Audits or Review of Accounts

2010 Article, updated November 2017   Definitions – Audits and Reviews According to the (former) New Zealand Institute of Chartered Accountants website in 2011, an audit is an engagement: where an independent expert, the auditor, provides an opinion on “a matter of accountability” (the subject matter), where the “matter of accountability” is the responsibility of someone else (usually the management of the entity, and which is designed to provide a high, but not absolute, level of assurance on the subject matter. In contrast, a review engagement is designed to give the reader of financial statements limited assurance on the information. It is an independent examination of information, It requires enquiry and analytical procedures to assess the information, The reviewer needs to have a level of knowledge of the organisation in order to be able to identify the events and transactions that may have a significant effect on the financial statements, A review provides a moderate level of assurance on the subject matter. Community auditing A generation or so ago most community organisations had their accounts audited. There used to be retired accountants, bank managers and trust officers around who would do this as a community service, usually rewarded with a bottle of whisky or a dozen beers. Those days are well-past, and there is an ever-diminishing number of accountancy firms prepared to do audits, especially on a pro bono basis. The cost of auditing is now a significant burden on community organisations. An experienced auditor of community organisations provided me with a snapshot of the problems involved in such audits – “sets of accounts (and rules) that are frankly hopeless,” and...

They Made a Mistake

2010 Article, updated November 2017   What societies and charitable trusts should do when mistakes are alleged or identified was discussed in We Made a Mistake.  This article looks at the reverse side of that discussion. Despite the best of intentions (but sometimes with malice aforethought) entity governance or management often falls short of what is legally required, but the institution may be unwilling or unable to address its alleged shortcomings – perhaps because the allegations are considered to be unjustified, seem insurmountable, arise from lack of organisational skills, or are consequent on personal greed. The skills and abilities of those who govern, manage, or benefit from community entities are very varied.  However, as I observed in the previous article, people involved in societies and charitable trusts can get very emotional and passionate about perceived problems.  Many such community entities attract some who are lonely, lack social skills, or are vulnerable in some way, and many of these people have plenty of time to devote to making life miserable for those who control an organisation. Much of what I said in the last article is relevant to the advice that needs to be given to those who allege mistakes by others in the governance or administration of a society or charitable trust.  The first priority is to ascertain the facts and how they may be proved and consider those facts having regard to the entity’s constitution and relevant legislation (particularly, if the entity is incorporated, the statute under which it is incorporated).  Once this is done there are a number of options to consider: Writing to the organisation’s governing body...

We made a mistake

2010 Article, updated November 2017   Errors in governance and administration are inevitable, and in voluntary organisations those governing and administering the entity often lack the skills to know what, who, how, and when to do things.  The previous article, Good Governance of a Society set out some of the problems, while other earlier articles have discussed the content and binding nature of constitutions and disciplinary issues. The fact that mistakes have (allegedly) been made may be raised with an organisation by those in governance or management, by an entity’s members (see the next article in this series), or by external agencies (for instance, by auditors, funders, the Registrar of Incorporated Societies or Charities Services). While there may be a natural tendency to deny that a mistake has been made or to become defensive when a mistake is alleged, such responses are seldom helpful and frequently aggravate the problem.  Further, the longer irregularities are left uncorrected the more likely it is that what may initially be a minor problem will escalate into a major crisis. When alleged mistakes are identified, a number of steps may be helpful: First, clarify the nature and details of alleged mistake or problem. Analyse the relevant documentation and events, identify those responsible for the possible mistake, and check whether there may be more to the allegation than may first appear (the issue may indicate systemic issues, the problems may be the tip of an iceberg of similar problems, the problems may involve either or both of poor governance and administrative procedures, there may be financial implications, there may be possible fraud involved, etc). Once the nature...

Dealing with Dissidents

2010 article, rewritten October 2017   Being all things to all people? “There’s nowt so queer as folk” is a phrase (variously attributed to different parts of the British Isles) that reminds us that every individual is different and that some may appear to be irrational. Most community organisations welcome into their fold almost anyone who is interested in their activities, and that means that their membership is usually very diverse. That diversity may arise from more obvious differences such as age, sex, occupation, ethnicity, and education, but less obvious differences may relate to life experiences, health, medication, and personality type. The reality is that organisations cannot and should not try to be “all things to all people.” Dr. Ivan Misner, the founder of the business networking organization, BNI, pointed out in a 2009 article that “When it comes to being a truly great organization, I believe that a jack-of-all-trades is a master of none.   Instead, I believe that you should focus on your organization’s core competencies.   Do what you are good at, and do it better than anyone else. … Don’t try to be all things to all people” (see Don’t try to be all things to all people). That statement reminds us that organisations need to be realistic, and it has implications when dealing with people within organisations; first, in any organisation disagreements will arise and sometimes (no matter what we do) that can be unpleasant and divisive, and, second, how we respond will influence the end result.   Community organisations – a reality check Most community organisations experience times when members disagree, and that can be healthy...

The Principles of Natural Justice – why they are important

Why the principles of natural justice are important “That’s not fair!” is common complaint of children. When children say that they are usually referring to what they consider to be unfair about a process they have been involved in (such as a decision on a disciplinary issue) or how other children have been treated in comparison with the treatment they have experienced. Although they and their parents may not realise it, when children say “that’s not fair!” they are calling on the principles of natural justice. From childhood, we all instinctively believe that: Investigative and decision-making processes should be “fair,” and If a decision-making process is “fair,” similar consequences will result from similar actions by similar people. Those beliefs sum up the principles of “natural justice.”   What are the principles of natural justice? Natural justice has been described as “fair play in action.” The requirements of natural justice depend on the circumstances of each particular situation and the subject matter under consideration. Accordingly, the specific requirements of natural justice and how rigorously they are applied varies according to the circumstances where they may be relevant (Furnell v Whangarei High Schools Board [1973] 2 NZLR 705 (PC) at 718). As the Law Commission pointed in the context of societies (in its Report 129, A New Act for Incorporated Societies, NZLC R129, June 2013, para 8.17): The two basic components of natural justice are: the person complaining or complained about has a fair opportunity to be heard on the matters in issue; and the decision-maker is free from bias (including apparent bias) or pre-determination. Those two basic elements can be...

Are Rules Binding?

2010 article, updated October 2017   In 2010 I was redrafting the rules of a community organisation and I was startled to be asked some questions by its chairman that made me realise how uninformed the general public are about society Rules.  The questioner was well-educated and experienced in business and community organisations, so being asked for clarification was even more of a surprise.  Here are the questions and my answers (somewhat expanded for this article):   How binding are the rules of the constitution? They bind the officers, committee and members.  Failure to follow the rules is the major cause of grief in societies and the major driver of the litigation I get involved in.  Judges can be very unforgiving when rules are flouted, especially by those whose duty it is to govern an organisation.  A critical element of good governance is observance of the constitution, no matter how inconvenient that may occasionally be.  Charities Services can also be expected to be vigilant in ensuring that the requirements charities’ rules or trust deeds are followed scrupulously and they can investigate charities (whether or not registered under the Charities Act) either on receipt of a complaint or as a result of a random review process.   How strictly should the constitution be followed? Strictly.   Can common sense prevail over the constitution? Absolutely not.  Certainly a constitution should be a “common sense” and readily understood document, but what is “common sense” needs to be an organisational decision, not one left to the changing whims and prejudices of individuals.   What are the implications of not following our constitution? See my first answer.  The “good mate”...