20 November, 2012
NZ Institute of Chartered Accountants Not-for-profit Special Interest Group
AXA Centre, Wellington
Tēnā koutou, tēnā koutou, tēnā koutou katoa.
Good evening everyone. Thank you for inviting me to join you in your end of year celebrations. It is a pleasure to be here today and to have the opportunity to address you as the Minister for the Community and Voluntary Sector.
Let me start by acknowledging your Committee Chair, Nick Dixie, and other Committee members here today. I would also like to take this opportunity to thank you all for your support of the non-profit sector, and for providing a valuable discussion forum around the sector.
The non-profit sector is really important and produces benefits for all New Zealanders. It is a significant economic force, contributing 4.9 per cent to New Zealand’s GDP. At last count, there were 97,000 non-profit institutions, 90 per cent of which rely entirely on volunteers.
The latest General Social Survey results showed that around 65 per cent of New Zealanders volunteer their time for someone in another household each month. Around 1.2 million volunteers give more than 270 million hours of unpaid labour to the non-profit sector. Volunteers around the country are providing essential services and contribute to improved social cohesion and stronger communities.
The response to the earthquakes in Canterbury demonstrated this strength, as existing and newly-formed non-profit groups responded to the situation. A similar situation unfolded as thousands volunteered to help with the clean-up following the Rena shipping disaster in the Bay of Plenty, where thousands also volunteered.
As Minister I am looking to foster this generous culture through acknowledging and celebrating the hard work of volunteers and community organisations.
For example, the guide for Employer Supported Volunteering, released in September last year, helps public sector agencies to implement employer-supported volunteering programmes, with practical advice on how to develop programmes that fit with an agency’s culture, size, mission and objectives.
Supportive actions can range from employers providing flexi-time for staff to undertake private volunteering, through to highly integrated programmes that match an employer’s strategic goals.
Financial reporting of charities
I would like to acknowledge the contribution that accountants, including many of you here today, make to the non-profit sector. Your support for non-profit organisations in providing them with appropriate services and advice, for example with their accounts and audits, is extremely important. I am aware that much of this work is done on an unpaid, or low-paid, basis.
It is essential to the accounting profession, and to the quality of charities’ financial statements, that this work is performed to a high professional level, using generally accepted accounting practice.
As you will be aware, registered charities are required to submit an annual return to the Department of Internal Affairs’ Charities Group, and to attach a copy of financial statements, whether audited or not. However, there are no accounting standards to govern the preparation of those financial statements.
In general, there is room for improvement in the sector’s financial reporting.
Research by Dr Carolyn Cordery (who is present this evening) at the Victoria University of Wellington into charities’ financial reporting found that fewer than five per cent of charities produced reporting that could be classed as ‘good’ or ‘very good’.
This lack of transparency and clarity affects the credibility and financial viability of charities. Accountants have a large part to play in rectifying this situation, and helping charities to improve the way they present themselves.
Groups such as yours are extremely valuable in ensuring that members undertaking work on charities’ assurance reports are appropriately skilled and that there is an ongoing supply of members who are willing and able to carry out the work.
Financial auditing and assurance proposals
As you will be aware, last year the Government established the External Reporting Board. The XRB is working to set financial reporting standards for registered charities and any other non-profits required to prepare general purpose financial reports. This was partly in response to the problems I have just mentioned.
The XRB is planning to issue standards for registered charities with an annual operating expenditure of less than $2 million in 2013. The drafts of these standards will be issued in December. The deadline for submissions will be 28 June 2013. I ask that you share your thoughts on the draft via submissions.
The XRB’s work will impact on the Ministry of Business, Innovation, and Employment’s project on auditing and assurance proposals for larger registered charities. A Ministry discussion paper proposed that registered charities with operating expenditure of over $200,000 be required to have an audit or review, and those with expenditure of more than $300,000 be required to have an audit.
Public consultation was undertaken on the discussion paper’s proposals on the levels of assurance requirements for different registered charities. The period for public consultation closed on 20 July 2012, and MBIE has undertaken additional targeted consultation with government funding agencies, key charities, and accounting sector stakeholders.
Feedback on the proposals showed a general consensus that financial reporting for the sector needs significant improvement, but also that several issues require further consideration. In particular, the proposed thresholds of $200,000 and $300,000 were seen as too low. Many stakeholders that proposed higher amounts provided good evidence to support those submissions.
Because of these and other issues, and the need to take into account developments in the sector, the date for the Ministry’s report back to the Cabinet Economic Growth and Infrastructure Committee has been extended to June 2013. Accordingly, MBIE plans to issue a further discussion paper in the first quarter of 2013 outlining a revised set of proposals for auditing and assurance requirements for larger registered charities.
Government and Sector Relationships
The Government is working to improve its relationship with the community and voluntary sector.
The Kia Tūtahi Relationship Accord sets expectations for how the Government and community groups can work together more effectively. It also establishes a framework for this relationship.
The development of New Zealand’s welfare state post-1938 had a large role in shaping New Zealand’s robust non-profit sector. It led to close cooperation between the government and key non-profit organisations, and the sector has, in recent decades, drawn increasingly on government funding.
I have asked the Department of Internal Affairs to focus on improving efficiencies for community organisations by providing better access to grants, reducing compliance costs, and streamlining grant funding processes.
In October 2010 the then Minister for the Community and Voluntary Sector, Hon Tariana Turia, launched the Code of Funding Practice for government funders and non-profit organisations. It aims to encourage greater collaboration between the two parties as they enter into government-funding arrangements.
The Code constitutes seven core values or codes. They are mutual respect, the allowance for cultural context, transparency, open communication, flexibility and innovation, integrity, and accountability.
Streamlined contracting with NGOs
Most recently, MBIE is leading a cross-government project on reducing compliance standards for NGOs that receive funding from multiple government agencies, in order to streamline government contracting with NGOs. MBIE is due to report back to Cabinet on this in November 2013.
The work is aimed at creating a contract management framework that is suitable for bilateral and integrated contracting arrangements. This will also reduce duplication in compliance costs and contract management processes.
The framework will create performance measures that are linked to NGOs’ contributions to the Crown purchaser’s desired outcomes.
Seminars on the pilot project have been held recently in Christchurch, Auckland and Wellington by the Association of Non-Governmental Organisations of Aotearoa, which will provide MBIE with feedback as a basis for deciding whether the project will proceed further.
These are all projects that I consider to be essential in moving the non-profit sector forwards, and thereby strengthening the community and voluntary sector.
I thank you again for your commitment to the sector, and I look forward to working with many of you as these developments unfold.
I have appreciated meeting with you all today and wish you all a merry Christmas.
Nō reira, tēnā koutou, tēnā koutou, tēnā koutou katoa.