Revisiting Audits or Review of Accounts

2011 Article, updated February 2018 Legislation such as the Industrial and Provident Societies Act 1908, Agricultural and Pastoral Societies Act 1908, Building Societies Act 1965, Friendly Societies and Credit Unions Act 1982, and Racing Act 2003, and Acts specifically dealing with professions are seldom considered other than by those who have a particular interest in such entities, and are minefields which are not readily covered in material intended for those running and advising more “mainstream” community societies and charitable trusts.  Indeed, to do so would tend to confuse most people who read these articles.  Therefore, this series of articles has tended to shy away from more esoteric societal legislation. However, in late 2011 a reader kindly drew my attention to statutory issues relating to the audit of the industrial and provident societies, which prompted me to revisit the subject of the auditing or reviews of the accounts of not-for-profit organisations discussed in my article, Audits or Reviews of Accounts. Industrial and Provident Societies Act 1908 This Act contains conflicting messages: Section 7 provides that “With respect to the rules of societies the following provisions shall have effect: (a) The rules of every society sent for registry shall contain provisions in respect of the several matters mentioned in Schedule 2,” and item 7 of Schedule 2 states “Provision for the audit of accounts.”  Read with section 19, it would appear to me that the rules could provide for no audit.  Section 19 provides for the “Appointment of auditors”: (1)      Any registered society may from time to time appoint a quaified auditor of the society. (1A)   Whenever any registered society has...

Charities Amendment Act – Be Alert

2012 Article, updated February 2018 Effective from 25 February 2012, the Charities Act 2005 was changed, and those involved in or advising charities registered with the (then) Charities Commission (now, Board) had to change their administration and reconsider what they needed to be notify to Charities Services. Definition of officers extended – section 4(1) From 25 February 2012 the definition of an “officer” of a charity under section 4(1), Charities Act: (a)  means, in relation to the trustees of a trust, any of those trustees; and (b)  means, in relation to any other entity,— (i)   a member of the board or governing body of the entity if it has a board or governing body; and (ii)  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); and (c)  includes any class or classes of persons that are declared by regulations to be officers for the purposes of this Act; but (d)  excludes any class or classes of persons that are declared by regulations not to be officers for the purposes of this Act The Charities Commission helpfully notified charities of the changes arising from this amendment: The Commission stated out that “… the definition of officers has widened (except for trusts), to include the members of the highest governing body …”  Trustees of a trust are the only officers under paragraph (a), and the extended definition under paragraph (b)(i) only applies to charities which are not trusts.  Why this is so escapes me as charitable trustees are surely as open to “significant influence”...

Personal Liability of those in Governance

2012 Article, updated February 2018 My article, “Winding up a society or charitable trust”, closed warning of the officers’ potential liability on liquidation: Society committee members and charitable trustees may be personally liable following liquidation if the entity they have governed has suffered losses caused either by the failure to keep adequate accounting records or by misapplication or retention of an entity’s money or property, or they have been guilty of negligence, default, or breach of duty or trust in relation to the entity.  Recovery may be ordered at the instigation of a liquidator, member or creditor. The new Incorporated Societies Act is likely to make those obligations explicit in the new statute. Ralph Chivers, Chief Executive of the Institute of Directors, writing in the Dominion Post, 5 March 2012, referred to “the possible collapse of a venerated rugby union” as one of the reasons why the quality and accountability of those in governance was then being much discussed.  He commented that those in governance “must keep an eye on the big picture, but still drill down to the detail.  They are there to identify risks and opportunities, and implement strategies to manage them.  It is a weighty responsibility.”  He concluded by saying “Crucially, the board will also take time to reflect, appraise and evaluate its own performance, to regularly ask: ‘What could we be doing better?’”  While Mr Chivers’ remarks referred to company directors, they apply equally to those governing not-for-profit entities. The responsibilities of those governing a society or charity must be proportional to the nature and scale of its activities, but what does that mean in practice? ...

Strategic Planning for Societies and Charities

2012 Article, updated February 2018 Why plan strategically? Strategic planning is required of councils under the Local Government Act 2002, and Parliament presumably believed that this would improve the performance of local authorities – this principle may have wider applicability.   The rules of societies and the deeds of charitable trusts set out the purposes (objects) and powers of those entities, and in previous generations that sufficed.   In my article Personal Liability of those in Governance  I quoted the statement by Ralph Chivers, Chief Executive of the Institute of Directors, Dominion Post, 5 March 2012, that “Crucially, the board will … take time to reflect, appraise and evaluate its own performance, to regularly ask: ‘What could we be doing better?’”  This statement reflects good modern governance practice, which suggests that planning is essential – if you don’t plan where you’re going, how can you know you’re going in the right direction?  In recent years, astute not-for-profit sector trustees and committee members have adopted the practice of planning strategically. In my experience: Constitutional purposes and objects should not be overly prescriptive as an organisation needs to be able to evolve as it realises the reasons why it was founded but, also, adapts to a changing world, but Too much is left unsaid if the constitutional provisions are not fleshed out further in a strategic plan which identifies what the entity will do to accomplish its purposes. Is strategic planning of interest or value for not-for-profits? An experienced company director, Richard Westlake, was quoted in a Dominion Post article, 10 March 2012, as saying that in some regards it is easier to be...

Liability of Charitable Trustees

2012 Article, updated February 2018 In two of my early articles (“As common as dirt” and “Lessons from a Polytechnic”) I outlined the disadvantages of unincorporated societies, stating that “for any society, other than the most basic, incorporation is highly desirable because of the clear practical benefits.”  In summary, those are: An incorporated entity is recognised in law as a separate legal “person” from its members, in the same way a company is a separate legal entity from its shareholders, with the consequential benefits of incorporation, An incorporated society or trust has “perpetual succession,” and thus it continues in existence as long as it complies with the law and is not wound up or otherwise removed from the Register, An incorporated society or trust executes documents as a separate legal person under common seal and can, subject to its constitution, enter into contracts in its own name, buy, sell, own, lease, and rent property, borrow money and give securities, and can also sue and be sued in its own name, The members of an incorporated society enjoy “limited liability,” and the trustees of an incorporated charitable trust obtain exclusions from personal liability similar to those enjoyed by company directors, with exceptions, and The mere fact of incorporation also gives a society or trust a quality of permanence. Should charitable trustees be alarmed about personal liability? My  article, Personal Liability of those in Governance highlighted the potential personal liability of those in governance of not-for-profit entities.  An article by Anthony Grant’s article, “Inland revenue goes hunting for professional trustees,” (NZLawyer, issue 172, 4 November 2011) focused on charitable trustees, and cited White...