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Compliance requirements for small organisations

Table of Contents

1. Legislation, legal structures, obligations and features

1.1. Governing legislation

  • Incorporated Societies Act 2022 - An Act to make provision for the incorporation of societies which are not established for the purpose of pecuniary gain
  • Charitable Trusts Act 1957 - An Act to consolidate and amend certain enactments of the Parliament of New Zealand relating to charitable trusts
  • Charities Act 2005 - The Charities Act 2005 ("the Act") established the Charities Commission. The Commission was given the responsibility of administering the Act and the registration of charitable entities began on 1 February 2007, when the Charities Register (“the Register”) opened. The Charities Commission became Charities Services in 2012.

(source New Zealand Government Legislation)

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1.2. Features and obligations for societies, trusts and groups

(source Community.net.nz)

 

Unincorporated group

Incorporated society

Registered charitable trust (society-based)

Registered charitable trust (trust-based)

Legislation

None

Incorporated Societies Act 2022

Charitable Trusts Act 1957

Charitable Trusts Act 1957

Minimum number of people required

Two individuals

 

5 individuals or existing society

Two or more trustees

Decision-making

By members at general meeting/by committee

 

By members at general meeting/by board

By trustees/trust board

Liability of members/ trustees

Personal liability of members

In general, limited personal liability, provided decision makers act prudently and within the group's purpose and, if charitable, not for personal gain.

Reporting requirements

None unless registered under the Charities Act 2005

 

Registrar of Incorporated Societies requires: changes of rules and office

Registrar of Incorporated Societies requires: changes of rules and office

 

All organisations registered under the Charities Act 2005 (also known as charitable entities) need to file an annual return (including financial statements) with Charities Services and notify changes to the name, address, balance date, rules, purposes, or officers of the charity to Charities Services.

Disposal of assets on liquidation

Surplus assets can be distributed among members unless charitable status, or other tax exempt status applies

Surplus assets can be distributed among members unless charitable status, or other tax exempt status applies

Surplus assets must be passed on to other charitable organisations

Surplus assets must be passed on to other charitable organisations

Best suited for

One-off situations, informal groups and clubs

Not-for-profit groups and clubs – particularly membership or volunteer-based groups especially smaller groups with strong community links

Good for most not-for-profit groups with a charitable purpose

Not-for-profit organisations with a charitable purpose – especially where the initial trustees want to maintain control and succession

Advantages

No external reporting requirements (unless the group is seeking tax benefits or charitable status). Informal structure, with few rules or restrictions

Democratic, membership-based organisation structure. Easy, efficient structure for non-profit organisations (particularly smaller ones)

Provides a better framework for governance/ management than incorporated societies (especially in larger, more complex groups). Only requires five individuals to incorporate Charitable status and limited liability of members/trust board

Keeps control in a few hands (the trustees), while enjoying limited liability. This provides longer-term stability (but may lead to staleness/ stagnation)

Limitations/ disadvantages

Members may be liable for the debts of the group.

Not a separate legal entity. Not recommended for on-going groups, where groups are employing staff or receiving external funding

Finding (and maintaining) 15 members may be a problem. Risk of committees being overturned annually (at AGM) which may lead to short-term decision-making and limited succession planning (note this can be addressed in the rules). Not suitable for groups with a commercial purpose

Groups need to have a charitable purpose and cannot distribute profits to members. The distinctions between the different types of charitable trusts can be confusing

Control is with the trustees - there is no accountability to a wider membership base. Trustee succession planning is usually by Trustee appointment. The distinctions between the different types of charitable trusts can be confusing
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1.3. Detailed features and obligations for societies, trusts and other organisations

(source Community.net.org)

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1.4. Find your organisation on the Incorporated Societies or Charitiable Trusts registers 

(source New Zealand Companies Office)

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1.5. Proposed Legislative changes to Incorporated Societies Act

A new Incorporated Societies Act is currently being considered by government. Below are some links to articles written by various legal firms on what the proposed changes could mean. Here is a link to the MBIE website which details the progress of this legislation and its various reports. 

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2. Society governance and rules

2.1. Governance and features of not-for-profit boards/committees 

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2.2. Sample Society rules/Build your own Society rules

(source from Incorporated Societies website)

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3. Financial reporting

3.1. Financial reporting responsibilities, audit and tax

Financial reporting responsibilties - (source Charities Services website)

The reporting standards for charitable trusts come under a tier system.  All charities default into Tier 1, but may choose to report in another tier if they meet certain criteria. There are 4 tiers. Which tier shall I use?  

