Chief Executive's Report
Introduction
When the Charities Commission was established in July 2005 we knew that we had a number of functions that it had to achieve, but we also knew that the first priority was to establish a registration process for charities and to set up the Charities Register. Over the past two years this has been the main focus of the Commission, and on 1 February of this year that work culminated in the opening of the Charities Register and the acceptance of our first applications for registration.
During the work that we have been doing establishing registration, we have been constantly mindful that we have to make sure that we communicate with all of those that might register as a charity, and that we make the registration process as easy as possible. We spent a lot of time consulting with a wide range of organisations before the registration forms were finally developed, and even after that, we continue to get suggestions as to how the process can be made easier. If changes can be made to assist people, then we do our best to make those changes.
We have also spent a lot of time meeting with organisations across the country, in our registration workshops, through speaking engagements, and at the numerous meetings that we attend. The opportunity to talk about the role of the Commission, and registration in particular, and to learn of the concerns and needs of charitable organisations, is something that we value.
One of the messages that we frequently get is that most organisations see the real value of having a Charities Commission and see that once the Charities Register is fully operational, that there will be benefits for charitable organisations. They also see that the Commission’s role of enhancing trust and confidence in the charitable sector is an important one.
During the development of the registration process, the Commission looked at ways in which it might be able to accept decisions made on an organisation’s charitable status by other government agencies at some earlier stage in the organisation’s history. However, the legal advice that we received from several sources was that the Commission would have to look at every application afresh and that it could not rely on other decisions.
This advice obviously had implications for how we were going to resource the initial registration period. However, the advantage that arises from every applicant having to go through a full registration analysis to confirm their charitable purpose, rather than simply rubber stamping their application, is that it will in the longer term provide the public, and the sector, with greater certainty and confidence in the charities that are registered with the Commission.
Key activities and highlights for the 2006/07 year were:
• officially opening the Charities Register on 1 February 2007. The Minister of Finance, the Hon. Dr Michael Cullen officiated, with the support of the Minister for the Community and Voluntary Sector, the Hon. Luamanuvao Winnie Laban
• establishing and training a team of specialist registration analysts and senior analysts
• registering the first charity under the Charities Act 2005 – 12 February - Te Aute Koiri Foundation Incorporated
• developing and maintaining the positive relationships the Commission has built with the charitable sector
• delivering more than 80 registration education workshops throughout New Zealand, and receiving positive feedback from participants
• providing regular updates to stakeholders via the Commission’s website and Update newsletter, distributed to more than 3,860 subscribers
• developing a significant body of legal analysis and education material to support the sector through the registration process, particularly in relation to the application of the Charities Act regarding:
- the charitable purpose test
- registration of overseas charities
- charitable purpose and sporting organisations
- charitable purpose and advocacy
- public benefit requirements
- the single entity (group) registration process
• developing an effective way of providing information from the Register to the Inland Revenue Department, the Ministry of Economic Development’s Companies Office and Statistics New Zealand
• publishing the Commission’s second Statement of Intent during the reporting period, and delivering it to the Minister for the Community and Voluntary Sector on 29 June 2007.
Key achievements in 2006/07
Registration
Apart from the work involved in developing the organisation, the Commission’s main function over the past year has involved its role with registration.
Charity law is complex. The Charities Act 2005 provides some general guidance as to the parameters within which a charity might be defined but the Commission must rely to a large extent on case law from court decisions made since the first charities law was passed more than 400 years ago. The Commission has had to put a significant amount of work into developing guidance both for applicants and for its own registration analysts to assist with the decision making process. As well as the law on charitable purposes, the other complicating matter has been the fact that charities come in different organisational forms. These include trusts, charitable trusts, incorporated societies, unincorporated societies, and companies. Each has its own legal requirements and these also need to be considered when registration decisions are made.
Prior to registration commencing, a great deal of effort was put into getting information out into the community about the requirement for charities to register and the processes for doing so. What we did is outlined in more detail later in this report.
Effort was also put into developing the electronic systems necessary for the making and processing of applications, together with the recruitment and training of registration staff.
