Charities sitting on millions more in cash than a year ago

Friday, 14 April 2023

Charlotte Stanley, general manager of Charities Services at the department DIA, says accumulation of funds demonstrates a charity is growing its resources, and it is often necessary for future investment for the success of the charity.

A number of charities have millions of dollars more in cash on hand than they had the year before, and it will be at least another year before they will have to justify why they are sitting on the funds.

According to recent annual returns, Emerge Aotearoa, a national charitable trust providing a range of health and social services, had nearly $50.5 million cash on its books at the end of June 2022, up $16m on the year before.

Chief financial officer John Cook said the reason for the increases was commercially sensitive information.

“As such we are unable to elaborate,” he said.

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At the end of March 2022 City Impact owned $27.8 million in properties, plant and equipment, down from over $35.3 million the year before.

Cook said the charity held reserves of three months operating expenses in case the group lost its funding and had to wind up.

“We believe this represents prudent financial management of the group,” he said.

“The balance of the reserves currently held are for future investment into our charitable activities, such as providing more social and affordable housing across Aotearoa.”

Emerge was not the only registered charity with increased cash on hand.

The City Impact Church Group had $13.9 million in cash on the books at the end of 2022, up from $2.5m the year before.

City Impact spokesperson Graham Burger said the large increase was down to the church selling its Mt Wellington campus, and the proceeds would be used to purchase further property when something suitable became available.

Trinity Lands, one of a number of charities associated with Christian Community Churches (formerly known as the Open Brethren Church), had about $3.2m at the end of May 2022, up from a cash debt of nearly $700,000 the year before.

Trinity Lands is a major big in dairying and kiwifruit production.

It had a faith-driven purpose, to “farm for good”, including donating money earned from its operations to local and community-good projects.

Trinity chief financial officer Ngaire Scott said for a business of Trinity’s scale, a movement of cash reserves of $3.9m over a year was not significant.

“Predominately it is a function of achieving stronger sales, investing less in PPE, and paying out more dividends to the charity shareholders, compared to the previous year,” Scott said.

Scott declined to comment on how the charity perceived the Government’s plans to require charities to justify their cash reserves.

Registered charity Seventh-day Adventist Church in New Zealand, which includes the Sanitarium charity, was sitting on $103.4m at the end of June 2022, an increase of $1.3m on the year before.

Sanitarium has been approached for comment.

Plans to start requiring charities to explain their cash holdings are being handled by the Department of Internal Affairs.

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Charlotte Stanley, general manager of Charities Services at the department, said accumulation of funds demonstrated a charity was growing its resources, and it was often necessary for future investment for the success of the charity.

“Accumulation of funds is not problematic unless the funds are not used for charitable purpose, which could constitute serious wrongdoing leading to the charity being deregistered,” she said.

Stanley said it could be problematic if it was unclear why charities were accumulating funds.

“Requiring an explanation in the annual return will address this, and it will be up to users such as donors and Inland Revenue to draw their own conclusions.”

The reporting changes were non-legislative, meaning they did not require any law changes to implement, and Charities Services was working on changes to annual reporting forms.

“As many Kaupapa Māori charities made submissions on this issue, the question is to be co-designed with iwi and hapū groups. The wider charitable sector will then be consulted before the form changes are implemented,” Stanley said.

Changes on reporting forms would come into force in April next year.

“Charities Services may take compliance action where we obtain information, including through reporting in annual returns, that suggests a charity is not focused on achieving its charitable purposes,” Stanley said.

“Repeated failure to complete the annual reporting process itself may result in removal. “

“There can be tax consequences to removal, as well as loss of the other benefits of registration.”

Community and Voluntary Sector Minister Priyanca Radhakrishnan said proposed changes would require charities with operating expenses over $140,000 to report the reasons for their accumulated funds such as cash, assets or other resources.

Radhakrishnan said the changes were intended to improve public trust in the charitable sector, and were focus on why some charities sat on lot of cash.

“We considered some other options, for example looking at whether we require a distribution plan, or set a minimum percentage that larger charities need to distribute. But I feel that would be putting the cart before the horse, I want to know why first,” she said.

This article has been amended to clarify Trinity Lands’ stated purpose, and to note that the Open Brethren Church is now known as Christian Community Churches. Amendments made at 5.20pm on April 18, 2023.