Dave Henderson and Sue Barker have been heavily involved in following proposed changes to the legislation on Charities and Incorporated Societies, keeping the sector updated, and being involved in discussions with government ministers and officials.
At the end of February we received an update from them. With permission, and without comment, we share this update here.
Dave Henderson writes:
… This will be an interesting year – we are of course keen to see how much progress the Government makes with these two key issues for the sector, before they adjourn for the election.
Sue Barker and I, particularly Sue, have continued input to the Charities Act Review at every opportunity over the summer. Also this month I have had correspondence and a casual face to face discussion with staff at Ministry of Business Innovation and Employment (MBIE) re the long-stalled changes to the Incorporated Societies Act 1908.
We’re happy to bring you this update on both. If you have any questions or need clarification of any aspect, please get in touch!
Notes from the meeting with Hon Poto Williams
The meeting took place on 20 February. Poto is Minister for the Community and Voluntary Sector, appointed in place of Hon Peeni Henare on 3 July 2019. Poto is also Associate Minister for Social Development, Immigration, and Greater Christchurch Regeneration. Present were the Minister, Mui Ngah Lee (Private Secretary),Stephen Webb, (Ministerial Advisor) Rachel Groves (DIA), Dave Henderson, Sue Barker
We congratulated the Minister on her appointment.
The Minister said she was working on a couple of things this term, before they (the Labour Party) hopefully come back next term (after the 19 September 2020 general election).
The first was “smaller organisations and their reporting”. She said the current requirements for smaller organisations were onerous, not simple enough, not working, and there “must be a better way”. The Minister noted that there are quite large numbers of smaller organisations and that we “should be able to support them better” – we “should have a level of trust”, and confidence that donations are going to an organisation worthy of support.
The Minister also noted that trust and confidence goes both ways, and that “there is a role for us to examine” whether the current arrangements could be improved. The Minister sees this as a potential example of building trust and also of the community driving the policy of government.
The second issue the Minister said she was working on was accumulation of funds. She said that this was an “interesting one for us to kick off”, as it goes to “why charities are charities, and why social enterprise is what it is”. She said she knows from personal experience that funders will look at a charity’s balance sheet, and sometimes ask charities to use reserves they might have in lieu of receiving funding (This issue has actually been exacerbated by the new financial reporting rules as consolidation can require these reserves to be disclosed even if they might be held “off balance sheet”). The Minister made the point that “these organisations know what they are doing” and that having reserves speaks volumes to their ability to be viable, run programmes, hang on to staff etc. It is also particularly important for iwi.
Sue mentioned that charities are already able to have reserves, and that the financial reporting rules already require them to disclose the nature and purpose of each reserve. I asked if they were perhaps looking at an educative approach.
Rachel Groves (DIA) answered that they were at the beginning of the process, and looking at what other jurisdictions do. For example, Australia requires a distribution of a particular percentage, and the UK requires a transparent reserves policy. Rachel said they were looking at “more transparency”. The Minister appears to be of the view that this will make it “easier for charities to access funds” from philanthropists and others who might fund them, and will therefore help with trust and confidence in charities.
Sue noted that charities are already able to adopt a reserves policy, and use it to communicate clearly with funders as to why they are holding reserves. It is therefore not clear that there is any “problem” here that needs to be fixed. It is also frustrating that this issue has been selected for fast-tracking, over other more pressing issues, such as fixing the appeal right.
Dave raised the question of it being Labour Party policy to conduct a first principles review. A piecemeal approach undermines our ability to ask the most important question – What are we actually trying to achieve with this piece of legislation? The Minister responded that the previous Minister (Hon Peeni Henare) had taken a paper to Cabinet, and that she was going to continue with the work that Minister Henare had started. That meant that they were “not going to go down the path” of a first principles review. The Minister acknowledged that the current legislation “hamstrings” a lot of organisations, particularly with the “way we do things in the modern context”, for example, social enterprise, tax and business. She said that people continually raise with her issues of agency, advocacy and appeal rights, and she said that “we can address those”.
We agreed with the comment that the current legislation “hamstrings” a lot of organisations, particularly those that are innovating. However, Sue noted that it was a source of grievance that the charitable sector had not had an opportunity to have input into the decision to conduct a more narrow review: the decision was made behind closed doors.