 

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3.2. Audit and review requirements

New statutory audit and review requirements 

Changes to the Charities Act 2005 created statutory audit and review requirements for medium and large registered charities from 1 April 2015. (source Charities Services website)

 

Are you affected by these new requirements: (source Charities Services website)

“If your total operating expenditure for each of the previous two accounting periods was:

  • over $500,000 (medium) – your financial statements must be either audited or reviewed by a qualified auditor
  • over $1 million (large) – your financial statements must be audited by a qualified auditor.

Tier 3 charities that are required by statute to have an audit or review will also have their non-financial information audited or reviewed.“

Check your own Society Constitution or Rules to see if your organisation is required to provide audited or reviewed accounts.

 

To audit or not to audit, that is the question - Article by Julia Fletcher, Chartered Accountant.

 

Different levels of audit (source Community Toolkit) 

“There are several levels of audit and financial review that might be appropriate for community groups:

  • Audit by a chartered accountant with a certificate of public practice. This is generally a full audit that can be quite expensive. Some funders require this level of audit, or it may be set out in your rules. In general, most smaller and medium community organisations will not need this degree of audit.
  • Audit by an accountant without a certificate of public practice e.g. a retired accountant or accounting technician.
  • A review engagement by a qualified accountant. This is less than a full audit, but provides a degree of independent assurance to the accounts.
  • Independent verification by someone who is independent of the group and has a reasonable understanding of accounting, such as a bank manager. Some funders (such as the Lottery Grants Board or the Community Organisation Grants Scheme) require this for smaller groups.

If your rules or constitution don't specify the audit requirements, independent verification (audit level 4) will be sufficient for smaller community groups (i.e. less than $60,000 total annual turnover). For community groups over this level (i.e. needing to be GST-registered and employing staff), it is preferable to get a review engagement (audit level 3) or audit by an accountant (audit level 2). A full audit by a chartered accountant (audit level 1) is only recommended for larger organisations.”

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3.3. Tax responsibilities for non-profit organisations and societies 

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3.4. Filing your financial statements

You will need to file your annual financial statements with Incorporated Societies Registrar (unless your incorporated society is registered with Charities Services).

 (source Charities Services and Inland Revenue websites)

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3.5. Donations - reporting and recording

Checklist for accepting donations – (source Creative NZ)

What should be included on a donation receipt? – (source Charities Services)

  • donor’s full name
  • the amount they donated
  • the date they donated
  • a clear statement that it was a donation
  • your organisation’s name, Charities Services registration number and IRD number
  • your official stamp or logo or letterhead
  • The full name, designation, and signature of an authorised person from your organisation
  • A receipt number, unique to each receipt
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4. Other reporting requirements

 

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5. Te Tiriti o Waitangi Treaty of Waitangi

(source Community.net.nz). 

Recognising and actively promoting the principles of Te Tiriti o Waitangi The Treaty of Waitangi (the Treaty) is an important part of being an effective organisation in New Zealand. Understand the contents and principles of the Treaty.

Writing a Treaty policy - some focus questions:

  • what does the Treaty of Waitangi mean to the organisation?
  • why do we want a Treaty of Waitangi policy?
  • what will be achieved by having this policy?
  • who will benefit from it?
  • what is the purpose of our organisation?
  • what are the main issues on which we need to consult with Māori?
  • who are the iwi in our area?
  • how would we go about consulting with local iwi?
  • what is the local Māori kaupapa (needs, plans) for our organisation?
  • what services already exist for Māori in our area?
  • how can we work alongside these services to benefit our community?

Understanding the principles of the Treaty

Principle
What it means to your group

Kawanatanga - the First Article gives the Crown the principle of governance or the right to make laws and to govern in accordance with its constitutional process on the condition that appropriate priority is given to the interests of Māori, as set out in this Article.

Responsibility to consider the interests of Māori in the decision-making process.

Rangatiratanga - the Second Article guarantees iwi the principle of self-management or Māori control and enjoyment of those resources and taonga they wish to retain.

Responsibility to actively protect Māori rights to rangatiratanga in your actions and decisions.

The principle of equality (Article 3) - guarantees legal equality between Māori and all other New Zealand citizens, essentially ensuring equal access to resources and participation in systems and processes.

Responsibility to ensure Māori have equal access to your service and in your decision-making processes.

 

The principle of co-operation - the Treaty establishes New Zealand as a bicultural country and values cultural differences while encouraging the development of a common purpose and co-operation.

Responsibility to actively consult and ideally to work in partnership with Māori, to create shared understandings and work together for common goals.

The principle of redress - the Crown has accepted the responsibility of providing a process for the resolution of grievances arising from the Treaty through the Waitangi Tribunal and Māori Land Court.

Responsibility to provide opportunity for redress of past injustices through current actions, in particular, by ensuring no further injustice occurs.

