Charities Under Review

Posted on April 7, 2013
By Dr Muriel Newman

According to a survey carried out in 2010, New Zealand ranked first equal with Australia as the world’s most charitable nation.¹ The World Giving Index, published by the Charities Aid Foundation used a Gallup survey of 195,000 people in 153 nations to assess the extent of charitable activities. It showed that 68 percent of New Zealanders had given money to charity during the last month, 41 percent had volunteered time, and 63 percent had helped a stranger. While the latest 2012 survey shows that New Zealand is now ranked 4^th, behind Australia, Ireland and Canada, our charitable record is still impressive.

The Charities Commission prepared a snapshot of New Zealand’s charities sector in 2011. ²  It showed there were 25,785 registered charities spread right across the country that provide a wide range of services in all areas of community activity. 

The total income received by the charities sector has increased substantially over the last few years from $6.1 billion in 2009 to $14.2 billion in 2011. The increase is driven by the growth in government grants and in the provision of services, with grants growing from $1.8 billion to $4.8 billion and service provision growing from $2.1 billion to $5.5 billion. Donations also grew from $0.6 billion to $1.05 billion, no doubt as a result of tax changes. Prior to 1 April 2008, the maximum refund available to individuals donating to charity was $630, which meant that only the first $1,890 of a donation received any income tax relief. However, that limit has been abolished so that all charitable and public benefit gifts up to the value of a person’s taxable income now qualify for a tax credit.

The number of small charities with an income of less than $20,000 grew substantially between 2009 and 2010, from 5,014 to 8,781. Those with incomes between $20,000 and $100,000 grew from 3,442 to 6,066; those with incomes between $100,000 and $1 million grew from 2,950 to 5,173; those with incomes from $1 million to $20 million doubled from 718 to 1,430; and the number of charities with incomes of over $20 million, jumped from 37 in 2009 to 83 in 2010.

The sectors that received the greatest amount of charitable funding in 2011 were education, training and research, which received $4.5 billion, followed by health with $3.4 billion, religious activities with $1.3 billion, and social services with $680 million.

In 2011 New Zealand charities employed a total of 180,972 staff. Charities in the education sector employed 44,163 staff, those engaged in religious activities employed 38,729 staff, and those in the health sector 36,802 staff. In comparison, 448,295 volunteers worked in the charitable sector in 2011, with 110,762 volunteering in health, 109,246 in religious activities, and 36,403 in education. This shows the enormous contribution to community wellbeing that is made by volunteers.

The Charities Commission identified Auckland University as the largest charity in New Zealand in 2011 with combined income and assets of $2.3 billion. Tainui Group Holdings was placed tenth with $328 million. The Roman Catholic Diocese of Auckland Group is listed as the top charity registered as a group with income and assets valued at $793 million. The Ngai Tahu Charitable Group is listed in second place with a value of $762 million.

While the charitable sector makes an invaluable contribution to New Zealand’s social infrastructure, the sector is not without controversy. This is understandable given the taxpayer subsidies and benefits that organisations stand to receive if they are successful in gaining charitable status.

For some, the controversy is over whether their so-called charitable purpose is of genuine public benefit. The environmental activist movement Greenpeace is a case in point – it has been trying to gain charitable status since its application was declined by the Charities Commission in 2010. The reasons given for the rejection is that not only were they involved in illegal activities, but that two of their main objectives – promoting ‘peace’ and ‘disarmament’ – are political not charitable. Greenpeace appealed the decision to the High Court, which upheld the view of the Commission, but the Court of Appeal has now ruled that the Charities Registration Board should reconsider their application.

However, a co-founder of the Greenpeace movement, the Canadian ecologist Patrick Moore, responded by strongly opposing their attempts to seek charitable status: “I find Greenpeace’s latest attempt to seek charitable status in New Zealand via the Charities Registration Board to be ironic. My view is that the organization I helped found and lead during the 70s and 80s is anything but charitable today. Since I left Greenpeace, its members, and the majority of the movement, have adopted policy after policy that reflects their anti-human bias, illustrates their rejection of science and technology, and actually increases the risk of harm to people and the environment. Greenpeace has a zero tolerance for genetically modified food crops, even though this technology reduces pesticide use and improves nutrition for people who suffer from malnutrition. They are opposed nuclear energy, even though it is the best technology to replace fossil fuels and reduce greenhouse gas emissions while meeting growing electricity demand. Greenpeace also campaigns against hydroelectric projects despite the fact hydro is by far the most abundant renewable source of electricity. And the organization supports the misguided campaign against salmon farming, an industry that produces more than a million tons of affordable heart-friendly food every year. Greenpeace lost its battle in Canadian courts to hold on to its charitable status in 1999 when Revenue Canada found that the organization provided ‘no public benefit’. There’s no reason to reward Greenpeace’s misinformation campaigns with a subsidy from New Zealand taxpayers.” ³