During 2006, the Commission became aware that the information technology systems initially developed for registration lacked ongoing flexibility and capability. By way of background, the IT systems for registration were commenced before the formation of the Commission, and were based on assumptions that were changed with the passing of the Charities Act 2005.
This meant that as the Commission developed its requirements for registration and considered its legislative obligations, it became clear that the system that it was contracted to neither met the legislative requirements nor gave the Commission the opportunity to economically change the way the system worked.
This last point meant that where it was clear that the registration system needed to change to make it easier for organisations to register, or to make it easier to access information from the Register, it was potentially going to be too expensive to make the necessary changes. The Commission, with the support and guidance of appropriate agencies, contracted for an independent review of the options available to it. The recommended option was to change from the bespoke (purpose built) system that it was using and still developing, to a packaged system that could be easily tailored to meet the Commission’s ongoing requirements. The Commission agreed with the recommendation and commenced work on the new system at the start of 2007. The new system is expected to replace the previous system in November 2007.
We planned to register 25,000 charities during the initial registration period. That period was from the commencement of registration on 1 February 2007 until 30 June 2008, at which time tax law changes will oblige charities to be registered in order to maintain any tax benefits that they had been claiming.
All of our budgeting has been done using the 25,000 figure but we acknowledge that it is, at best, a guess. Since registration commenced, Statistics New Zealand has reported that there are 97,000 non-profit organisations in New Zealand, and that figure does not account for the large number of trusts that are in existence. We will not know until the initial registration period has concluded just how many charities there actually might be.
Prior to the commencement of registration, we met with other agencies that are involved in registration processes similar to what we thought ours would be. This helped us to better understand the systems that we would need to put in place. What we have found is that processing an application is more complex, and more time consuming, than we first thought. We often need to go back to applicants because they have not provided all of the required information. We also frequently need to go back to them to have them explain what their organisation does, because it is not clear from their governing documents. Analysts then need to read and understand sometimes long and complex documents to be satisfied that the organisation has fully charitable purposes. We often find that governing documents have not been reviewed for many years and that the organisation’s rules bear little or no relation to what they are actually doing now. We also find that many organisations have a mix of charitable and non-charitable purposes, which means that unless they make changes to their organisation, we are unable to register them.
We also thought, based on feedback that we had received, that there might be an initial surge of applications. That did not happen. We have been disappointed by the slow commencement to registration, and early on in the process changed our message to charities to say that they should register as soon as possible. This message did bring about an increase in the number of applications, but we are now aware that there will be a large number of applications during 2008. This will have resource implications for the Commission and will also mean that we do not expect all decisions to be made until the end of 2008. The Commission does have the ability to backdate registration to the date on which a completed application was received by the Commission though, so charities will not be disadvantaged, in a tax sense, by any delay in decision-making.
During our meetings with charities, we are told that most organisations are aware of the need to register, but they also tell us that when they look at the rules for their organisation that they see that they need to make changes to them. This takes time and usually means that they will need to wait until their next AGM before the changes can be made.
Feedback that we have received from those who have registered has been generally positive. Most have found the process of registering to have been easier than they had anticipated. (We learned that one organisation took only 12 minutes to go through the application process online). We have been told that the Commission has been helpful to those that have questions to ask about registration. We have also been told that people who have had problems with their submitted applications have been given sufficient assistance from our staff for the problems to be addressed. That is positive.
Unfortunately, we initially gave an expectation that applications would be dealt with in 30 days, whereas we are actually taking around 90 days. This has been frustrating for some applicants and has also discouraged some others from applying early. That time difference is because of having fewer staff than we require, and because the time taken to examine an application is longer than we anticipated.
Community awareness, communication and education
The Commission is committed to maintaining and further developing its relationship with the charitable sector through regular, two-way communication.
In particular, the Commission has placed considerable emphasis on communicating with charitable organisations and advisers to the sector, to raise awareness of the Commission’s role, the requirements of the Charities Act, and how to apply for registration.
