Record-Keeping for Not-for-Profit Organisations

Introduction

Most not-for-profit organisations (societies and charitable trusts, abbreviated to N-f-P’s in these notes) are governed and managed by well-intentioned, honest people, but many of those people lack some or all of the knowledge and skills about the decision-making and record-keeping required in such an organisation. The sections that follow provide a brief guide to help get people started, but, first, some preliminary advice:

  • What follows is only a brief overview of the essential requirements for good N-f-P record-keeping, and:
    • It may be helpful if every incoming N-f-P Committee is provided with some basic training in governance, and
    • An N-f-P may be well-advised to engage someone to provide such hands-on training or to advise the secretary and treasurer (or, possibly, to be responsible for some specific tasks).
  • Where an N-f-P is incorporated under a statute (such as the Incorporated Societies Act 1908 or Charitable Trusts Act 1957) it gains the benefits of being an incorporated entity, and:
    • The statute under which it is incorporated sets out general requirements for the entity’s governance, management and operations (as noted below, there may be some other statutes applicable to some of the organisation’s activities),
    • It follows that those in charge of the entity need to be aware of and understand that legislation (noting that penalties may be imposed on people who fail to comply with the requirements in applicable Acts of Parliament), and
    • There are annual reporting obligations (for instance to the Registrar of Incorporated Societies or to Charities Services), and
    • Both the Registrar and Charities Services must be provided with details of a registered office (a physical address, not a P O Box or Private Bag), and of changes to that registered office address.
  • If the N-f-P is a charity, whether or not it is registered under the Charities Act 2005, it must comply with that Act, and if it fails to do so those in governance and management can face sanctions and penalties. In addition, Charities Services can investigate the governance and management of any N-f-P with charitable purposes, either on its own initiative or on receiving a complaint. Even if no problems are identified, being investigated is stressful and time-consuming, and if problems are confirmed the N-f-P may lose its charitable status and those in governance and management can each be prosecuted and fined up to $10,000.
  • Apart from the need for an N-f-P to comply with any statute under which it is registered, there are many other legislative provisions which may apply to the N-f-P’s activities, such as the Health and Safety at Work Act 2015, Health and Safety at Work Act 2015, Children’s Act 2014 (previously called the Vulnerable Children Act 2104), Privacy Act 1993, Resource Management Act 1991 (and local authority Plans under that Act), Local Government Act 2002 (and bylaws under that Act), Sale and Supply of Alcohol Act 2012, Copyright Act 1994, Gambling Act 2003, and, potentially some of the revenue statutes.
  • These notes are no substitute for specific advice about any particular N-f-P, and are only intended to a general guide and to prompt readers to obtain expert professional advice about the N-f-P with which they are involved.

In summary: If in doubt, seek qualified help.

 

First essentials

Those governing an N-f-P must be thoroughly familiar with:

  • The N-f-P’s constitution (constitution, rules or trust deed),
  • Any statute under which it is incorporated or registered – usually the Incorporated Societies Act 1908 or the Charitable Trusts Act 1957, and Charities Act 2005, and
  • Any other legislation and rules which particularly apply to its activities,

An N-f-P must maintain really careful and thorough records of its governance activities (preferably in a hard-copy format, but also electronically), including:

  • Minutes of general meetings of members of the N-f-P, and Minutes of meetings of the committee or board which governs the N-f-P, and also of sub-committee minutes (see the next heading below),
  • Financial records (see below), and
  • Records required to be kept under any legislation which applies to the N-f-P’s activities.

Meetings of those in governance

All meetings of the committee or board which governs an N-f-P should be preceded by a pre-circulated Agenda including relevant reports (to inform attendees about what is to be discussed) and followed by Minutes recording what has been decided:

  • The standard, basic content and order of priority for a standard business meeting Agenda (including that for the committee or board of an N-f-P) is:
    • Call to order, including identifying the chairperson and the time the meeting was called to order,
    • Apologies from those who have put in a specific apology,
    • Conflicts of interest declared by any of the people present,
    • Confirmation of the Minutes of the previous Meeting,
    • Matters arising from the previous Minutes not otherwise on Agenda,
    • Correspondence received since the previous Meeting,
    • Matters arising from the correspondence,
    • Financial report and confirmation of payments,
    • Reports and recommendations from officers and subcommittees,
    • Motions of which notice has been given,
    • General business, and
    • Closure, including the time at which the meeting closed, and confirmation of the details of the next meeting.
  • Subject to what may be in an N-f-P’s Constitution, the standard, basic content and order of priority for an N-f-P’s General Meeting Agenda is similar:
    • Call to order, including identifying the chairperson and the time the meeting was called to order,
    • Recording those present (practice varies, and for N-f-P’s with a larger membership members may be checked in as they arrive and those carrying proxies may also be recorded before the meeting commences),
    • Recording apologies from those who have put in a specific apology,
    • Recording conflicts of interest declared by any of the people present,
    • Adoption of the Minutes of the previous General Meeting,
    • Matters arising from the previous General Meeting Minutes not otherwise on the agenda,
    • For an Annual General Meeting:
      • Annual Report and its adoption,
      • Financial Report and adoption of the Financial Report and any report from any auditor or reviewer,
      • Election of any auditor or reviewer of the Annual Accounts,
      • Depending on the nature of the N-f-P and the Rules in its Constitution, election of officers and the committee,
      • Setting any subscription rates,
    • Motions of which notice has been given,
    • General business, and
    • Closure, including the time at which the meeting closed.
  • The Minutes should follow the same basic format as the Agenda, including:
      • A brief summary of any pertinent discussion on motions or other items of business,
      • The exact wording of motions, the mover and seconder of each of those motions, and recording the fact that each motion is “carried,”
      • It is helpful if the Minutes identify not only any actions required, but also who is to carry out such actions, and as long as the Minutes are circulated soon after the meeting attendees will be reminded of actions they are supposed to undertake, and when (the secretary can draw attention to such reminders in the Minutes by using a separate marginal column, or by bolding, italicising, underlining or highlighting the name of the person who is expected to take action), and
      • At the end of the Minutes, provision should be made for recording their subsequent approval and adoption:

