Wednesday, 12 February 2014

19. NZ charities that receive income from government

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Exactly one quarter of New Zealand’s registered charities received income from central or local government in 2012 (that’s 5,283 out of 21,096 registered charities which filed a 2012 return with the charity regulator).  Income from government made up 38% of total gross income for the registered charitable sector in that year ($5.9 billion out of a total of $15.6 billion). Who were those charities and are there lessons for future grant and government contract payment applicants in 2014? 


If you would like your charity to benefit from government funds in the future, here are 10 helpful hints based on returns filed with the New Zealand charities regulator for the 2012 financial year:

1. Don’t just rely on government income:  Don’t expect to rely on government to provide all the income for your charity – find income from other sources as well.  Each year only about 100 - or 2% of charities which receive government funding - are 100% government financed.  Most of these are either fire brigades or primary health organisations.

2. Non-government grants and sponsorship:  If you are going to apply for grants, approach both government and non-government funders.  Fifty-eight percent of charities which received funds from government agencies also received funds from non-government grant and sponsorship providers in 2012.  Don’t forget that some non-government funders are prepared to provide untied funds, or funds to spend on new or high-risk areas, which may not be available from a government agency.

3. Government grants and payments distributed by region:  Charities that operate nationwide received the largest amount of government funds in 2012 - $2.2 billion or $4 million per charity.  If your charity operates exclusively in one region, then it’s best to be in Wellington – Wairarapa, where charities received the highest average government payment per charity, followed by Auckland and the Bay of Plenty.  Expect the smallest payments if you operate exclusively in the West Coast, Taranaki or Nelson - Marlborough – Tasman.

4. Size of government grants and payments for services:  In 2012 about half of registered charities funded by government received less than $100,000 in government grants and contract payments, and the other half received more than $100,000 in government grants and contract payments.   It is just as rare to receive less than $1,000 from the government as it is to receive over $10m (2% of charities fall into the former and 2% into the latter category), so if you are applying for less than $1,000 make sure it is worth the effort before you fill in the paperwork.  About a quarter of government payments were in the $10,000 to $50,000 range and a fifth were in the $1,000 to $10,000 range. 

5. Sectors likely to receive government funding: You're most likely to receive government funding if your main sector is employment (56% of charities operating in this sector receive government funding), emergency and disaster relief (50%) and social services (47%).   You are least likely to receive government funding if your main sector of operation is fund raising (3% of these charities received government funding), religious activities (5%) and care and protection of animals (12%).

6. Sector dependence on government funding:  If you do receive government funding, then you are likely to be heavily dependent on this funding if your main sector is people with disabilities (government funding made up 81% of total income for these charities), health (78%) and social services (61%).  On the other hand, you will be least dependent on government if your main sector is employment (government funding made up 3% of total income of these charities), care and protection of animals (8%) and charities with international activities (12%).

7. Average sector payments from the government: If your goal is to get the most money from the government, then your charity would be better off in the health sector (where the average government funding to a charity was $3.1m), followed by the people with disabilities sector ($2.0m) and the education / training / research sector ($1.7m).  Don’t get your hopes up if your charity is involved with emergency and disaster relief (the average government funding to these charities was about $25,000), care and protection of animals ($31,000) and marae on reservation land ($83,000).

8. You don’t need to look poor:  About 52% of charities that received government grants in 2012 had accumulated reserves of at least half of their total asset value.  So you don’t have to be poor before you qualify for government funding.  Having said that, 82 or 1.5% of registered charities that received government payments had negative equity and appeared to be insolvent, yet even that did not stop the government from funding them in 2012.

9. Preparing for new accounting standards:  90% of charities that receive government funding in 2012 either fell within the new definition of a Tier 4 charity (with operating payments below $125,000) or a Tier 3 charity (with operating payments between $125,000 and $2 million).  If you fall into these categories your government payments are likely to average $26,000 or $331,000 respectively and you will be able to report using simple format reporting standards from 1 January 2015.  Based on 2012 figures and using the new review and audit operating expenditure thresholds, 71% of charities that receive government funding will not require any independent review or audit (unless it is required in their constitution); 11% will require a review (because their operating expenditure is between $500,000 and $1m) and 17% will require an audit (because their operating expenditure exceeds $1m).   So be prepared!