Our strategic approach to communications is to tailor our communications and response mechanisms to suit target audiences, which range from national umbrella groups to small trusts and charities working amongst their community and across ethnic groups. Our approach is to work as closely as possible with the sector, and to use the sector’s own communications channels wherever possible.
The Commission’s communications plan, which was first developed in December 2005, and which has subsequently been updated, involves informing charitable organisations about the Commission, the registration process, and the benefits of registration. There is also a specific education plan that has been implemented to help the sector work through registration.
Below is a summary of the Commission’s community awareness, communication and education achievements in 2006/07:
• Awareness of the Charities Act, its benefits, the Commission’s role, and the requirements for registration were raised through communications directed at both the wider public and the charitable sector
• The launch of the Register of Charities, formally opened in a ceremony held in the Grand Hall at Parliament, was extensively publicised and promoted
• Milestone events, such as the registration of the first, 100th and 500th charity to be registered under the Charities Act, were widely promoted
• A significant body of “plain English” guidance and information for charities wishing to register was developed and widely distributed and promoted.
• More than 13,000 registration information packs were produced and provided to potential applicants
• Guidance and other support material was translated into six languages – Māori, Samoan, Tongan, Korean, Arabic and Chinese – and made available to ethnic communities
• Enhancing the service provided by our key communication channels, including the website and the contact centre. Website traffic increased from an average 5,747 visits a month in July 2006 to an average 14,648 visits a month in June 2007. Contact centre volumes increased from approximately 171 calls in July 2006 to 1,291 calls in June 2007, (with a peak of 1,579 in May 2007)
• The LanguageLine service was made available to callers to the Commission’s contact centre, offering interpretation services in 39 languages
• Following the opening of the Register, more than 80 registration education workshops were delivered nationally, in partnership with sector organisations They received very positive feedback from participants
• Board members, the Chief Executive and other staff continued to meet with many groups and individuals in the charitable sector, to promote the work of the Commission, and to provide information and support for registration. A proactive programme of speaking engagements and networking opportunities was undertaken
• Stakeholders were provided with regular updates on the Commission’s activities and progress via the Commission’s website and monthly Update newsletter (Update is distributed directly to more than 3,860 subscribers, many of whom distribute it more widely – one recipient forwards it to more than 450 other people in their network). Many subscribers include excerpts from Update in their own newsletters to members and affiliated organisations, and reproduce it on their websites
• A variety of external channels were engaged to feature information about the Commission and distribute key messages about registration. Some examples include: articles in city and district councils’ ratepayers’ newsletters, articles in professional magazines such as the New Zealand Institute of Chartered Accountants’ (NZICA) journal, and a direct mail to all Charitable Trusts and Incorporated Societies registered with the Ministry of Economic Development’s Companies Office.
Financial performance
In its second financial year, the Charities Commission recorded a net deficit of $2.766 million, which was $0.945 million more than the budgeted deficit of $1.821 million.
Revenue exceeded budget by $0.427 million, with the Commission receiving additional Crown revenue of $0.331 million following the outcome of the Commission’s budget bid for additional funding in October 2006.
However, actual expenses were more than budget by $1.371 million, largely as a result of the decision to write off the $1.665 million balance of the bespoke registration software at 30 June. The reasons for the change in software have been discussed earlier, where it was noted that the initial registration software is due to be replaced by the new registration system in November 2007. Because the initial system was to be replaced early in the next financial year, the Commission was advised that it was appropriate to write off the full cost of the system at 30 June 2007.
The deficit for the year has been funded from the surplus brought forward from 2005/06. This surplus arose largely due to the change in the timing of the opening of the Charities Register. This meant that the registration of charitable organisations did not start when originally planned, and as a result, several establishment tasks were not completed as budgeted.
Relationships with other government agencies
The work of the Commission is not carried out in isolation. There are a number of key government agencies that work with charities in different ways. Because of the size of the sector, and the breadth of the sector’s activities, not all government agencies are involved with every charity. The Commission has been delighted with the high level of cooperation that it has had from the main government agencies with which it works. These include Inland Revenue, the Ministry of Economic Development, the Department of Internal Affairs, and Statistics New Zealand. We are also starting to reach out to a range of other government agencies as we commence our strategic planning for the future role of the Commission.