The lack of information in the financial reports of many registered charities is another cause of controversy. The Environmental Defence Society, a professional activist group that pro-actively opposes development through the RMA and local authority planning process, is a case in point. In their 2012 financial statements they show that more than half of their $843,797 income is spent on contracted consultants, yet the only comment about exactly who received the $463,365, is a note to the accounts: “Payments have been made to Firm Ground Ltd (Raewyn Peart is a director), Taylor Partnership (Gary Taylor is a partner), Driven Events Ltd (Fiona Driver is a director), for services rendered to the society. Each are officers of the society. Payments were made on invoices supplied. Contracts were entered into by the board or delegated members with the contracting officers abstaining from voting. The premises are leased from Driven Events Limited which is a company owned by Fiona Driver, an officer of the society. The lease is on normal commercial terms. The three trustees of The Environment Trust; Gary Taylor, Fiona Driver, and Raewyn Peart are also officers of the Environmental Defence Society.” ⁴

Dr Michael Gousmett, an independent researcher with an extensive background in the charity and non-profit sector, is this week’s NZCPR Guest Commentator. In his article Tax-Payer Subsidised Charities And Their Business Activities – Time For Change, Dr Gousmett reveals details of a number of the country’s major charities, arguing that there should be far greater accountability and transparency in the sector. In particular, he proposes that charities that operate commercial activities that are not related to their charitable purpose should be required to pay income tax, and those that fail to distribute their income should be required to pay an excess surpluses retention tax – along the lines of rules that apply in Australia and the US.

With regards to Ngai Tahu, he states: “What of the South Island based Te Runanga o Ngai Tahu (TRONT) and its Ngai Tahu Charitable Trust? To understand their financial activity, reference must be made to both the Charities Register and Ngai Tahu’s website. The Charities Register carries the combined group financial statements for the Ngai Tahu Charitable Trust, a group comprised of the Trust, Ngai Tahu Holdings Corporations and its subsidiaries and trusts.  This structure contains 38 limited liability companies, three trusts including the Ngai Tahu Charitable Trust, and a scholarship fund. There is also another set of financial statements on Ngai Tahu’s website which reports the summary group financial statements comprised of TRONT and the Ngai Tahu Charitable Trust, which is “extracted” from the audited full group financial Statements. For 2012, these financial statements reported revenue and other income from trading operations of $209 million, and a profit of $69 million before Maori authority and Australian taxation of $427,000. Distributions relating to tribal, runanga and whanau amount to $16.6 million, or 8 per cent of revenue, from an asset base of $658 million, yet the report by the chair and chief executive claims that distributions to TRONT totalled $26.26 million.  It is difficult to see where in the financial statements this figure can be found. Why also the need for two sets of financial statements?  By extrapolation between the two sets of financial statements, it appears that TRONT earned revenue of $8.2 million, not $26.26 million as claimed, and spent $10.8 million on what was described as tribal, runanga and whanau distribution ‘expenses’. Why then, with these levels of funding, are there reports of housing and poverty issues amongst Maori in Canterbury?

“The TRONT report also discloses levels of remuneration in bands of $100,000. In 2012 there were 67 employees who earned $100,000 or more, at a total cost of $12.8 million, an 18.5 per cent increase on 2011 at a cost of $10.8 million. How then is it possible for an organisation which argues that it is a charity can pay its top three earners between $1.76 and $1.79 million, or 14 per cent of the remuneration paid to the 67 employees, with the top earner receiving between $680,000 and $689,999? In 2011 there were 61 employees who earned in excess of $100,000, with the top of the remuneration band being $499,999.  This suggests that the top earner received an increase in remuneration of 38 per cent, or a maximum of $190,000 in 2012. The simple question is, why? Excesses in remuneration are not unique to the for-profit corporate sector, as such figures now show.”

Last year the government launched a review of the charities sector with a view to improving financial reporting standards.⁵ Research had identified many instances of poor quality financial reporting that was resulting in meaningless financial statements, a lack of transparency and accountability, as well as a number of questionable practices, such as not including donated assets, excluding donations from the income statement, and intentionally using obscure and confusing terminology to limit the effective use of the financial statements.

Some accountants working for larger registered charities were found to be pro-actively lowering charities’ assets or incomes to make them look poorer than they actually are, as well as keeping assets off balance sheets and not disclosing revenue – using such means as establishing an incorporated society to ‘run’ the charity and a separate charitable trust to keep assets and surpluses, excluding all fixed assets from the balance sheet, moving bank account balances off balance sheet when they get too large, and maintaining a separate grants spreadsheet.

They indicated that such practices might be at risk under section 260 of the Crimes Act 1961, which relates to false accounting.

As a result of their investigation, changes are being proposed whereby larger charities will need to have their accounts audited, with medium-sized charities required to have a review or an audit. The government is inviting feedback on the proposals, with submissions closing on May 17 – details can be found HERE

Added to concerns over the reliability of financial information is the fact that a BDO Not-For-Profit Fraud Survey 2012 found 86 percent of respondents agreed fraud is a problem for the sector, with 46 percent indicating that even a small fraud would have a major impact on their organisation.⁶ It is clear that reform is called for.

Without a doubt, retaining public confidence in the charities sector is important. With that in mind, a tightening of the financial reporting rules to bring greater transparency and accountability appears to be a step in the right direction. That should include greater disclosure of disbursements, a clearer indication of the percentage of total income that is being used to fulfil the charitable purpose – and crucially, how that purpose is being met – and the imposition of a tax on all business activities carried out by the charities that are unrelated to their charitable purpose.