Questions raised after charity's property gamble leaves holes in services
Tuesday, 22 December 2020
The former board of one of the country’s richest charities, tasked with helping those with cerebral palsy, loaned millions to property companies that have failed to provide a return for the charity despite using the money to invest in Auckland’s red-hot housing market.
Questions are being raised by charity members and experts over the deals, which saw the former Cerebral Palsy Society president and a colleague paid tens of thousands of dollars in fees for masterminding and managing the arrangement, which appears to have left a $2m hole in the society’s finances as services were cut to those most in need.
When it comes to non-government funded disability charities, the Cerebral Palsy Society (CPS) is one of the richest in New Zealand, with a total financial equity of $32.6m.
But in May, both its staff and members began to question what exactly was being done with the organisations’ money.
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The scrutiny came in response to an announcement that the then-board intended to cut voucher programmes by half and remove staff responsible for providing services – a move that would significantly affect the quality of life for its 1700 members.
According to internal documents, the reason given was financial, the result of a bad fundraising year.
And thanks to Covid-19, the former board said they had been given a dire financial forecast predicting a 60 per cent drop in their investment portfolio by 2021.
Cuts had to be made, staff and members were told.
But an examination of CPS’ annual consolidated accounts, available through Charity Services suggests there may be another explanation.
At first glance 2020 was a bad year for the charities’ financial holdings, with $569,409 more spent than it made.
But turning the page paints a bigger picture – over the past five years, CPS has increased its total equity by $3.9m, that figure was $2.7m in 2019 alone.
Most of this lies in $30.6m worth of managed investments, which can be withdrawn at any time.
The bottom line is, long term, when combined with grants and donations it appears there’s more than enough there to keep the charity running without cuts. One bad year in 2020 wouldn’t make a serious dent.
Looking closer, the fine print reveals something else.
In May 2016, two million dollars of charity money was provided from the Cerebral Palsy Society of New Zealand Inc in the form of an interest-free loan to create a high-stakes, high-return business named Cerebral Investments Ltd (CIL), that was aimed at purchasing, renovating and selling houses.
The business is controlled by two directors, Anthony Smith, who was CPS president when the arrangement was made, and Brian Yee. In return for their part in running the businesses, the pair were paid a yearly fee of $50,000 between them.
This figure increased to $96,720 in 2017 and was $97,700 in 2020. And over five years, the two directors were put in charge of three new sub-companies, CIL Landscaping Ltd, CIL Concretes Ltd and CIL Aircon Ltd.
Documents reveal one of the company headquarters neighbours Smith’s personal address.
Smith and Yee declined to answer detailed written questions from Stuff. Yee declined to be interviewed when contacted by phone and numerous attempts to contact Smith solicited no response.
As a result of the charity’s annual election in October, six of the seven members of the former board have been replaced.
While Smith remains on the board, and director of the companies four CIL companies, he was replaced by Emma Lovett as the president of CPS.
The current board said they could not comment in detail but questions asked by Stuff were around complex issues “that have been subject to review and consideration by the Cerebral Palsy Society over the past twelve months or so.”
Members recently voted for change at Board level and the new Board is working through a process to determine the best way to move forward in the current best interests of its membership.”
“It would be premature for us to respond publicly to your various assertions before concluding our own review of information and managing internally with our members.”
In an email to members, the current board said the charity was in a “period of transition” as a result of the election.
“We recognise that the Society and the membership have had many challenges in recent months,” they wrote.
“It will take some time for the new Board to work through issues and to determine our future strategy for the Society, and we will be seeking member input into that.”
In 2017 Stuff covered the charity’s attempts to sell a renovated Monyash Road property. Smith at the time called the project a reflection of the charity’s “hardy culture of self-sufficiency.”
“It's a long-term strategy. We saw property as something that was logical to be part of, and we're looking to add value, not just to buy a property and sell it the next day,” he said.
The property was both bought and renovated by the companies directed by Smith and owned by the charity, which improved the 1980s brick and plaster three-bedroom house, and added a fourth bedroom and master ensuite.
At the time Darren Grant of Bayleys Whangaparaoa, estimated the property’s new value was sitting at roughly $900,000.
While the Monyash property has been sold, none of the $2m loaned by the Cerebral Palsy Society of New Zealand Inc has been paid back, and no revenue generated by the four companies has flowed into CPS coffers.
At the 2020 CPS annual general meeting, former treasurer Dave Thomas was recorded telling members the deficit in 2020 was “probably” as a result of these companies.
Michael Gousmett, an adjunct fellow in the school of humanities at Canterbury University who also acts as a consultant for charity and not-for-profit organisations labelled the use of funds “unusual.”
“Flipping heck… this certainly raises alarm bells straight away, the whole idea of the Charities and Societies Act is there cannot be a private benefit for what’s supposed to be a volunteer position.”
Gousmett described the annual reports CPS provided to Charity Services as the “minimum amount of reporting you’ve got to provide.”
“The problem is they’re all merged into one big pot so you can’t make heads or tails… it could be that [Smith] is receiving not much of anything.”
“But the fact that it's not known raises eyebrows… it definitely doesn’t live up to the principle of transparency under the Charities Act.”
Gousmett says there's also the issues around the use of donated money to run a high-stakes high-return tax-exempt business that does not directly improve the lives of those with cerebral palsy.
“Tell me how landscaping and concreting benefits them… that’s the idea behind the tax-exempt status.”
“There’s also the issue that you’re putting charitable funds at risk with your own private venture… what happens if the company falls over and goes broke? That’s donated money you’ve lost.”
