Philanthropy – the history, challenges and opportunities
“Philanthropy is the act of giving financial resources to a cause that is intended to improve general...
What a year it is has been! This article recaps on our articles published during this year and the key messages to take into 2020. In our next article we look forward to providing you with an overview of our Baker Tilly Staples Rodway service offerings that could help to create enduring success for your organisation.
In this article we discussed how organisations are increasingly demonstrating a commitment to a greater good and a ‘purpose beyond profit’. There is growing recognition of the value social enterprises contribute to society as a result of their existence, including employing people, delivering social, cultural and environmental outcomes and not relying on government grants and donations.
We outlined the legal entity structures available for social enterprises and the relevant tax considerations; we considered if there is an opportunity for improving entity structures and tax incentives available for social enterprises.
There is also a growing trend of impact investing, where investing is done with the intention of generating a measurable and beneficial societal and/or environmental impact alongside a financial return. Many investors are looking to invest in the ‘greater good’ and diversify their portfolios, this includes some of the world’s biggest venture capitalists.
In this article we looked at the challenges of organisations trying to support philanthropy and grant making in New Zealand. We examined the history of philanthropy, the legal structures available and what we can do to philanthropise ‘better’.
Through creating an awareness of philanthropic giving we can encourage structured relationships and engage with our local communities in an inclusive and appropriate way.
This article explained how your charity can grow by attracting funding, with a focus on finding grants.
Grants are funds received from statutory, voluntary or philanthropic agencies. Organisations give grants to meet their own objectives and strategies such as government policy, community development or supporting the local community. This article explained where you can obtain grant funding from and other types of charity funding.
The Charities Act 2005 (the Act) is currently under review to ensure it is well-designed and effective and contributes to a thriving and sustainable charities sector where:
The stated purposes of the Act were considered ‘fit for purpose’ to change. Charities receive public support and benefit via the provision of volunteer and in-kind services, financial support through donations, bequests and other avenues, and the income tax exemption. Public support is critical as the public trust and confidence in the charities sector and regulation plays an important role in enabling this.
The Act provides a registration, reporting and monitoring system for charities. The review is an opportunity to consider whether the Act has been effective in enacting its three core functions. The review was driven by a desire to modernise the Act and to ensure it is fit for purpose for the different needs of New Zealand’s diverse (and numerous) charities.
This article outlined the scope of the review of the Act and the key issues being examined as part of the review.
This article explained the key considerations that charities need to consider in relation to the accumulation of funds; one of the areas considered as part of the review. We consider that charities should be able to build up sufficient reserves to fund future operations or projects (such as development of a new community facility, contingencies, asset replacement, special projects).
However, the accumulation of funds needs to be balanced against public perception and the reason the charity was established in the first instance.
For charities, it is critical that reserves are well managed, balancing the need for a contingency fund with a focus on delivering upon the organisation’s mission. Reserves should allow the charity to weather unexpected financial disasters, make investment decisions and to run budget deficits in order to achieve their charitable purpose.
Key controls that can help charities to achieve this balance include adequate oversight and monitoring at a governance level and development of a reserves policy to guide the accumulation of funds.
In this article we discuss the concepts around financial gain. If the society is found to be engaging in operations involving financial gain, both the society and the members are liable to be prosecuted and fined and all members involved can be personally liable for any debts and obligations incurred by the society.
An incorporated society is a group or organisation that has been registered under the Incorporated Societies Act 1908. Once incorporated, the society is authorised by law to run its affairs as though it were an individual person. This means that the members are not personally liable for the society's debts, contracts or other obligations. Likewise, members do not have any personal interest in any property or assets owned by the society.
There are a wide range of groups and organisations that have become incorporated societies. These include sports clubs, social clubs, music and cultural groups, special interest and activist organisations.
We also discussed the requirements for incorporated societies with regards to setting rules, holding meetings and entering into contracts.
The Government has agreed to implement modern legislation that will help guide the sector into the future. This article looked at the current reporting requirements imposed on Societies as well as the likely future requirements.
The exposure draft proposed changes to incorporate societies financial reporting to align with the reporting requirements for registered charities.
This will require societies to prepare financial statements that have been prepared in accordance with GAAP (Generally Accepted Accounting Principles). For small societies the lower XRB (External Reporting Board) cash simple format reporting will apply.
There also will be a requirement to lodge the financial statements with the Registrar within six months of the end of the society’s financial year.
In this next article we outlined the upcoming changes for Incorporated Societies; considered the key amendments in relation to financial reporting and assurance requirements and provided an overview of the proposed transition process.
Introduction of financial reporting requirements and audit requirements
The following three criteria are proposed for determining which incorporated societies will be required to report using XRB standards:
These criteria should help ensure small incorporated societies are not disproportionately burdened by the need to comply with these requirements.
Above these thresholds societies with annual operating expenditure $2 million or less in one or both of the two preceding financial years will be able to prepare a performance report in accordance with the XRB’s simple format reporting standards for not-for-profit entities (Tiers 3 or 4). Societies that do not qualify for Tier 3 or 4 reporting will be required to prepare financial statements in accordance with the more extensive Tier 1 or 2 Public Benefit Entity (PBE) Standards.
Under the 1908 Act, there was no requirement for incorporated societies to obtain an audit or review of their financial information. The recently released amendments proposed a mandatory audit requirement where incorporated societies, who are not registered charities, satisfy one of the following criteria:
Under the proposals, societies with annual expenditure lower than $2 million or assets less than $4 million will be able to decide whether they would like to voluntarily have an audit or review of some other sort of engagement, like an agreed-upon-procedures engagement, to provide assurance to its funder and other stakeholders.
It is proposed that all incorporated societies will transition into the new regime over a 2-year period, with all incorporated societies being required to re-register under the new Act (rather than being automatically transferred as was initially proposed).
As part of the transition process, the Companies Office and MBIE have committed to:
Undertaking an education campaign to let people know about the new Incorporated Societies regime.
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