10. Government agencies which provide funding:  Finally, remember that there are a large number of government funding providers.  In 2012 the top charities within each sector received funding from about 30 agencies.  Depending on what services you provide, consider applying to the Ministry of Health, the Ministry of Social Development, the Ministry for Primary Industries, Te Puni Kokiri, NZ Police, NZ Search and Rescue, the Ministry of Business, Innovation and Employment, GNS Science, NIWA, the Parliamentary Commissioner for the Environment, the Ministry for Culture & Heritage, Creative NZ, Sport New Zealand, Child, Youth and Family, Work and Income, the Accident Compensation Corporation, the Ministry of Justice,  the NZ Qualifications Authority, Public Health Organisations, various NZAID funds managed by the Ministry of Foreign Affairs and Trade, district health boards, city and regional councils, NZ Lotteries, the Department of Internal Affairs Community Organisations Grants Scheme (COGS), the Social Housing Fund, the Housing Innovation Fund and the Tertiary Education Commission.  If in doubt, look on the register to see how similar charities to yours obtain their funding.


The details

The following analysis focuses on registered charities which have recorded income under the category "Government grants / contracts" in their Form 4 Annual Return for a charitable entity.  The financial information help notes supplied by the regulator contain the following explanation: "Include all income you received from central and local government sources including grant payments or payments for contracted services. For example, Lotteries Commission, SPARC, COGs, WINZ."

The charities regulator publicly states that it does not verify information supplied by charities.  Therefore it is likely that some charities have misclassified their government income and their errors have not been rectified by the regulator or identified in preparing this blog.  Government payments for providing services may be particularly susceptible to misclassification because they tend to be disclosed separately to government grants in financial accounts.  For example, the upcoming charity accounting standards require government grants to be classified under a "donations, fundraising and other similar receipts" category whereas grants received from the government that are in substance a contract for the delivery of goods or services are to be recorded in a "receipts from providing goods or services" category.

In preparing this blog I discovered one charity alone had misclassified $46 million of government contract payments as "income from service provision / trading operations" rather than "government grants / contracts".  I contacted the charity and they explained they wished to distinguish government grant payments from their contract payments.  However they agreed to reclassify the amount into the government income category.  So the bottom line is - allow for a margin of error when you interpret this information on the register.

1. Four-year trends

As shown in Graph A, the trend in New Zealand over the last four complete years from 2009 to 2012 has been an average increase of just under 12% per annum in the value of government funding received by registered charities.  The amount of government income reported by registered charities rose from $4.24 billion in 2009 to $5.92 billion in 2012.  However, the number of registered charities receiving government funding has risen at a lower rate - by an average of 4% per annum, from 4,716 in 2009 to 5,282 in 2012.

Graph A


 Setting aside the universities, which are discussed in section 4 below, over the four years from 2009 to 2012 the most successful charities to consistently obtain the most government funding are shown below (total government funding over the four-year period is also listed):

1.      Idea Services Limited (IHC) - $861 million

2.      The Priory In New Zealand of the Most Venerable Order of the Hospital of St John of Jerusalem (St John) - $453 million

3.      Health Research Council Of New Zealand - $325 million

4.      Wise Group (mental illness) - $225 million

5.      Royal New Zealand Plunket Society Incorporated - $209 million

6.      Access Homehealth Limited - $187 million

7.      The Salvation Army New Zealand Group - $184 million

8.      Spectrum Care Trust Board - $158 million

9.      Nurse Maude Association - $148 million

10.   Presbyterian Support Central - $147 million.

2. Size of government grants and contract payments

About half of registered charities that are funded by government receive less than $100,000 of government grants and contract payments, and the other half receive more than $100,000 of government grants and contract payments. 

It is just as rare to receive less than $1,000 as it is to receive over $10m (2% of charities fall into the former and 2% into the latter). 

As shown in Graph B, the majority of government funded charities either receive $1,000 to $10,000 (20%), $10,000 to $50,000 (23%) or $100,000 to $500,000 (26%).

Graph B

3. Government funding broken down by sector

Based on returns filed by registered charities for 2012, 36% of the value of all government grants and contract payments went to the education / training / research sector, followed by 28% to the health sector, 10% to the disabilities sector and 7% to the social services sector.  That is 81% of government funding being injected into just four sectors.  Every other sector (apart from ‘other’) received 2% or less of total government funding.

The three sectors that received the smallest proportion of the value of government grants and contract payments, all less than 1%, were maraes on reservations (48 marae received a total of $4m), fund-raising charities (18 fund-raising charities received $1.8m) and charities responsible for the care and protection of animals (19 of these charities received $600,000). 

The sector breakdown, along with the names of charities in each sector which received the highest government grant and contract income, are shown in Table I.  Table I also indicates the nature of the government funding, based on explanations in the financial accounts, annual report or charity website. 

Table I: 2012 Government funding by sector

4. New Zealand Universities

New Zealand’s universities dominate the registered charitable sector because of the size of their revenue.  As a group, they received one quarter of the funding government provides to registered charities - $1.5 billion in 2012 out of total government funding of $5.9 billion. 

