Tuesday 8 January 2013

11. NZ’s million dollar charities with mushrooming balance sheets

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About 3,600 charities on the NZ charities register have assets valued at more than $1m.

According to the financial data on the charities register, 49 of these million dollar charities more than doubled their asset value in 2012.  In fact, the story for these 49 charities appears to be quite dramatic.  Collectively, these 49 charities started the year with assets of $235m and ended the year with assets of $ 1.9b – that is an increase in assets of $1.6b in just one year.

Initially I wondered who these 49 mushrooming charities were and what caused their balance sheets to grow so rapidly in such tough economic times.

Then I began to wonder how reliable the data on the charities register really is.

Here is what I found.

Summary

Table A, below, shows six predictable reasons why the asset totals would increase dramatically.  Asset revaluations, one-off receipts, mergers and amalgamations, dedicated fundraising to purchase a new asset, settlement of new funds, and temporary timing mismatches are standard reasons for a balance sheet boost.

However, the table also shows that data errors had an impact on the total.  As a result, the totals in the register are incorrect by approximately $891b. 

All of the data errors appear to be innocent and avoidable.  Most involved figures being transposed incorrectly from the financial reports to the annual charity regulator return.  There were also examples of “grouped” data being provided one year but “single” entity data the next, so it was unclear which entities were required to report to the regulator; and in one case an extraordinarily poor financial report being provided which did not reconcile with the annual return.

Table A






Reason for high asset growth
No. of charities
 Previous Assets
 Current Assets
 Increase 
% increase



 $m
 $m
 $m

1
Land/building revaluations
9
$31.0
$96.0
$65.2
210%
2
Significant one-off income receipts
5
$13.0
$36.1
$23.1
178%
3
Mergers and amalgamations
3
$29.2
$89.2
$60.1
206%
4
Fundraising to purchase a new asset
6
$18.3
$52.9
$34.7
190%
5
New funds settled
2
$9.2
$54.6
$45.4
493%
6
Temporary timing mis-matches
7
$53.8
$555.8
$502.0
933%
7
Data errors on the register
15
$70.4
$961.5
$891.1
1266%
8
Other reasons
1
$9.1
$24.1
$15.0
165%
9
Uknown
1
$1.4
$3.4
$2.0
143%








TOTALS
49
$235.4
$1,873.6
$1,638.6




Ignoring the charities with data errors, the charities with temporary timing differences, and the charities involved with mergers and acquisitions (which did not really result in an overall increase in assets), table B shows the names of 24 charities which did achieve a significant and permanent increase in asset value in the last year and the reasons for those increases.

Table B

Land/building revaluations
1
St Margarets Presbyterian Residential College Council Incorporated
2
Friars Minor Of New Zealand Trust Board
3
Avondale Union Parish
4
Maungakiekie Golf Club Incorporated
5
Tennis Auckland Region Incorporated
6
St Johns and Raumanga Co-Operating Parish
7
The Auckland Irish Society Incorporated
8
The Christian Service and Missionary Trust
9
Mountain View Village Trust



Significant one-off income receipts
10
Ngati Tama Manawhenua Ki Te Tau Ihu Trust Group
11
Maniapoto Maori Trust Board
12
The Canterbury Charity Hospital Trust
13
Ngati Rarua Asset Holding Company Limited
14
The Chartwell Charitable Trust



Fundraising to purchase a new asset
15
Q Theatre Trust
16
CSO Foundation Trust
17
The Court Theatre Trust
18
Te Ahu Charitable Trust
19
Milarepa Charitable Trust
20
Otago Theatre Trust



New funds settled
21
Joyce Fisher Charitable Trust
22
The Jack Jeffs Charitable Trust



Other reasons
23
Te Rau Aroha Trust



Uknown
24
Kaiapoi Co-Operating Parish Methodist-Presbyterian



Conclusion

Before looking at the detail, it seemed reasonable to assume that all charities with extraordinary balance sheet growth could face governance pressures.  Without good governance, charities could experience problems managing much larger investments and assets.  However, this analysis shows that there are a number of factors that cause extraordinary balance sheet growth.  Governance is likely to be a consideration for the subset of charities whose growth is due to receiving significant one-off income receipts or a new settlement of funds, and it has the potential to be an issue when charities are part of mergers and amalgamations.  However, other reasons for rapid growth – such as the revaluation of assets, temporary timing mismatches and fundraising to purchase new assets - may not raise the same governance concerns. 

