considered the rules and activities of each organisation, and the specific nature of each organisation were taken into account in our application of the law. Some of those entities spent significant energy explaining how their purposes were charitable, and different from the facts in the Queenstown Lakes case.

In three cases, because we thought they were a good representation of the issues we were seeing, we sought the independent Board’s guidance on whether they agreed with our approach to allowing the organisations to remain on the Register. The Board agreed with our assessment that some home ownership programmes are capable of being charitable, when they are genuinely focused on relieving need that couldn’t be met with other housing options, or focused on a broader programme to regenerate an identifiably deprived area.

The vast majority remained on the register. Eight charities voluntarily removed themselves from the Register, some because they felt they no longer met the test, but mostly because they were no longer active. We removed ten because they had failed to file their Annual Returns for two consecutive years. However, the vast majority remained registered, and confirmed that their activities were acceptable.

We note that Queenstown Lakes Community Housing Trust reapplied for registration in 2016, and applying the decision of the High Court, the Board declined (external link) the registration. This decision has been appealed, and so we cannot comment on it further.

To help with any impacts to affected organisations, and other organisations that offer community housing, in 2014 Inland Revenue amended the Income Tax Act to give tax exemptions to community housing providers that met certain criteria. More information on those tax exemptions is available on their website (external link) .

 

We hope this has been useful. If you have any other questions, let us know, we hope we can help, or cover the subject in a future blog post or newsletter article.