The Department of Internal Affairs, Charity Services, say they have been given information about CPS finances in June which they are “currently assessing,” but cannot provide further comment.
Questions raised but answered with legal threats
When the previous board of the Cerebral Palsy Society cut services and reduced staff, charity members that questioned the move received warnings from the charity's lawyers and threats of police from a board member.
Katherine Thomas admits raising a daughter with type two cerebral palsy is hard, but during a lockdown, it's overwhelming.
“You feel super isolated, there’s very little government support.”
But in March, help came from Cerebral Palsy Society (CPS) family advocate Gemma Overton, who provided both information about services still available, and emotional support during the stressful period.
“She was fantastic,” says Thomas.
“We would have conversations that were an hour-long, what I could do, what was available to me. Sometimes it was just good to talk to someone who knows what you're going through.”
She says Overton appeared to be a part of an ongoing change in the 1700 member charity.
Only a few years ago, Thomas says, the benefits of CPS membership was largely limited to vouchers for transport and speciality equipment, which were often unusable due to the small number of partnered suppliers.
But by 2020, the voucher programme was streamlined for improved access and expanded to cover $1550 of the yearly costs of equipment, physical therapy, transport and counselling.
A one time grant of $1950 was also provided for legal fees.
The charity became active on social media, gave grants, hosted social events, funded research into medical treatments and staff such as Overton provided face-to-face information and support to members, all for an annual membership fee of only $10 for someone with cerebral palsy or $15 for a family member.
“I was actually really proud of the society… I was excited about the future, it felt like there were changes in the air,” said Thomas.
But in June the charity changed.
Overton was one of the four full-time staff members removed from the 11-person organisation as part of a cost-cutting restructure (link).
Member vouchers were officially reduced by half, and now had an expiry date of three months, sometimes they weren’t mailed at all, or arrived late.
“They never came… when I went into the (CPS) office they didn’t know what I was talking about, when we did get them, they were almost expired.”
“I’m not the only one, there are so many people that rely on those… with the same story.”
Stuff has obtained a recording of then CPS president Anthony Smith telling staff it was “problematic” that members had begun to rely on vouchers, and that the role of the organisation should be to “enhance lives” not provide a “total solution.”
It wasn’t just the vouchers, Thomas says, the charity seemed to be “stripped of its soul.”
“Before when I went into the office everyone would talk to Ella… now the board just ignored her and a lot of the staff were gone.”
The difference, she says, became obvious during the second Level 4 Auckland lock down in August.
“In the first lock down we got so many phone calls… in the second, we got one generic text message.”
“We were alone.”
“I felt really let down frightened, silenced, unappreciated… I felt physically sick.”
Thomas shared her concerns on social media, joining 270 other charity members in the private Facebook group 'Members of CPS,' which sprung in response to the restructures.
Group member Melissa Neville has an eight-year-old daughter, Maddie, with cerebral palsy. She describes the experience as a constant grieving process.
“It knifes your heart… to see them upset because they can't do something like other kids their age.”
She says the changes in the charity felt like “the rug was pulled out from under you.”
“That good work just died… it was like 'here we go back to the old days.'”
Wanting to know more, she began looking into the organisations’ finances using publicly available documents through the Charities Register.
She discovered CPS had spent $2m been investing in what were supposed to be high-stakes, high-return business ventures.
The four companies were owned by CPS, under the directorship of the then-board president Anthony Smith and appeared to have provided no financial benefit to the charity.
In a previous story, Stuff outlined that Smith and colleague Brain Yee were paid tens of thousands of dollars for running the companies, which were yet to return a dividend to CPS.
Smith and Yee declined to answer detailed written questions from Stuff. Yee declined to be interviewed when contacted by phone and numerous attempts to contact Smith solicited no response.
Neville posted details of the companies' structure and financial arrangement to 'Members of CPS' private Facebok group with Internet links to the information, asking members to consider it before voting at the upcoming AGM.
One week later she received an email from CPS lawyers threatening her with legal action unless she removed the post and issued an apology in three days.
“I was in abject fear, horror… seriously a charity is attacking members?” says Neville.
Stuff has seen a similar warning issued to another group member.
Other members chose to contact the board directly, sending a group email to the former charity treasurer Dave Thomas requesting a special meeting, a member right under the charity's constitution.
They did not get a warm response.
“You have breached my privacy by using an email address that you do not have permission to use and have obtained illegally,” wrote Thomas.
“I will be taking a complaint to the office of the Privacy Commissioner and asking them to investigate and take action against you.”
When a member responded that Thomas’ email was publicly available through a quick Google search, he threatened to contact the police.
“You are now testing my patience. Do you want me to talk to the Police about your constant harassment?”
“I have noted also the names of your associates… I am asking that all members of your Group immediately delete this email address and refrain from using it in [the] future.”
“I suggest it is in your interests to do so.”
Thomas declined to comment to Stuff over the phone saying “I’ve got absolutely nothing to say to you but thanks for trying.”
However, in October, Thomas was one of six of seven board members replaced as part of the charities annual election.
The current board would not comment in detail, but said the questions emailed by Stuff “raises a number of matters that have been subject to review and consideration by the Cerebral Palsy Society over the past twelve months or so.”
In an email to members, the current board said the charity was in a “period of transition” as a result of the election.
“We recognise that the Society and the membership have had many challenges in recent months,” they wrote.
“It will take some time for the new Board to work through issues and to determine our future strategy for the Society, and we will be seeking member input into that.”