Comparing data over two years is always a useful way to identify inconsistencies and errors.  This analysis has identified data errors for 15 charities on the register that total approximately $891m.   Although the charities regulator does use a disclaimer that it does not verify data on the register, there must be ways to assist charities to complete the annual form more accurately.  For example, by rejecting balance sheet totals that don’t balance; by explaining what equity is so that it is not omitted from the form; by not accepting returns where the charity is a reasonably significant size but has not provided adequate financial accounts (see the Free Church of Tonga example); and by providing previous-year data on electronic forms so the people who enter data for the current year can easily spot a large variation that may be due to an error.  In addition, NZ could follow the Australian example of promoting Standard Business Reporting (SBR) for the charitable sector and using SBR to extract data directly into the annual return form, which will largely eliminate data errors.   If nothing is done, it will be a shame that whilst changes to accounting standards make the financial reports more robust, the quality of data on the register will continue to remain (in a relatively small number of cases) unreliable.

Analysis

Here are the charity details, and some specific commentary, for each of the categories of high asset growth.

1. Land and building revaluations

Table C






Reason for high asset growth
 Current year ended
 Previous Assets
 Current Assets
 Increase 
% increase



 $m
 $m
 $m


Land/building revaluations





1
St Margarets Presbyterian Residential College Council Incorporated
31/12/2011
$5.3
$27.2
$21.9
413%
2
Friars Minor Of New Zealand Trust Board
31/12/2011
$6.5
$15.9
$9.4
145%
3
Avondale Union Parish
30/06/2011
$2.9
$10.3
$7.4
259%
4
Maungakiekie Golf Club Incorporated
30/09/2011
$2.0
$9.4
$7.4
364%
5
Tennis Auckland Region Incorporated
30/04/2012
$5.5
$12.2
$6.8
123%
6
St Johns and Raumanga Co-Operating Parish
30/06/2011
$2.4
$6.4
$4.1
171%
7
The Auckland Irish Society Incorporated
31/03/2012
$2.6
$6.6
$4.0
151%
8
The Christian Service and Missionary Trust
31/03/2012
$2.6
$5.6
$2.9
111%
9
Mountain View Village Trust
31/03/2012
$1.2
$2.6
$1.4
112%





$65.2











Nine of the 49 charities revalued their land and/or buildings, which was the driving cause of their significant increase in asset values.  It was curious that two of the nine involved sporting activities – the Maungakiekie Golf Club Incorporated and Tennis Auckland Region Incorporated (the latter owns ASB Bank Tennis Arena in Auckland).    Financial reports for The Christian Service and Missionary Trust were particularly minimal - they just listed a small amount of  receipts and payments with no mention of land and buildings whatsoever, however the increase in value of these $5.6m assets was disclosed on the annual return form.

2. Significant one-off income receipts

Table D






Reason for high asset growth
 Current year ended
 Previous Assets
 Current Assets
 Increase 
% increase



 $m
 $m
 $m


Significant one-off income receipts





10
Ngati Tama Manawhenua Ki Te Tau Ihu Trust Group
30/09/2011
$3.3
$12.0
$8.7
264%
11
Maniapoto Maori Trust Board
30/09/2011
$4.2
$10.9
$6.8
162%
12
The Canterbury Charity Hospital Trust
30/06/2011
$3.1
$6.2
$3.2
103%
13
Ngati Rarua Asset Holding Company Limited
31/03/2012
$1.3
$4.2
$3.0
230%
14
The Chartwell Charitable Trust
31/03/2012
$1.2
$2.7
$1.5
123%





$23.1











Five of the 49 charities recorded significant one-off income receipts which we not distributed for charitable purposes in the year of receipt.  Three of these were maori entities which received fisheries claim funding / distribution of fishing quota.  The Canterbury Charity Hospital Trust received a significant increase in donations and the Chartwell Charitable Trust, whose charitable purpose is to ‘make a variety of grants’, received an unusually high return on investments in a related entity (a $2.5m investment generated $1.8m income).