 

(for more information, scroll to the end of this link page CommunityNetAotearoa). 

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6. Health and safety guidelines

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7. Employment obligations/other options for secretariat services

Employment and recruitment obligations

 

Other Options for Secretariat/Treasurer services

An alternative to hiring secretariat support, is to contract out these services to another provider. There are a few businesses specialising in secretariat and administrative support for the not for profit sector. It may be worthwhile enquiring in your local area to see if there is a business that provides this service. As an example, Fuzion NZ, OnCue (based in Nelson), ONZL has offices in Auckland and Wellington, and Groundworks is based in Hamilton. 

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8. Other operational matters

8.1. Membership databases

Alternative payment methods for society/organisation members  

With the pending disappearance of cheques from the New Zealand banking system, some organisations and societies are encouraging their members to pay by other means.  One way is for an organisation to get themselves set up as a Bill Payee.  This means when members log on to internet banking their Society's name and bank account details are already pre-filled for use, eg members renewing their subscriptions.  More information can be obtained by contacting your organisation's own bank, or go online and search for 'Become a bill payee'; most banks have online forms for you to complete.  Once the form is completed the bank will ensure you are a Bill Payee with all the major retail banks.

 

Membership database

A current list (database) of members and their contact details. Databases can take many forms and can be simple or sophisticated. An example of a simple database is an excel spreadsheet with the names and contact details of your current members, some organisations use google docs and google forms. You can also have a list or database of ex-members or potential members. There are many different membership management software options on the market.  

 

Accounting/finance systems for society or charity accounts

Cloud based accounting systems for small organisations are useful for maintaining society finances. These can be accessed from any device as long as you have the username and password. Accounting firms now partner with a number of these new systems and are able to offer a licence to their clients along with training and some oversight. Some common and cost effective cloud-based financial accounting systems in New Zealand are Xero and MYOB.

What you should look for in a financial accounting package – (source Community.net.nz). 

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8.2. Record keeping, time limits for records and privacy considerations

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8.3. Dealing with bequests or legacies

The Society oversees the Royal Society Endowment Fund which invests funds from various sources and organisations. For more information on how the fund works and whether your organisation can place funds in the trust, please contact james.henry@royalsociety.org.nz.

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8.4. Organisation websites

As up to date website presence is an effective way of keeping in touch with your members and potential members. Ministry of Business Innovation and Employment have developed three quick assessment tools to help you check how well you are using online platforms to make your organisation run effectively.

Keep your website safe – Business.govt.nz

 

Keep your website regularly updated:

  • with your latest news and events
  • all contact details and options
  • names of office holders and contact details if appropriate
  • how to join and subscribe to newsletters or blogs
  • delete any old information that is no longer relevant
  • previous events can be shown chronologically with the most recent event at the top of the page.
  • If you have items for inclusion in the Society’s monthly Link membership newsletter, please provide a link to your website with the event details.
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8.5. Electronic newsletters

There are a number of free digital newsletter applications which you can access to create newsletters for your members and other subscribers. These allow you to set up an attractive template with your logo and associated images and then easily create and send a newsletter. Subscribers can be downloaded in bulk, and then new members can be added when needed. The Society uses one of these apps for its own newsletters. Some popular newsletter applications are: 

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8.6. Society workplans and handover documents

Society workplans, important date timelines for your organisation

A basic work plan for a non-profit organisation may include the key dates and events for the year. Information regarding key dates around AGM processes can be gathered from the constitution or rules of the organisation. Workplans can be made available to staff, board/committee and members and should be on a shared drive or filing system so is not lost when officers leave their roles. For example, it might include:

  • Dates for committee/board meetings for the year
  • Dates for publications or newsletters to be sent out
  • Dates for invoicing members
  • Key dates in the accounting process including when accounts go to auditor/reviewer and the date that the accounts should be received back from the auditor/reviewer
  • Dates for AGM/Conference/Council
  • Dates for sending out notice of AGM, call for agenda items, notice of nomination/election of officeres
  • Date for sending out confirmed agenda for AGM and officers up for election, and financial reports for consideration by members.

This basic workplan may also include who is responsible for the activities on the plan, a completion date for these actions, key performance indicators, any resource requirements and a progress monitor.

 

Handover documents

A handover document should be produced prior to someone leaving key roles in an organisation (President, Treasurer and Secretary), in order to hand over to new officers. It is advisable to document all processes in your role as you go about your daily work, so that key information is captured. The handover documents may also include workplans, strategic plans, marketing plans, key external and internal contacts for the organisation, annual reports, information on current issues or projects being worked on.    

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9. Online resources for societies and community organisations

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