There are eight official “universities” in NZ, including Auckland University of Technology (AUT) but not Manukau Institute of Technology (MIT).  The former is not a registered charity and the latter is a registered charity.  Table II, below, draws on information in the charity register to show all nine tertiary institutions and the government funding they received over the four years 2009-2012. Victoria University registered as a charity on 23/8/11 so its first return to the charity regulator was for 2012. 

The figures highlighted in blue for Victoria University and AUT have been extracted from public annual reports for comparative purposes.  Because these two universities were not registered charities in these years, their financial information is not on the charities register. 

Table II: Government funding received by NZ Universities and Manukau Institute of Technology from 2009 to 2012


5. Charities solely reliant on government income

Each year about 100 or 2% of charities which receive government funding indicate they are 100% government financed.  Many of these (about 40%) are fire brigades.

Excluding the fire brigades, about 51 charities on the register have been 100% government financed for more than one year between 2009 and 2012.  The three with the most multiple-year government funding are all in the health sector: The Maori Primary Health Organisation ($3m in 2009, $6m in 2010); Te Hauora o Turanganui a Kiwa Limited ($5m in 2009, $5m in 2011 and $6m in 2012); and Cosine Primary Care Network Trust ($3m in 2011 and $5m in 2012).

6. Geographical distribution of government grants and payments

Table III shows government payments made to charities which are operating nationwide, operating exclusively within one of the 13 regions in New Zealand, operating in a cluster of multiple regions including overseas countries, and operating in a cluster of multiple regions within New Zealand.

Using these categories, charities which operated nationwide received the most funds from government, $2.2 billion, which equates to $3.9m for each nationwide charity. 

In respect of the specific regions, charities that operated exclusively in Auckland received the most funds from government ($551m), followed by Wellington-Wairarapa charities ($476m) and Otago – Southland charities ($206m).  The West Coast charities received the least ($16m).  However, on a per-charity basis, Wellington – Wairarapa charities received the highest average per charity ($987,000) followed by Auckland charities ($723,000) and Bay of Plenty charities ($513,000).

As shown in Table III, the three types of charities that operated exclusively in a region and received the largest government payments were universities, primary health organisations, and kindergarten associations.

Table III: 2012 Government funding to charities with specific areas of operation within NZ


7. Accounting matters

For accounting purposes, government grants tend to be recognised as revenue upon completion of services for which the grant was made. Where obligations are attached to a government grant, a liability is recognised. Once the obligation is discharged, the government grant is recognised as revenue.  Capital grants tend to be recognised as income over the estimated life of the asset purchased.

8. The approach across the Tasman

An Australian Productivity Commission Research Report released in 2010, “Contribution of the Not-For-Profit Sector”, noted that government funding represents 33% of the Not for Profit sector income in Australia, 25% in New Zealand, 40% in the USA and 43% in the UK (see pp.72-73).  The NZ percentage differs significantly from the 38% identified in this paper due to a number of factors:  the productivity report figures were based on the not-for-profit sector rather than just registered charities; it focused on large not-for-profits rather than the whole sector; and its percentages are based on older data (ie the Australia percentage was based on data that relates to 2006/2007).

At present, the Australian Charities and Not-for-profits Commission (ACNC) is collecting its first year’s worth of Annual Information Statements from registered charities for 2013.   However it will not be until after 1 July 2014, when the 2014 Annual Information Statements are filed, that grant funding information will be collected and made publicly available like it is in New Zealand.  The 2014 Annual Information Statement requires all charities – small, medium and large – to disclose their government grant income (with the exception of ‘basic religious charities’ which are exempt from providing any financial information).  The ACNC defines government grants as follows:

“Government grants include money, assets or services received from government so that the charity can provide goods or services to others in accordance with the terms of the grant. Include all grants your charity receives or is receivable from the Commonwealth, state or territory, or a local government body in the 2014 financial year. This includes general purpose grants as well as grants received under a contract with government to provide specified services”

Finally, it is useful to know that the Australian government has issued Commonwealth Grant Guidelines which establish the requirements and key principles that apply to all Commonwealth grants.  The guidelines discuss registered charities in the grant acquittal process.  They state that any agency which provides a grant must not request information during its acquittal process that the charity has already provided to the ACNC.  This is an initiative to reduce red tape – saving registered charities the hassle of having to provide financial information to both the ACNC and its Commonwealth funders to satisfy grant acquittal requirements.


Disclosure: I am currently the Acting Director of Compliance at the Australian Charities and Not-for-profits Commission.   The above analysis is prepared in my personal time.  Any errors are mine and opinions do not represent the views of the ACNC.

1 comment:

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