Approved as a true and accurate record

Chairperson ……………………………………………………………… Date …………………………………

  • The following basic template for Minutes may be useful:

  • Meetings “in committee”:
    • Where there is some sound reason for confidentiality (such as issues relating to member discipline, staff and competitive contracts), a meeting may go “into committee.” This does not mean that it is a separate meeting, but, simply, that the issues being discussed are confidential and only those who are entitled (or allowed by the meeting) to attend the meeting should remain within the meeting room.
    • The business dealt with “in committee” should still be minuted, but the minutes of that part of a meeting which is held “in committee” can be withheld from anyone other than those who were entitled to attend while the meeting was “in committee.”
  • Proper meeting procedure:
    • Formal meetings in New Zealand are held in accordance with what is known as the “Westminster” system of meeting procedure (noting that meetings in some countries follow a different system, based on “Roberts Rules of Order”).
    • A comprehensive (and relatively inexpensive) guide to good meeting procedure in New Zealand is Members’ Meetings, published by LexisNexis – see Members’ Meeting 3rd Edition.

Financial records

The amount of detail required to be kept depends on the extent and value of the N-f-P’s activities:

  • Where the N-f-P is small, keeping a receipt book to record payments made to the entity and a cheque book or printed copy of electronic bank transactions may be sufficient, but
  • It is better practice for a proper journal of income and expenditure to be maintained as well, and the different items of income and the different items of expenditure can be identified in separate columns for ease of collation into periodic or end-of-year accounts, and
  • Annual accounts should be formally approved the a general meeting of members of a society or the trustees of a charitable trust (noting the reporting obligations referred to below).

Is good practice for an N-f-P to have a budget for each financial year, and for a financial report to be provided to regular committee or trustee meetings, enabling the committee or trustees to compare the expenditure to date during the financial year against budget predictions, and to take any necessary action where expenditure is exceeding the budgeted amount.

Obligations to regulators

All N-f-P’s have basic reporting obligations (much of which can now be attended to online):

  • Those in governance of an N-f-P which is a society have reporting obligations to the membership – which will be spelt out in the society’s constitution.
  • Incorporated societies registered with the Registrar of Incorporated Societies) under the Incorporated Societies Act 1908 (but not charitable societies registered with the Registrar under the Charitable Trusts Act 1957) need to file annual financial statements with the Registrar after they have been presented to, and approved by, the members of the society at a General Meeting (failure to do so can result in de-registration).
  • All charitable trusts and charitable societies registered with Charities Services are required (under section 41, Charities Act 2005) to file an Annual Return within 6 months of their balance date (end of their financial year), noting that exactly what is required is set out in the Reporting Standards established by the External Reporting Board (an independent Crown Entity): 
    • Financial Statements are required to be filed by Tier 1 and 2 entities and Performance Reports from Tier 3 and 4 entities (these documents must comply with the Reporting Standards),
    • The entity needs to complete and lodge an Annual Return form (this can be done online), and
    • If the charity’s gross income is $10,000 or more an Annual Return fee is also payable.
  • As already noted, some changes relating to an N-f-P also need to be notified promptly to the Registrar of Incorporated Societies and, if the entity is registered under the Charitable Trusts Act, with Charities Services, including:
    • The registered office of the entity, and
    • The mailing address and any other notified contact details for the entity, and
    • For charities registered under the Charities Act, details of the charity’s officers.

Other statutes may directly or indirectly require an N-f-P to report on a regular basis or on request to a regulatory authority (and, also funding agencies), but these relatively brief notes cannot adequately identify and summarise such variable requirements.

How long records should be kept for

While there is no statutory requirement in any statute specific to the incorporation of N-f-P’s that indicates how long N-f-P records should be kept for, as a rule of thumb, we suggest that an N-f-P’s records for at least 6 years. However, if an N-f-P is carrying on any business it is required, under section s 22 of the Tax Administration Act 1994, to keep sufficient business records so that the Commissioner of Inland Revenue can readily ascertain the amount of tax payable in respect of the business and all other tax matters relating to the business. Such records may be kept in paper or electronic form, and:

  • Must be located in New Zealand,
  • Retained in English (unless otherwise authorised by the Commissioner) for 7 years (unless extended by the Commissioner to 10 years), and
  • May take the form of, but are not limited to:
    • Books of accounts that record receipts, payments, income or expenditure;
    • Vouchers;
    • Bank statements;
    • Invoices;
    • Receipts; and
    • Other documents that verify the entries to the accounts,
  • The minimum requirements under clause 8 of the Tax Administration (Financial Statements) Order 2014 may also apply, and
  • Section 75, Goods and Services Tax Act 1985, requires similar record-keeping for GST purposes.

There are other reasons why holding records can be important or desirable:

  • At some stage someone may want to document the development and history of the N-f-P, and there is considerable value in being able to access historical records, and
  • An N-f-P may become involved in disputes (including disciplinary issues, criminal prosecutions, and civil claims) or investigations (for instance by Charities Services, the IRD or local authorities) and having detailed records that go back at least 6-7 years can be invaluable in responding to such investigations and defending such legal proceedings.