Sue mentioned, and Dave supported her, that it would be counterproductive to “tinker around the edges” when we do not have agreement on what we are actually trying to do with this regime. A first principles review was much needed if we were to support the sector to do its important work.
The Minister mentioned that the purpose of the regime was to place some support around charities: so that people can be sure that money was going to an organisation that was operating in the best way and supported to do its work in the way it does. The Minister appears to be of the view that the purpose of the regime is to provide support to charities by means of tax relief.
With respect, the Minister appears to have been captured by Charities Services – and this appears to have been their intention in delaying a meeting with us for so long (we have been requesting a meeting since the Minister was appointed in July last year), to give the DIA time to do that.
Sue mentioned that Charities Services appear to consider (or at least hope) that if they could silence us, they could make the various issues that we are raising go away. However, we pointed out that we are representing concerns that are being expressed to us by many people (as indicated for example by the fact that so many philanthropic organisations are supporting us): shooting the messenger will not make the underlying issues go away.
We said Charities Services have a lot of power, and almost no accountability, and do not appear to like truth being spoken to that power. However, in a democracy such as New Zealand, it is important that we are able to debate the issues, in the best interests of our charitable sector and ultimately our society, and that for Charities Services to try to prevent that debate from happening is of major concern.
We also pointed out that we have some funding and want to work with the Minister to help her create the best legislation for New Zealand’s charities that we can. The Minister thanked us for that and said she would think about what we had said.
Overall, the meeting went well and the tone was positive. However, the Minister’s approach, although not unexpected, is very disappointing in the degree to which it follows Charities Services’ and DIA’s agenda – many substantial issues are not addressed, and there is no clear plan or timeline to address them.
Incorporated Societies Act 1908
You’ll recall that Dave representing Hui E! and Geoff Connor from MBIE travelled the country between March and May 2016 gathering feedback on and ‘Exposure Draft’ of proposed changes to this Act. There were many aspects we were in agreement on but some we disagreed on quite strongly, and this was reflected in the submissions that MBIE received.
That input led to a draft Bill that was ready to go to Parliament for its First Reading (to be referred to Parliamentary Select Committee who would hear public submissions on it). However the change of Government in 2017 meant further delays. Through 2018/2019 the new government sought some tweaks, these were made by MBIE, and the revised Bill is now ready for Cabinet approval before being put on the agenda for debate in Parliament.
However with so many other government priorities it has proved difficult to secure time at Cabinet to consider the final version of the draft bill, in order to authorise introduction to the House. The MBIE corporate governance policy team are having another go and hope that Cabinet can consider the draft bill in early April, allowing introduction in May. Ultimately though, while the incorporated societies work is seen as important, it is apparently not seen as urgent, meaning it is often the first item to get bumped when other matters require Cabinet’s attention.
Two key changes to the earlier draft Bill were approved by Cabinet in May 2019. Thank Minister Faafoi for these changes – they address issues raised repeatedly in the Road Show session and are noted in the following quote from that Cabinet Paper:
“ … incorporated societies that are registered as charities must use External Reporting Board (XRB) standards when preparing their financial statements. The Draft Bill would extend this requirement to the incorporated societies that are not registered as charities. I have concluded that a material proportion of these other incorporated societies will simply lack the knowledge or access to advice that would enable them to use the XRB standards, and so I have also concluded that the extension of XRB standards should be limited to larger societies only.
“This recommendation has been questioned by the XRB and as a result there is a risk that some members of the accounting and auditing profession will raise objections as the Draft Bill progresses through Parliament. However, making a different decision would lead to strong objections from smaller incorporated societies. In addition, my proposal still requires the smaller societies to continue lodging financial statements with the Registrar of incorporated societies.
“The Draft Bill currently provides that all societies that are on the existing register (as established by the 1908 Act) will be automatically re-registered on the new register (as established by the new statute). I am proposing that the Draft Bill be amended so that societies are moved to the new register only if they confirm that they wish to be so moved and that they have achieved compliance with the requirements of the new statute (such as amending their constitution to include dispute resolution provisions).”
Sue and I hope that MBIE and their Minister Kris Faafoi will be successful in getting the revised draft Bill into Parliament soon, so that progress can be made.
Noho ora mai, nā Dave Henderson and Sue Barker.
See these other posts on this site:
Review of the Charities Act 2015 – updated post May 2019
Revision of Incorporated Societies Act 1908 – updated post June 2019