The Charities Act requires the Commission to be involved with activities beyond the registration of charities. These include education in the management and governance of charitable organisations, monitoring of charities, and investigating any matters relating to charities.
In the lead up to and commencement of registration, the Commission focussed on confirming its relationships with the key Crown stakeholders that have overlapping interests in registered charities. The Commission signed memoranda of understanding with Inland Revenue and the Ministry of Economic Development, confirming both agencies’ obligations regarding the sharing of information required by the Charities Act. This information sharing is now proceeding smoothly, with the agencies’ respective records being updated as registration progresses.
A memorandum of understanding has also been signed with the Department of Internal Affairs. The Department is responsible for managing the Crown’s relationship with and funding for the Commission, and for the administration of the Charities Act 2005. This relationship’s interactions reflect the increasing demands of the registration process and implementation of the Act.
The policy profile of the Commission is also becoming more established, with advice on the interrelationship of new initiatives with the Charities Act and the role and function of the Charities Commission being sought regularly by other Crown agencies.
Challenges
The Commission faces a number of challenges over the coming year, some of which have already been discussed in this report.
The first challenge is dealing with uncertainty about the number of applications for registration. We have budgeted for 25,000 applications by 30 June 2008 and are funded to employ staff to process that number.
Employing the numbers of qualified staff required on short term contracts to analyse applications is not easy, although we have been very pleased with the high quality of the staff that we have recruited so far.
If we receive more than 25,000 applications, then we will need to seek further funding. However, as we anticipate that we will receive the majority of applications in the last few months of the initial registration period, it will be difficult for us to respond quickly to any increase in total numbers.
We will also be bringing in a new IT system for the Register in late 2007. We anticipate that this will make the registration application and review processes easier. It will also allow us to meet our statutory obligations with respect to accessing information on the Register. Further, we expect that it will allow us better use of the information collected as part of the registration process, which will mean that those involved in policy or research work on charities will be able to obtain a greater level of information than is now possible.
Finally, the Commission will be putting a great deal of work into considering how its role is to develop beyond the initial registration period. It is important that the Commission is seen as more than a regulatory agency, although this is a significant role. It is also important that its work in understanding and supporting the charitable sector is developed in such a way that it can influence the impact that charities have in the communities in which they operate.
Other statutory tasks
The Commission has maintained its position that its first focus must be the registration of charities and the population of the Charities Register, and that its work on other areas will commence once these functions have been established, and it is able to form a better view of the numbers and nature of registered charities.
The Commission will also be guided by the information provided as part of the annual returns process, which will develop more fully in 2008; and by its interactions with charities and their feedback regarding their needs for education and information.
The Commission is aware that the population of the Charities Register is of significance to certain organisations who have expressed an interest in using it as a resource. These include funding agencies, who may look to the Register as a basis for their interaction with organisations in the not-for-profit sector; and organisations wishing to disseminate information to charities or to draw upon the Register for research purposes.
Conclusion
The opening of the Charities Register on 1 February 2007 and the commencement of registration of charities saw the achievement of the Commission’s first major objective and was a significant milestone for the regulation of the charitable sector in New Zealand.
The Register, once populated, will be a valuable resource that can be used to compile information about the charitable sector and as a basis to stimulate and promote research into matters relating to charities.
Opening the Register and registering numerous charities since it opened has involved the perseverance and commitment of the Commission’s Board, management and staff, and I would like to express my ongoing appreciation for their hard work and enthusiasm for our task.
However, the Commission still faces the significant challenge of registering many more charities by the end of June 2008, and increasing our focus on other activities – including educating charities in matters of governance, monitoring registered charities and investigating breaches of the Act.
It is a challenge that we expect to meet through ongoing hard work, but one that we also expect – in the longer term – to be rewarded with enhanced public trust and confidence in the charitable sector and its valuable contribution to New Zealand society.
Trevor Garrett
Chief Executive