3. Mergers and amalgamations

Table E






Reason for high asset growth
 Current year ended
 Previous Assets
 Current Assets
 Increase 
% increase



 $m
 $m
 $m


Mergers and amalgamations





15
The Order of St John Central Region Trust Board
30/06/2010
$26.8
$75.3
$48.5
181%
16
VisionWest Community Trust
30/06/2011
$1.1
$9.4
$8.3
751%
17
ROTAB Investments Limited
30/06/2011
$1.2
$4.5
$3.3
271%





$60.1











Three of the 49 charities noted that mergers or amalgamations caused their high asset growth.  Comparative information was restated in the financial accounts.  ROTAB Investments Ltd receives, manages and holds fisheries quota under the Maori Fisheries Act for its shareholder the Raukawa Trust Board.  In addition to an amalgamation with four other companies, a $1.2m fishing settlement also contributed to its increase in asset values.

4. Fundraising to purchase a new asset

Table F






Reason for high asset growth
 Current year ended
 Previous Assets
 Current Assets
 Increase 
% increase



 $m
 $m
 $m


Fundraising to purchase a new asset





18
Q Theatre Trust
30/06/2011
$8.0
$22.2
$14.2
176%
19
CSO Foundation Trust
31/03/2011
$1.2
$7.6
$6.4
527%
20
The Court Theatre Trust
31/12/2011
$2.4
$8.0
$5.6
232%
21
Te Ahu Charitable Trust
30/06/2011
$3.8
$9.1
$5.4
143%
22
Milarepa Charitable Trust
31/03/2011
$1.5
$3.3
$1.8
117%
23
Otago Theatre Trust
30/06/2011
$1.3
$2.7
$1.3
100%





$34.7











Six of the 49 charities fundraised to purchase or build a new asset.   Three of these assets were  performing arts theatres (Q Theatre Trust, The Court Theatre Trust and Otago Theatre Trust).  Milarepa Charitable Trust fundraised to help build a meditation centre.  The Christchurch Symphony Orchestra purchased a $5.2m Citadel.  And the Te Ahu Charitable Trust, which states that it is a Council Controlled Organisation and a subsidiary of the Far North District Council, received donations and council funding to build a $14m community building in Kaitaia.

5. New funds settled

Table G






Reason for high asset growth
 Current year ended
 Previous Assets
 Current Assets
 Increase 
% increase



 $m
 $m
 $m


New funds settled





24
Joyce Fisher Charitable Trust
31/03/2012
$6.4
$47.6
$41.2
646%
25
The Jack Jeffs Charitable Trust
31/03/2012
$2.8
$7.0
$4.2
148%





$45.4











The Joyce Fisher Charitable Trust received a new settlement of $42m.  The Jack Jeffs Charitable Trust received a $3.8m distribution from the estate.

6. Temporary timing mis-matches

Table H






Reason for high asset growth
 Current year ended
 Previous Assets
 Current Assets
 Increase 
% increase



 $m
 $m
 $m


Temporary timing mis-matches





26
New Zealand Local Authority Protection Programme Disaster Fund
30/06/2011
$39.1
$514.5
$475.4
1216%
27
Pinnacle Incorporated
30/06/2011
$8.4
$22.3
$13.9
165%
28
International Pacific College /NZQA Student Fee Protection Static Trust Fund
31/03/2012
$1.3
$5.4
$4.1
307%
29
Oxfam New Zealand
30/06/2011
$1.6
$5.5
$3.9
249%
30
2020 Communications Trust
30/06/2012
$1.3
$3.1
$1.8
132%
31
Eastland Network Charitable Trust
31/03/2012
$1.0
$2.8
$1.8
170%
32
Rescare Management Limited
31/03/2012
$1.1
$2.2
$1.1
108%





$502.0











Seven of the 49 charities had temporary timing mis-matches.  The New Zealand Local Authority Protection Programme Disaster Fund dominated the totals due to the Christchurch earthquakes.  It recorded reinsurance recoveries receivable of $471m as an asset, however these were offset by a $496m provision for claims.

Four charities simply recorded income received in advance (Pinnacle – which is a General Practitioners Network; International Pacific College NZQA Student Fee Protection Static Trust Fund – which holds student fees in trust for the IPC; Oxfam and 2020 Communications –which aims to put computers in homes).

