We have published guidance about the requirements of registered charitable trusts and how to set up a charitable trust in New Zealand (here), as well as provided a practical checklist of next steps (here). However, charities also incur ongoing obligations. This article outlines the key ongoing obligations you should be aware of.
1. Reporting to Charities Services
All registered charities must submit an annual return to Charities Services within 6 months of their financial year end. The annual return requires you to check and update the following information:
– General Information: Your charity’s name, place(s), and contact details.
– Officer Details: Each officer’s name, date of birth, position and address.
– Purpose and Structure: What your mission is, your main activity or beneficiary, and how your charity is structured.
– Charity Relationships: The names of any entities that control or are controlled by your charity.
– Your People: The number of employees and volunteers you have, as well as how many hours they work.
As well as the above details, charities must also report a level of financial information. These reporting requirements differ depending on the tier of charity:
– Tier 1: Over $30 million annual expenditure;
– Tier 2: Under $30 million annual expenditure;
– Tier 3: Under $2 million annual expenditure; or
– Tier 4: Under $125,000 annual operating expenditure.
Of note is that these thresholds must be viewed in the context of the previous two financial years. This means that if you have a one-off fluctuation in the current financial year that would otherwise put you into a different tier, you would still have to report under the tier of the previous two financial years. This is to ensure that any one-off yearly fluctuations don’t change the tier the charity must report under.
Once you have worked out what tier your charity falls in, the reporting requirements are as follows:
– Tier 1: Full Reporting Standards
– Tier 2: Reduced Disclosure Regime
– Tier 3: Simple Format Report – Accrual based accounting
– Tier 4: Simple Format Report – Cash based accounting
Around 95% of charities fall under tiers 3 and 4. Charities under these tiers can report under simplified reporting standards, using either cash-based accounting (tier 3) or accrual-based accounting (tier 4).
What is the difference between cash-based accounting and accrual-based accounting?
Cash-based accounting requires transactions to be recorded at the time cash is received or paid. Cash-based accounting is typical in organisations where transactions are small in number and size.
Accrual-based accounting requires revenue and expenses to be recorded when they are earned or incurred, rather than when cash is received or paid. Accrual-based accounting is typical in organisations with more frequent and larger transactions.
Do I need to have my accounts audited?
If your charity’s total operating expenditure for each of the two previous financial years was:
– Over $500,000: financial statements must be either audited or reviewed by a qualified auditor.
– Over $1 million: financial statements must be audited by a qualified auditor.
You can find more about financial reporting standards here.
Charities Services have also provided this helpful guidance here as well.
These key obligations are just a few of the ongoing obligations charities should comply with. Charities should also ensure they operate in accordance with their own rules, the Charities Act 2005, and other relevant legislation.
This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We have helped many charities over the years and would be more than happy to discuss with you. For more information, feel free to contact Steven Moe at firstname.lastname@example.org