New Reporting Standards for Charities: Has the message got through?

I might live in a charity bubble, but the talk of the New Reporting Standards seems to have been prolific in my sphere over the past few years - from free workshops run by Charities Services, to accounting seminars and other bodies doing their bit to support charities through these big changes. I thought all this was old news and commonly understood within the charity sector, but recently this belief burst.

In November, I was undertaking due diligence for one of The Gift Trust’s donors on a charity they were interested in supporting. My usual first stop is the Charities Register to confirm the charity is registered, is keeping up to date with their reporting requirements, and to take a quick look at their latest set of financial accounts to see how things are going.  But for this charity, there were no recent accounts, and their submission was overdue by two months.

An individual or company with an accountant as a tax agent gets an extra year to submit their accounts, but this is not the case for charities. The Charities Act 2005 requires all charities registered with Charities Services to file an Annual Return within 6 months of their financial year end.
 

Back to my due diligence...

I quickly sent this charity a friendly email to point out that they needed to get their accounts on the Charities Register ASAP. If, as I thought was probably the case, they were struggling with these New Reporting Standards, I suggested it probably wasn’t a big deal to send an email or get on the phone to Charities Services to request an extension.

I didn't expect that the New Reporting Standards would be a surprise.

They sent me their April 2015 to March 2016 accounts hot off the press.  These accounts, prepared with the support of an (I assume paid) accountant, were not in line with the new charity reporting standards.

Maybe there are charities out there who haven’t heard about these changes? Maybe the innumerable messages really haven’t reached them? Or, are people (or their accounting advisers) choosing not to hear it?

Recent statistics from Charities Services - “Charities Snapshot: Annual returns for 2016” compares the data from annual returns filed between 31 March and 18 November 2015 (pre new reporting requirements under the New Reporting Standards) and post 2016 (post implementation of the standards).

 

The findings:

  • 10,048 annual returns were submitted in the 2015 period, and 18% were late.
  • 8,461 annual returns were submitted in the same period in 2016, and 23% were late.
  • Annual returns filed to this date were 16% down on the number filed for the 2015 period.
  • The number of overdue notices more than doubled from 1,019 to 2,470.

 

Charities Services also estimates 55% to 60%  have used the new standards. The uptake is much higher in Tiers 1, 2 and 3, while those in Tier 4 (those with annual operating payment under $125,000) are still struggling.

 

What impact could this have on non-complying charities?

In the worst case, they could be deregistered for non-compliance by Charities Services. Read more about the new tax implications for deregistered charities in our blog post here.

In the shorter-term, it could also result in loss of funding for those who apply for grants where there is an expectation that these new accounts will be presented. Perhaps for the friendly grant-makers, it might mean allocating some of their available funds to supporting those charities to get up to speed with the new standards, taking away valuable project funding.

It also reflects poorly on the governance, leaders and advisers to a charity who have failed to notice these changes.

Over the past few months, I have had discussions with various Tier 3 (under $2 million annual expenses) and 4 charities, struggling to keep up with these New Reporting Standards. For private foundations and those in the grant-making space, The Gift Trust’s Donor Advised Gift Accounts can provide a solution.

Donor Advised Gift Accounts are a sub-fund created under the charitable umbrella of The Gift Trust, itself a registered New Zealand charitable trust.  Charities can transfer their funds to a Gift Account, deregister and remove the hassle of maintaining their stand-alone charitable trust. Trustees can continue to provide donation advice for future grants, in keeping with the trust’s original mission.  While admin fees of around 1% (including basic fund management) greatly reduces overheads and administration costs which might otherwise be faced in complying with the New Reporting Standards. For more information on how this might work for you, please contact us to discuss, or visit http://www.thegifttrust.org.nz/existing-trusts

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