7. Data errors on the register

Table I






Reason for high asset growth
 Current year ended
 Previous Assets
 Current Assets
 Increase 
% increase



 $m
 $m
 $m


Data errors on the register





33
Northland Kindergarten Association Inc
31/12/2011
$10.8
$723.9
$713.1
6615%
34
Anglican Diocese Of Waikato & Taranaki
31/12/2011
$4.2
$50.3
$46.1
1088%
35
Auckland Grammar School Combined Trusts
31/12/2011
$1.8
$22.7
$20.9
1161%
36
Windsor House Board of Governors
30/06/2011
$13.2
$33.5
$20.3
155%
37
Cambridge Resthaven Trust Board Incorporated
31/03/2012
$2.8
$22.4
$19.6
696%
38
The Totara Foundation
30/06/2012
$15.2
$32.5
$17.3
114%
39
The Free Church of Tonga
31/01/2012
$5.6
$20.0
$14.4
257%
40
The Starship Foundation
31/12/2011
$3.2
$13.8
$10.6
336%
41
The Society for the Prevention of Cruelty to Animals Auckland Incorporated
30/06/2011
$5.4
$14.5
$9.0
166%
42
Marlborough Research Centre of Excellence Trust
30/06/2012
$1.1
$5.7
$4.6
403%
43
Holy Trinity (Otahuhu) Parish Trust Board
31/12/2011
$1.6
$6.0
$4.4
275%
44
Waimate Childcare Centre Incorporated
31/12/2011
$1.1
$4.3
$3.2
303%
45
Manukau New Life Centre
31/03/2012
$1.0
$4.1
$3.1
306%
46
The Clergy Trust Fund For The Roman Catholic Diocese of Christchurch
30/06/2012
$2.2
$4.9
$2.7
120%
47
Hawkes Bay Childrens Holding Trust
31/03/2012
$1.2
$3.1
$1.8
150%





$891.1











Fifteen of the 49 charities made data errors which incorrectly gave the impression that their assets had significantly increased.

The Northland Kindergarten Association Inc dominated the figures because instead of recording property, plant and equipment of $7,203,414 as per its financial accounts, when it completed the annual return it recorded $720,333,414. 

The issue with the Northland Kindergarten Association is similar to errors made by many other charities in this table.  A mistake transposing a figure from the financial reports to the annual return caused the asset total to add incorrectly.  Although this meant the balance sheet in the annual return did not balance, the charities did not notice because there were no warnings or error messages.

An issue with grouping and consolidation also came to light.  Three charities filed accounts for different entities in consecutive years.  The Anglican Diocese Of Waikato & Taranaki filed accounts (and recorded in the annual return) financial information for the standing committee accounts and parishes in 2011.  However in 2010, even through its accounts were also the standing committee and parishes, it only recorded the standing committee figures in the annual return.  Similarly, Auckland Grammar School has 100% control over the Auckland Grammar School Combined Trusts.  In 2011 it just filed the Combined Trust Accounts; however in 2012 it filed the full Auckland Grammar School consolidated accounts.  Last but not least, the SPCA fell into the trap of transposing its "parent" figures into the 2010 charities return, but it used its "group" figures in 2011. In all three cases it is difficult to tell which group accounts are the correct ones for the purposes of the register. 

Out of the 49 charities, the Free Church of Tonga, provided the least useful financial information.  The $14m increase in assets is presumed to be an error, however it is unclear because instead of financial statements this charity filed 131 photocopied pictures of receipts and statements.  For a charity which may control assets of $20m, this type of financial reporting is hardly useful from a transparency point of view.

Finally, some errors did not appear to be transposition errors per se, but errors that may have arisen because the person responsible for completing the annual charities return did not know what figures to input.  The two examples from this small test group are the Manukau New Life Centre, which incorrectly recorded working capital as a non current liability when it completed the annual return, and The Starship Foundation, whose 2010 financial reports showed assets of $12.5m, however only $3.2m was shown in the annual return.

8. Other reasons / unknown

Table J






Reason for high asset growth
 Current year ended
 Previous Assets
 Current Assets
 Increase 
% increase



 $m
 $m
 $m


Other reasons





48
Te Rau Aroha Trust
31/03/2011
$9.1
$24.1
$15.0
166%





$15.0


Uknown





49
Kaiapoi Co-Operating Parish Methodist-Presbyterian
30/06/2012
$1.4
$3.4
$2.0
145%





$2.0











The two remaining charities from the group of 49 fall within “other reasons” and “unknown” categories.

Te Rau Aroha Trust provides life insurance and its assets increased largely as a result of an increase in actuarial reserve income. 

The Kaiapoi Co-Operating Parish’s 2012 financial report document could not be opened, so it was not possible to verify what the figures really were.  The 2011 accounts provided minimal information.