Changes ahead for the not-for-profit sector

Board directors working in the not-for-profit sector would be wise to hone up on new legislation coming into force. By Cathy Parker.

A majority of directors probably currently serve, or have previously served, on Not- For-Profit boards in New Zealand. There are around 28,000 registered charities in New Zealand and in excess of 100,000 NFP organisations.

The size and sophistication vary considerably from small sports clubs, through school boards of trustees through to some significant charities with large operations – particularly in the social services sector.

There has been a growing move to tighten up regulation for the sector that was still operating under an Act first written in 1908. The Charities Act was a first step in 2005, bringing organisations that wanted to be registered charities under its auspices.

Now the Government is rolling out a new Corporate Societies Act 2022 to tidy the situation up for Incorporated Societies. The Act came into existence in April this year but the process to register under it is not expected to be in place until October 2023 (it is still open for submissions as I write this).

Organisations will have a two-and-a-half-year transition period to register under the new Act from when registrations open. If you do not register the organisation will cease to exist as an incorporated society after the transition period expires.

A big part of this revamp is bringing what was previously case law into the statute, which makes it more accessible.

It will require some rewriting of constitutions to ensure compliance with the Act, but there should be a variety of assistance available for this. Some of the changes will make setting up new societies easier – for instance the minimum number of members has dropped to 10 from the previous 15, but you will require a minimum of three officers. You also will no longer need (the often mislaid!) Common Seal.

You will now need an internal disputes procedure specified in the constitution and six broad officers’ duties are now specified in the Act.

Of particular importance for directors are those covering: “Not to create a substantial risk of serious loss to creditors” and “Not to incur an obligation the officer doesn’t reasonably believe the society can perform”.

There will also be new financial reporting standards based around the size of the organisation and new auditing requirements. The new Act describes a “small society” as one in which in each of the two preceding accounting periods, the total operating payments are less than $50,000 and the total current assets are less than $50,000.

 In this case only a basic financial statement, fitting the rules in the Act, which are fairly straight forward, will be required. Larger societies will have to meet GAP (generally accepted accounting practice as per the current Charities Act) requirements.

Auditing will be required if income exceeds a specified threshold that is still to be set, but which should be well above the small society level.

If you are a board member or officer of a Not-for-Profit entity you should research the implications of the Act for you and your entity and remember that ignoring it will ultimately lead to eventual loss of incorporated status. 
 

Cathy Parker is the director of Adrenalin Publishing, which owns Management magazine. She also sits on a number of boards.

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