Confusion or ignorance within charities
I frequently come across charities where it is assumed that the only people whose details as their “officers” are the trustees of a charitable trust or the committee members of a charitable society. Such perceptions are very wrong.
Definition of “officer” in the Charities Act 2005
At present (as no regulations have been made to the contrary) under subsections 3 and 4, under section 4(2), an “officer”:
“(a) means, in relation to the trustees of a trust, any of those trustees; and
“(b) means, in relation to any other entity,—
- a member of the board or governing body of the entity if it has a board or governing body; and
- a person occupying a position in the entity that allows the person to exercise significant influence over the management or administration of the entity (for example, a treasurer or a chief executive); …”
The most obvious officers are, of course, trustees of a charitable trust or members of the executive of a charitable society. However, some executive members might thing that only named office-bearers, such as the president, secretary and treasurer are “officers,” but this is quite wrong as all members of the governing board or committee are officers under.
An “officer” a person who exercises significant influence over the management or administration of a charity
Section 4(2)(b)(ii) makes it clear that people who occupy “a position in the entity that allows the person to exercise significant influence over the management or administration of the entity (for example, a treasurer or a chief executive)” are frequently not included among the officers notified to the Charities Board. That definition of “officer” is an abbreviated version of the definition of a company director found in section 126(1)(b), Companies Act 1993 (and something similar may well find its way into any replacement for the Incorporated Societies Act 1908). Such directors are sometimes called “shadow” or “deemed” directors, and the Companies Act expressly imposes duties on such people such as duties to act in good faith and in the best interests of the company, to exercise company powers for a proper purpose, to comply with the Companies Act and the company constitution, to exercise a duty of care, not to engage in reckless trading, and to avoid transactions involving self-interest.
Who exercises significant influence over the management or administration of a charity?
While section 4(2)(b)(ii) is explicit, and gives two examples of deemed officers (“a treasurer or a chief executive”), the definition is not very explanatory.
Relevantly, section 4(2)(b)(ii) refers to the exercise of “significant influence over the management or administration of the entity,” rather than its governance which is the usual role of the trustees of a charitable trust or members of the executive of a charitable society. It is therefore clear that the examples given are illustrative not definitive or exclusive. But it is equally clear that the “significant influence” is not confined to the financial management or administration of an entity, and that is explicit in the External Reporting Board Related Party Disclosures Standard, NZ IAS 24, which defines significant influence as “the power to participate in the financial and operating policy decisions of an entity, but is not control over those policies. Significant influence may be gained by … agreement.”
Some principles may be extracted:
- Significant influence may consist not just of control but the making of recommendations which the entity might be expected to adopt by virtue either of the person’s position or as a result of habitual practice,
- The influence involves participation in both the financial and operating policy decisions of an entity,
- The person exercising the influence does not have to be a decision-maker or even be present when decisions are made, and
- The significant influence exercised may be restricted to “the management or administration of the entity,” and not its governance (by virtue of the wording of , section 4(2)(b)(ii)).
Much will depend on the size of the entity, but I suggest that anyone occupying the positions of chief executive, general manager, secretary, treasurer, fundraising manager, programme director, or other senior manager is likely to come within the scope of section 4(2)(b)(ii).
Notifying a charity’s “officers” to the Charities Board
On registration, a charity’s officers are named in the application documentation, and section 24(1)(d) provides that “The register must contain … the names of the officers of the entity and of all persons who have been officers of the entity since the entity was first registered as a charitable entity.” Section 40(1) then provides that “Every charitable entity must ensure that it sends or delivers to the chief executive notice of … a change in the officers of the charitable entity, whether as the result of an officer ceasing to hold office or the appointment of a new officer, or both [and] a change that disqualifies an officer of the charitable entity from being an officer of the entity …”
Section 58(1)(a) of the Act empowers the chief executive of the Charities Board to require a charitable entity to pay to penalty for “a failure by the charitable entity to send or deliver to the chief executive a notice under section 40 …” My view is that, rather than incur the (modest) penalty of $100 for a “failure by a charitable entity to send or deliver to the chief executive a notice of change required under section 40(1) of the Act within 3 months” under Regulation 9, Charities (Fees and Other Matters) Regulations 2006, charities should adopt an inclusive approach to those who may be their “officers.”